Highlights of the Meter Asset Provider Regulations, 2018

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Introduction

Electricity metering and attendant collection losses are prevalent in the Nigerian Power Sector (Sector). Despite the launch of the Credit Advance Payment for Metering Implementation in 2011 (CAPMI) 1, several metering/billing systems remain in use – most notoriously the estimated post-paid meter reading billing system and prepaid metering system.

Lack of Standardisation

The lack of uniformity in the metering system has caused huge collection losses and has adversely impacted the financial position of distribution companies (DisCos) in the Sector.
In a move to address the severe revenue shortfall being recorded by DisCos (arising mainly from the Aggregate Technical, Commercial and Collection (ATC&C) losses of the DisCos) 2, and to address the public outcry on the overcharging of end users for electricity under the estimated billing system, the Nigerian Electricity Regulatory Commission (NERC) issued the Meter Asset Provider Regulations (Regulations) on 8 March 2018, pursuant to the Electric Power Sector Reform Act, 2005. It is anticipated that the Regulations will, among other things:

(i) encourage the development of independent and competitive metering services;
(ii) eliminate estimated billing practices by DisCos;
(iii) attract private sector investors to the provision of metering services;
(iv) close the metering gap through an accelerated meter roll-out; and
(v) enhance revenue assurance.

The Regulations relieve the DisCos of metering services obligations by creating a group of new Sector entrants, who are to be known as Meter Asset Providers (MAPs). The MAPs are expected to operate the end user metering aspect of the value chain, such as the financing, procurement, installation, servicing/maintenance and replacement of metering equipment.

Procurement process and grant of a MAP Permi

Under the Regulations, all DisCos are required to engage the services of MAPs, to assist them in meeting their metering targets specified by the NERC. Appointment as a MAP is required to be by open and competitive bids from interested bidders. A MAP applicant must obtain a "No Objection" authorisation from the NERC before responding to any Expression of Interest from a DisCo 3.

Subsequently, each bidder is issued with a bidding document, which is to be prepared in accordance with the Metering Code and all other relevant regulations and orders of the NERC. Upon successful evaluation of the bids, applicants can then proceed to apply for the grant of a MAP Permit from the NERC. After procuring the MAP Permit, the successful MAP bidder will also need to submit a performance bond to the DisCo before entering into a Meter Service Agreement with the DisCo.

The first phase of the MAPs procurement process is expected to be completed within four months from 3 April 2018. The DisCos are required to publish information on successful applicants as well as monthly metering service charges and detailed meter roll-out plans. DisCos (and any related third parties of the DisCos) are expressly prohibited from being MAPs.

The transparency of the permitting process is an encouraging development for private sector investors. It not only paves the way for expediting the bridging of the metering gap in the Sector but also creates a separate value chain and an avenue for employment opportunities in the Sector.

Commercial Arrangement

Under the Regulations, there are two main agreements contemplated between the MAPs and the DisCos: the Metering Service Agreement and the Service Level Agreement. The Regulations provide a skeletal "term sheet" of these agreements and, from the templates, it would seem that the Metering Service Agreement is to provide (primarily) for the supply and installation of the meters, while the Service Level Agreement will provide (primarily) for the maintenance and periodic readings of the meters.

Under the terms provided for in the Meter Service Agreement, it is expected that the MAPs will recover the "Cost of the Meter Asset" (i.e. the cost of the meter, meter accessories and all associated costs of meter installation plus a return on investment), as well as a reasonable return, over a period of 10 years. Whether the cost projections in the Regulations will actually cover investment costs and risks to provide a MAP with a reasonable return on investment remains to be seen.

The day-to-day operations and obligations of the MAP (as regards its service to the end consumers) will be provided for in the Service Level Agreement.

Payment Security

DisCos are mandated to issue a payment security to the MAP within 30 days of entering into a Metering Security Agreement. The payment security may take the form of any payment security structure that is mutually agreed between the DisCo and the MAP. The DisCos are required to create a separate account for the collection of metering service charges, which will be used for the purpose of ensuring timely payments to MAPs.

Local content

MAPs are mandated to source a minimum of 30 per cent of contracted metering volumes from local meter manufacturing companies in Nigeria. While this percentage may appear insubstantial, it is perhaps reasonable when compared with the current number of meter manufacturing companies in Nigeria. We expect that this minimum percentage threshold will increase progressively as the Sector witnesses an increase and expansion of MAPs.

Conclusion

The introduction of the Regulations is indeed a welcome development in the Sector and should effectively remove the monopoly that has characterised the downstream metering and billing collection aspects of the Sector.

Dentons takes this opportunity to thank John Chibueze (formerly “Ukpaka”), of the Energy & Project Finance Department Adepetun Caxton-Martins Agbor & Segun for his contribution to this month’s newsletter.


1 The CAPMI is a scheme designed by the NERC, which allows for any interested and willing customer to advance money to its DisCo for the purchase of a meter, and in return the customer will be given electricity credit until the cost of the meter has been fully recovered by the customer.

2 Aggregation of the technical, commercial and collection losses encountered in the utility business; methodology for assessing overall performance of a utility.

3 The request for an Expression of Interest by a DisCo must be published in at least two Nigerian newspapers and on the DisCo's website

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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