A. INDUSTRY HIGHLIGHTS AND GLOBAL TRENDS
Oil and Gas
- NCDMB, NLNG sign $1bn Train 7 Project Nigerian Content Plan
- NNPC begins first phase of rehabilitation of Port Harcourt Refinery
- NPSC to deploy technologies for oil pipeline monitoring across Nigeria
- FG to sell stakes in Joint Ventures with IOCs to boost revenue
- Nigeria's crude oil export threatened by India's reduction of imports from Nigeria
- NNPC confident of meeting the 2019 budget production target of 2.3 million bpd
- Nigeria, Sao Tome, Principe and Total E&P sign oil PSC
- Presidency revokes OML11 from Shell, transfers ownership to NNPC
- Seplat expects two oil wells to come on stream in Q2, 2019
- U.S. cuts Nigerian crude imports by 43%
- NNPC to build IPPs in Abuja, Kaduna and Kano; fertilizer plant in Bayelsa State
- Electricity meter manufacturers begin to import equipment for MAP programme
- Themis and Kingline partner on 550MW gas powered project
- BPE receives 5 bids for Yola DisCo, Afam GenCo
- Abuja DisCo has highest number of metered customers - NBS
- NERC approves 121 metering ﬁrms for MAP programme
- NESI hits bankruptcy as ﬁnancial crisis hits N4trn
- University of Nigeria, Nsukka sets record of 100kva waste to power project
- Nigerian Breweries pioneers 1st African solar powered brewery
- FG completes concession process for Guarara hydro power plant
- U.K. provides support for waste to power projects in Nigeria
- Zola Electric announces expansion into Nigerian market
- FG begins ﬁeld level implementation of the Ogoni clean-up exercise
- Presidency declines assent to NOSDRA amendment bill
- Green Climate Fund approves Nigeria's $100million solar programme
Oil and Gas
- U.S. to lead oil supply growth in next 5 years - International Energy Agency
- Tanzania to start talks for $30bn LNG project
- Aker Energy announces successful drilling results offshore Ghana
- Vietnam set to invest in $7.8bn gas-powered Project
- U.S $567.7 million Isimba hydro power dam commissioned in Uganda
- U.S and India commit to building six nuclear power plants
- UK government augment funding for African energy projects
- China plans to put solar power station in space by 2050
- BP explores buying solar energy to power operations in U.S
- 50MW solar park in Florida commissioned by the Walt Disney Company
- Investment of $2.2million for solar projects in Kenya
- Kenya’s KenGen to commission Geothermal Power Plant in June
- Equinor ASA records 50% improvement in renewable energy generation year-on-year in Norway
- Dubai’s largest solar park installs battery storage facility
- Global climate protest cause students around the world to skip classes
- Tropical Cyclone Idai rocks Mozambique affects more than 2 million people
- Atlantic Canada clean energy collaboration receives $2 million federal investment
- Democrats are calling for “Green New Deal” to transform the U.S. econom
B. INDUSTRY RISK REVIEW SNAPSHOT
C. INDUSTRY FOCUS ANALYSIS
POWER SECTOR: CONTRACTUAL CONSIDERATIONS UNDER THE NERC METER ASSET PROVIDERS REGULATION (2018)
The Meter Asset Providers Regulation, 2018 sets out the guidelines for the operations of the Meter Asset Providers (MAP) and Distribution companies (DisCos) towards the provision of electricity meters to customers in the Nigerian Electricity Supply Industry (NESI). This arrangement was borne out of the need to close the wide metering gap in the NESI through third-party funding for the entire metering value chain. The metering gap was caused by the inability of DisCos to meet their metering obligations under their Performance Agreements with the Federal Government due to CAPEX restrictions in the Multi-Year Tariff Order (MYTO).
Under this retail metering arrangement, the MAP will be responsible for the financing, procurement, supply, installation, repairs and maintenance of the meters. The DisCos will be responsible for the provision of payment security and the payment structure for the disbursement of the aggregated metering service charge paid by all customers metered under the arrangement. It will also provide a detailed meter roll-out plan to the MAP.
The Regulation, therefore, creates a contractual structure between the parties which will have certain implications on the business operations of the DisCos and the incoming MAPs. Their commercial relationship is to be governed by the Meter Services Agreement (MSA), a draft template of which has been released by NERC and adapted by some DisCos, while a few others are in the process of renegotiating the terms of their MSAs with the respective MAPs. In this report, we analyze the challenges and prospects of certain provisions of the MSA on the business operations of the MAP, from a commercial perspective.
1. The Metering Service Charge
The metering service charge is the periodic payment made by the customers for the metering services provided by the MAP. The charge will cover the costs of the meter in addition to the operation and maintenance costs. This way, customers pay for only their metering services; the metering service charge will be clearly separate from the energy charge. The metering charge will be based on the project management plan submitted by the MAP to the DisCo which must be approved by NERC.
An overall analysis of the Regulation and the draft MSA reveals that the metering charge may be largely unregulated and left to the result of the procurement process between the parties. This entails that the tariffs for metered customers under the MAP arrangement may be slightly higher than those metered by the DisCos. This invariably portrays that there may be separate customer tariff regimes in the NESI - the MYTO tariff for non-MAP metered customers and the MAP tariff. It should be borne in mind that the approval required by NERC for the metering charge may introduce some form of tariff regulation into the MAP arrangement. Depending on the agreed structure, the tariff regimes may be largely or slightly different. Where the metering service charge is not fully regulated, this will be a step in the right direction for the MAPs through the provision of assurance of reasonable return of investment at a cost-reflective rate.
2. Forfeiture of revenue due to non-repair of faulty meter assets
The Agreement provides for a forfeiture of the metering service charge (the revenue due to the MAP) for a billing period if the MAP does not repair a customer’s faulty meter after a two-day notification period. Where the delay is prolonged, the MAP will pay a compensation fee to the DisCos. While this is a laudable provision which seeks to institute the much-needed efficiency culture within the distribution segment, the practicality of this provision is doubtful given the current operational challenges faced even by the DisCos in resolving customer complaints.
However, since the meter roll-out plan in the MSA will be scheduled to occur progressively across the DisCos’ franchise areas, it is expected that this would enable the MAP gradually increase its operational capacity in terms of staff strength and swift response to maintenance complaints. The MAP, therefore, must be prepared to undertake widespread deployment of offices and staff across the DisCos’ franchise area to forestall a loss of revenue arising from a breach of contract.
More so, it is recommended that a more realistic timeframe for complaints resolution be granted to the MAP if repairs cannot be made within 2 days. A 2-5-day cure period should be provided for by NERC in order to cater to the challenges typically encountered by service providers. This would provide a safer operating business environment for the MAPs and ensure that unrealistic targets do not hamper the progress of the programme.
3. DisCos’ default payment for prolonged service outage
It is also understandable that the Agreement seeks to ensure back to back provisions for the default of parties in service delivery. In this regard, the DisCo will pay the MAP for the metering service charge due from customers who experience prolonged power outage exceeding two weeks. Thus, while the MAP will be liable for non-repairs of faulty meters, the DisCos will be liable for non-supply of power which may have resulted in improper computing of the metering service charge for the billing period. A plausible reason for this strict requirement is that the removal of the metering obligation from the DisCos would allow for increased investment in the distribution networks.
Upon the occurrence of this default, the payment security which is to be granted by the DisCos will be activated by the MAP to supplement the unpaid metering charge arising from the DisCos’ default of resolving prolonged power outages. While this is a comforting clause to the MAPs, the DisCos may also incur losses on events of default. If amendments are made as recommended in the preceding item, similar amendments extending the 2-week timeframe should be made for the DisCos as well especially in instances where such outages are outside the control of the DisCos.
4. Relocation of metered customers
The Agreement provides that the meters belong to the MAP until amortized by the payment of the metering service charge through the useful life of the meters. Where the customer has been metered by the MAP and relocates thereafter, there should be a reconciliation of the past service charge receipts between the DisCo, MAP and the customer, where the customer relocates to another area within the DisCo’s franchise area. A reconciliation scheme of past and new metering service charge receipts for each customer is pertinent for the protection of the interests of all parties.
5. Other key clauses
The metering service charge paid by all customers will be immediately ring-fenced into a separate account owned by the MAP. The MAP will have access to viewing rights to the vending platform of the DisCos for the meter assets installed under the MAP arrangement. The DisCo will also be granted a line of sight into the dedicated account for the purpose of reconciliation. This gives both parties matching rights to carry out checks and balances on the account to prevent disputes regarding the revenue due to each party.
It operates to protect the metering charge due to the MAPs from being mopped up by the DisCos and the energy charge from being taken by the MAPs. These account reconciliation guidelines also serve to increase the MAP’s appetite for investment and the DisCos’ cooperation with the programme. Given that the DisCos have pending liens on their bank accounts, the provisions on ring-fencing of the charge and complementary viewing rights are commendable to guarantee security of revenue.
However, the draft MSA does not provide for measures to curb non-compliance of parties where a party refuses to grant or inhibits the viewing rights of the other party. It is expected that events of non-compliance by the parties with these clauses will be sufficiently captured in the actual MSA executed by the parties with a view to protecting each party from adverse events.
B. The payment structure is to be maintained until full amortization of the cost of meter assets throughout its useful life. This guarantees security of investment to the MAP for the term of the Agreement.
C. Where customers make irregular or bulk purchase of energy credits, the DisCo may create a variance account for leveling the amounts due to the MAP. This captures the nuances of real-time vending by customers and seeks to protect the MAP’s interests even under such circumstances.
The critical issues which the MAPs may face are in relation to the cost-reflectiveness of the metering service charge, transparent modalities for the receipt of the metering charge from the DisCos, and MAPs’ forfeiture of metering charge upon default.
Strong reviews and discussions must be had by the MAPs and the DisCos in conjunction with NERC in order to sort out the grey areas stated above and ensure the smooth implementation of the programme. It is certain that a clear trajectory is required on the profitability of the programme and elimination of regulatory barriers through the enforcement of metering service charges reflective of cost and realistic performance indicators.