The Revolt of Nigeria’s Electricity DISCOs on Smart Meter Disintermediation

The Revolt of Nigeria’s Electricity DISCOs on Smart Meter Disintermediation

Few days ago, I noted that Nigeria may not have adequate electricity in a long time partly because of the mini-energy entrepreneurs which have mushroomed across the nation [a very commendable thing in our energy sector for everyone except the DISCOs]. Yes, as we pursue this decentralization in the delivery of electricity across the nation, the people who typically finance large scale electricity projects will run away. It is an irony indeed: you want everyone to produce his/her electricity but that ends up sending clear signals to investors that the mission is lost, as no one can count on scale, to make money.

Besides, it is very clear in Nigeria that the best electricity customers are already out of the national grid. So, who do you expect (grid) electricity investors to finance production for? Simply, electricity is a special product in a developing nation like Nigeria. That is why a distribution company (DISCO) will choose to provide services to 2,000 homes even though one factory nearby can absorb all the energy and pay higher premium on top. Technically, you cannot serve your “best” customer [someone who is ready to pay highest fee] based on pure monetary revenue due to regulation which also gives you quasi exclusivity in the region. It is far logistically easier for DISCOs to send all the power generated in Lagos to top 30 firms in Lagos instead of working to serve hundreds of thousands of households. But they cannot because electricity is not an ordinary product!

Yet, the factories have moved on, leaving the DISCOs with challenging customer base. That creates paralysis where investors do not see who can pay for that light, even after being generated, transmitted and distributed, especially in a situation where electricity tariff is below market rate. This is at the heart why many of the DISCOs have struggled to raise capital.

privatize power Nigeria
Mr. B. Fashola, Nigeria’s minister supervising electricity sector

Few months ago, the government inaugurated MAP (Meter Asset Provider) making it possible for entrepreneurs and third parties to provide meters in Nigeria. The DISCOs have digested the implications and are now pushing back, noting that government will have to deal with providing meters to Nigerian households: “responsibility to supply meters to electricity consumers was no more the business of the DISCOs.’

The Minister of Power, Works and Housing, Babatunde Fashola, on Monday reminded electricity distribution companies (DISCOs) that despite government’s intervention to help bridge the metering gap in the country, the responsibility to supply meters to electricity consumers remained their contractual obligation.

On Saturday, the Executive Director, Research & Advocacy, Association of Nigerian Electricity Distributors (ANED), Sunday Oduntan, said the “responsibility to supply meters to electricity consumers was no more the business of the DISCOs.’

Mr Oduntan, who featured on “Sunrise”, a Channels TV Weekend programme, said consumers should henceforth hold NERC and the Ministry of Power responsible.

“From now on, metering of consumers is no more our (DISCOs) business, according to the Federal Minister of Power. Metering is now government business. They call it MAP regulation.

“When talking about metering, stop asking Mr Oduntan (DISCOs). Direct your questions to NERC and Ministry of Power. They are now in charge of metering. Nigerians should understand that metering is no more our primary business,” Mr Oduntan said.

Metering Disintermediation

If you read the full interview by Mr Oduntan, it is very clear that DISCOs are not happy that government is bringing in mini-entrepreneurs.  Simply, if mini-entrepreneurs can produce meters, the value from scale will go. They do not see the value in investing in providing meters because it has been liberalized. With this government policy which took off in March, the cost of meter will drop as the DISCOs do not have exclusivity anymore.

He said the policy was also to relieve the DISCOs of the financial burden of supplying meters to consumers, by allowing the entrepreneurs to take up meter supplying as a business and diversify the sources of meter supply.

Also, there is another part of that argument: government did not even know the meter requirements (by volume) in 2013 before signing the agreements with DISCOs. Technically, DISCOs have to do more and government has a role to help them make up the numbers.

Mr Oduntan said on handing over the power plants in 2013, government asked the DISCOs to provide only 1.7 million meters to customers, only to find out later that the figure was as high as 4.1 million.

Despite the huge 2.4 million gap, he said the DISCOs have managed to supply over 88 per cent of the volume of meters to consumers.

All Together

The electricity challenge in Nigeria is very complicated. A solution to deal with one issue will trigger pushback from another interest. It will take a serious intervention from leadership to resolve these issues. Without fixing them, we will only make marginal progress in this sector. The power of interest is very high; government may consider total and full deregulation even if it means returning the money DISCOs paid as part of the privatization.

The DISCOs are concerned because if these entrepreneurs have access to meters, DISCOs as we know them have been completely disintermediated. The reason DISCOs are relevant today in some places is because third parties cannot install meters. But with MAP, that has been fixed, making it easier that anyone can produce, transmit and distribute power in communities. And by the time the entrepreneurs are done, DISCOs will have no business.


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