FBNQuest To Establish National Meter Asset Finance, Management Scheme for Electricity Meter Roll-out in Nigeria

FBNQuest Merchant Bank and Kairos Investments Africa have announced plans for a national meter asset finance and management SPV (“MAPCo”) that would attract long term financing for the mass roll-out of prepaid smart meters to millions of electricity consumers in Nigeria who currently are not metered by the electricity distribution companies (DisCos).

Nigeria’s power sector suffers from a huge metering gap with more than eight million electricity consumers without electricity meters. Unmetered electricity consumers continue to be subjected to indiscriminate and unfair estimated billing, a perennial problem that has persisted since the electricity supply industry was privatized by the Nigerian government in 2013.

As part of the strategies to improve the power sector, the Nigerian government under President Muhammadu Buhari wants to ensure that the 8 million metering gap is closed within a two-year period.

Closing the metering gap in the power sector will improve revenue collection by DisCos, improve consumer satisfaction, and lead to an overall reduction in the collection and commercial losses in the electricity distribution sector. Closing the metering gap will bring increased transparency to revenue collection by DisCos and is the first step towards a total phase-out of electricity subsidies.

However, financing the metering gap will require about US$1billion. To attract private investment into the metering sector, the Nigerian electricity regulator issued the Meter Asset Provider (MAP) regulation in 2018. The MAP regulation licenses private investors as Meter Asset Providers (MAP) to provide prepaid smart meters and other metering services to electricity consumers.

Under the MAP regulation, the cost of providing prepaid meters have been unbundled from retail electricity tariffs. To get a prepaid meter, an electricity consumer can either pay the full cost of the meter out-rightly or can opt to pay a fixed monthly meter service charge over a 10-year period, to cover the cost of the meter and on-going provision of metering services by the MAP.

The MAP regulation has enabled a bankable structure to raise the required financing to close the metering gap. Since the full implementation of the MAP regulation in 2019, more than a quarter of a million prepaid meters have been financed by MAPs, despite a number of fiscal constraints that have hindered the implementation, such as the introduction of a 35% import levy on prepaid meters.

To fast-track the mass roll-out of prepaid meters, the Buhari administration recently granted a one-year waiver of the 35% import levy. In addition, the government is making financing available through the Nigerian Central Bank to local meter manufacturers and MAPs for bulk procurement of prepaid meters.

MAPCo intends to bridge the huge metering gap in the Nigerian power sector by providing liquidity to Meter Asset Providers (MAP) under a securitization structure.

MAPCo will enter into finance and purchase agreements with MAPs and DisCos to purchase their prepaid meter assets, and subsequently offer the receivables from these meter assets to the Capital Markets.

MAPCo will be established as a special purpose PPP vehicle, with the principal objective of raising long-term equity and debt funding from both domestic and foreign capital markets to purchase the meter assets from MAPs. In other words, MAPCo will re-finance the MAPs.

The SPV will however be driven by substantial private sector participation consisting of a mix of institutional investors such as private equity investors, insurance companies, Pension funds administrators, willing electricity distribution utilities, and international financial institutions. The Nigerian government may co-invest in the vehicle through either the Central Bank of Nigeria, the Ministry of Power, or the Ministry of Finance.

Commenting on the MAPCo SPV, Odion Omonfoman, the chief executive officer of New Hampshire Capital said “MAPCo is proposed to be a key component of the Nigeria Power Sector Recovery Program (PSRP) to put the power sector on the path of sustainability and improved electricity services to Nigerians. The SPV will support the mass roll-out prepaid meters to unmetered electricity consumers and also enable MAPs to provide smart metering solutions to Discos and their consumers using the Meter-as-a-Service (MaaS) business model”.

Commenting on the SPV, Oluseun Olatidoye, the Head, Capital Markets of FBNQuest Merchant Bank stated that “the MAPCo SPV will enhance the long term viability of Nigeria’s power sector by leveraging on the depth of the Nigerian capital markets and offer investors unique access to long term investment opportunities through securitization of future receivables backed by the prepaid meter assets. FBNQuest is delighted to be one of the sponsors of this very important SPV in the power sector.”

Ewaen Imohe, CEO of Kairos Investments Africa noted that “the SPV will create and issue financial securities that are backed by prepaid meter assets in the power sector.

Given the stable and long useful life of the underlying pool of prepaid meter assets backing the financial securities, we anticipate that there will be a lot of interest from long-term investors looking to diversify their investment portfolios. We are proud to be partnering with New Hampshire and FBNQuest on this very important initiative”.

Commenting, Bukola Bankole, Partner, The New Practice (TNP) stated that “TNP is excited to advise on this landmark transaction, which will create a new asset class in the Nigerian capital markets. A financing option such as this is a much-needed catalyst to fast track meter rollout nationwide.

MAPs can now channel effort and focus to the rudiments of actual meter rollout relying on MAPCo to aggregate receivables and provide cheaper long-term funding – this is a clear value proposition to the ecosystem. We certainly look forward to leveraging our global reach to support this transaction.”