FBNQuest Merchant Bank partners firm to finance prepayment electricity meters

*The MAPCo SPV will enhance the long-term viability of Nigeria’s power sector by leveraging the depth of Nigerian capital markets and offer investors unique access to long-term investment opportunities ─Oluseun Olatidoye, Head of Capital Markets, FBNQuest

Isola Moses | ConsumerConnect

In an effort at enhancing the production and distribution of prepayment electricity meters to unmetered power consumers, FBNQuest Merchant Bank and Kairos Investments Africa have announced plans for a national meter asset finance and management SPV that would attract long-term financing for the mass roll-out of prepaid smart meters to millions of consumers in Nigeria.

ConsumerConnect reports 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, which is regarded as a perennial problem in the economy.

The estimated billing system has persisted since the electricity supply industry was privatised by the Nigerian Government in 2013.

However, as part of the strategies to improve the power sector of the country’s economy, the Federal Government under President Muhammadu Buhari has stated its desire to ensure that the 8 million metering gap is closed within a two-year period.

According to the government, closing the metering gap in the power sector will improve revenue collection by the 11 Electricity Distribution Companies (DisCos), improve consumer satisfaction and lead to overall reduction in collection and commercial losses in the electricity distribution sector.

It also will bring increased transparency to revenue collection by DisCos and is the first step towards a total phase out of electricity subsidies.

Yet, financing the metering gap will require about $1billion, and 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 prepayment smart meters and other metering services to electricity consumers. Under the MAP regulation, the cost of providing prepaid meters has been unbundled from retail electricity tariffs.

Thus, to get a prepayment meter, an electricity consumer can either pay the full cost of the meter outrightly, or can opt to pay a fixed monthly meter service charge over a 10-year period, to cover the cost of the meter and ongoing 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 prepayment meters.

But in order to fast-track the mass roll-out of prepayment electricity meters, President Buhari’s administration recently granted a one-year waiver of the 35% import levy. In addition, the government is making financing available through the Central Bank of Nigeria (CBN) to local meter manufacturers and MAPs for bulk procurement of prepayment meters.

MAPCo intends to bridge the huge metering gap in the Nigerian power sector by providing liquidity to Meter Asset Providers (MAP) under a securitisation 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, however, will 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, Budget and National Planning.

Oluseun Olatidoye, Head of Capital Markets of FBNQuest Merchant Bank, commenting on the SPV, said 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 securitisation 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, Chief Executive Officer (CEO) of Kairos Investments Africa, also 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.”