The Nigerian story of expensive electricity bills
Electricity illustration.  Source: Stears Business.

Derin was excited. After months of searching, the young software engineer had found a 3-bedroom duplex in Maryland, Lagos. He and his flatmate spent all of February renovating the place - painting, fixing tiles, fumigating, changing the locks and so on. 

By the end of February, the only appliances that he moved into the house were light bulbs and two rechargeable standing fans. 

Yet, he was presented with an electricity bill of ₦60,000. His new neighbours- a family of five occupying a smaller house, got charged ₦33,000, even though they had air conditioners, kitchen appliances, televisions and other gadgets. 

Derin is contesting the fee; it doesn’t seem like he has any choice but to pay it. 

Many Nigerians can relate to Derin’s story. Estimated or “crazy billing” - is a practice that has infuriated people for years, because the country cannot provide meters to measure individual power usage.

The problem does not spare the elite either. Former Minister of Communication, Omobola Johnson, tweeted her shock when she received her office’s April electricity bill of ₦29,000, despite not receiving any power for the month. 

Most Nigerians receive electricity charges that do not reflect the power they consumed. More than half of all complaints received by electricity distribution companies in 2019 were related to billing and metering. 

Ideally, charges should be according to the measure of electricity used. But who says we always follow logic in Nigeria?

Instead, companies estimate charges according to the residential area, the number of similar buildings served by their transformer and the amount of electricity supplied to that transformer, among other factors. The Nigerian Electricity Regulatory Commission (NERC) reported that 62% of consumers are invoiced based on estimated billing. 

Consider a practical example. Assume there are only two unmetered houses in your neighbourhood served by a single transformer. And let’s say you have been away from home for a month. While you are away, your neighbour consumes electricity worth ₦40,000, but you consume nothing as you weren’t home. 

Based on the estimation method, you and your neighbour would each receive an estimated bill of ₦20,000 because both houses are unmetered - there is no way to determine how much electricity each house consumed. 

While this is great for your neighbour, you, on the other hand, feel cheated. This is estimated billing in a nutshell, and is what millions of Nigerians experience. 

 

Why can’t we all have meters?

For many years, the state-owned National Electric Power Authority (NEPA) and its successor, Power Holding Company of Nigeria (PHCN), supplied electricity. During this time, they saw electricity as more of a welfare service than a business. 

This meant that the power providers did not pay enough attention to metering consumers and stopping energy theft - a practice where people illegally bypass the electricity meter for a building. 

As a result, many electricity consumers either had outdated meters or no meters at all. 

Today, the unbundling of NEPA has brought to life- the Transmission Company of Nigeria (TCN), six power generating companies (gencos) and 11 electricity distribution companies (discos). 

 

Preparation for repairs

Source: Power Africa via Flickr

 

In 2013, the Federal Government (FG) sold its majority ownership of the discos to private investors. As part of the sale, they expected private investors to provide meters for all customers by 2018. But the due diligence performed by some of the investors seems to have been inadequate. 

For example, before the sale of the discos, the investors believed there were roughly four million unmetered consumers. “That figure was closer to 12 million,” George Etomi, a director at Eko Electricity Distribution Company (EKEDC) told CNBC in January. 

The investors also realised that the state of the electricity distribution infrastructure was worse than initially envisaged. 

Another problem the discos found was that customers were not paying for the electricity they consumed. Many who receive estimated bills refused to pay, and others still believe their green passport entitles them to free light

Discos received only 70% of invoices billed to customers in 2019. Even the Nigerian government is culpable. The ministries, departments and agencies of the FG owe over ₦100 billion in electricity bills.

So because consumers aren’t paying for electricity provided, discos have not been able to pay power generating companies. As at the last quarter of 2019, discos had settled less than 40% of their debts to the power providers. 

It is important to remember that discos are only distributors of electric power - they do not produce any. They have to pay the generation companies and other players for the electricity they’ve received and distributed to people. 

Due to the low revenue collection and the low estimate for the number of unmetered customers, the discos have been unable to purchase meters for their customers. 

It all sounds like a mess, but the problem doesn't stop there. 

 

Impact on the electricity sector

Nigeria, with a population of roughly 200 million people, has a power generation capacity of about 10,000 Megawatts. South Africa, with 60 million people, generates over 51,000 Megawatts (MW). 

In 2018, the Association of Nigerian Electricity Distributors estimated that we needed 180,000 MW of power to achieve stable power supply. 

To fill this gap, Nigeria needs private investors to add to our generating capacity. The problem is lenders and entrepreneurs alike need to view the industry as an attractive moneymaker to invest in it. Right now, that is not the case. What business person invests in a venture where a significant portion of customers do not pay? 

Michael*, an industry insider at one of the discos, explained that the major reason for the low revenue collection is that consumers on estimated bills often contest their charges. So, why don’t the discos disconnect these defaulting customers?

“There are many parts of Nigeria where it is not safe for disco staff to disconnect the electricity cables. There are too many stories of assault on our staff in these communities. Sometimes, we disconnect the electricity cables, but the community members reconnect it once our staff leaves,” Michael tells me. 

 

Distribution line repairs 

Source: Power Africa via Flickr

 

Pre-paid meters is the solution. With these, discos would receive payment before people use the electricity. 

Arguably, the most practical measure to make the industry more attractive involves metering all consumers. 

This problem is not solely Nigerian. India’s electricity distribution companies are grappling with a near photocopy of our challenges. 

Its government is yet to sell off all its discos to private investors. The discos that are still state-run suffer from higher revenue losses as a result of inefficient revenue collection. The Indian electricity sector also suffers from archaic power transmission infrastructure and power thefts. 

However, the world’s second-most populous country recently announced plans to spend $21 billion to provide meters for its population. Efforts to solve the metering crisis in Nigeria have been less audacious. 

 

Attempts made so far

In May 2013, the FG came up with the Credited Advanced Payment for Metering Implementation (CAPMI) program in response to massive complaints by Nigerians about estimated billing. 

Under CAPMI, a consumer had to pay in advance for a meter and get it installed within 45 days of payment. 

The result was not as intended. In reality, consumers paid in advance for the meters, but they never came, a situation then-Minister of Power, Works and Housing, Babatunde Fashola likened to advance fee fraud. With under 500,000 meters supplied in three years and three million yet-to-be metered customers, the government scrapped CAPMI in 2016.

Two years later, they introduced the Meter Asset Provider (MAP) scheme.

The MAP scheme created a new set of players in the industry - Meter Asset Providers (MAPs). These companies were given the responsibility to provide meters for all.

Under the scheme, the MAPs, who have less debt burden on their books, procure and supply meters to consumers. 

However, many say that the process is too slow. The MAPs complain of the high logistic overhead in metering consumers in the nooks and crannies of Nigeria. 

Also, many consumers struggle to afford the roughly ₦70,000 required to buy a three-phase meter. The recent increase in the price of meters and the hike in the import duty on imported meters will not help the situation.

Interestingly, some allege that discos are not in a hurry to end estimated billing as it is a way to pass on the costs of inefficiencies in the electricity sector to consumers.  But the regulator still expects all consumers to be metered by December 2021. The most recent NERC report states that about 6.5 million customers are yet to be metered. 

Less than four million consumers have been metered within the past ten years. Therefore, it is unlikely that we would meet that target within the next 18 months unless we see an audacious effort like that of India. That would require billions, though - a luxury Nigeria doesn’t currently have. 

 

*Name changed to protect identity.
 

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Osato Guobadia

Osato Guobadia

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