FBNQuest Unveils Investment Partners To Bridge $1billion Prepaid Meter Roll-out Gap

FBNQuest Merchant Bank has announced investment partnership with New Hampshire and Kairos Investments Africa 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.

BIGPEN reports the development is tailored to enhance the Federal Government moves to bridge the huge metering gap of more than eight million electricity consumers that are not metered by the electricity distribution companies (DisCos).

This comes on backdrop of situation where unmetered electricity consumers are subjected to indiscriminate and unfair estimated billing, a perennial problem which 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 recently commenced moves 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 overall reduction in collection and commercial losses in the electricity distribution sector.

ALSO READ: ‘We’re Ending Estimated Billing Regime With Our Mass Metering Initiative’ – Buhari

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

According to a press release circulated by the African Media Agency, to attract private investment into the metering sector which would require about US$1billion, 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.

ALSO READ: President Buhari Halts Estimated Billing, Orders Nationwide Mass Metering

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 proposed deal, 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 provide smart metering solutions to Discos and their consumers using the Meter-as-a-Service (MaaS) business model”.

ALSO READ: Power Sector: FG To Break Discos Monopoly On Power Distribution

Commenting on the SPV, Oluseun Olatidoye, the Head, Capital Markets of FBNQuest Merchant Bank stated, “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, “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”.

In the same vein, Bukola Bankole, Partner, The New Practice (TNP) stated, “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.”