Nigeria’s second-largest power distributor sells 60% stake

From the newsletter
Transgrid Enerco Limited has signed a Share Purchase Agreement (SPA) to acquire a 60% equity stake in Eko Electricity Distribution Company (EKEDC). The deal, valued at over $200 million, aims to give Transgrid Enerco the control necessary to implement more efficient revenue collection mechanisms.

• Transgrid Enerco Limited is a strategic consortium comprising North South Power Company Limited (NSP), Axxela Limited, and the Stanbic IBTC Infrastructure Growth Fund (SIIF).

• EKO Disco is one of the best-performing discos in Nigeria, with a collection efficiency of approximately 85%, exceeding the average for all discos. It also has a higher metering rate of 63%, surpassing the 46% average. The lack of meters is costing Nigeria Discos billions in annual revenue.

More details

• Nigeria's power sector is among the worst performing in Africa. Of the approximately 12GW of installed capacity, only 5GW is available. At the same time, electricity distribution companies (DisCos) suffer huge losses in terms of electricity revenue collection, roughly collecting only 75% of the electricity billed.  

• The problem of poor revenue collection is linked to Nigeria's low uptake of electricity meters by its customers. With roughly 46% of customers metered, DisCos rely heavily on individual customers to pay for electricity consumed. Consumers are arranged in bands based on the estimated hours of electricity they receive and are given approximate bills to pay.

• In Africa, many countries suffer from poor revenue collection due to technical and operational losses. Nigeria has among the highest, at 39%, while Kenya's is about 23% and South Africa's is about 11%. This severely impacts operations. Connecting customers to digital meters, though not smart meters, can help reduce some theft losses, but Nigeria is currently not pursuing that.    

• However, other countries like Kenya are working to install smart meters. Kenya Power has targeted the industrial and commercial segment and has so far installed over 67,000 smart meters, which have helped save over $2.7 million. In Mali, the installation of 20,000 smart meters has contributed to a 20% reduction in electricity losses. A similar project in Burundi, involving the deployment of 30,000 smart meters, aims to achieve a 22% reduction in energy losses.

• While smart meters offer the potential to reduce energy losses, their high upfront cost presents a barrier to widespread adoption, especially for loss-making African utility companies.

• A tiered approach, based on electricity access rates, could be beneficial. Countries with low electricity access rates could focus on digital meters as a first step. Although less sophisticated than smart meters, digital meters still offer improvements over traditional analogue meters, providing more accurate readings, reducing billing errors, and improving revenue collection.

• Countries with higher electrification rates, more developed infrastructure and greater financial resources, are better positioned to gradually incorporate smart meters into their grids.

Our take

• The decision to adopt smart meters should be made on a case-by-case basis, considering each country's unique circumstances. Countries with high electrification rates can prioritise improving efficiency to enhance service delivery. However,  in countries with low electricity access,  cost can be a significant barrier.  In such cases, digital prepayment meters offer a practical interim solution before eventual smart meter upgrades.

• Prioritising smart meter implementation should begin with the commercial and industrial sectors, followed by high-consumption residential customers. These groups have the highest electricity usage, and inefficient monitoring can result in huge revenue losses.

• To facilitate smart meter adoption,  investors can explore partnerships with utility companies, financing the rollout and gradually recouping their investment through customer billing. This can alleviate the financial strain on utilities and improve their revenue collection processes.