African utilities are at a pivotal moment as booming population growth and rapid economic development pushes them into building greater capacity while also transitioning to a clean energy future, writes HANNES VENTER, Industry Value Advisor: Utilities at SAP Africa
No company can survive a consistent loss in revenue. When companies fail to collect the revenue owed for services rendered, it puts pressure on their cash flow that could leave them unable to cover their operational costs, struggle to grow, and even enter into decline.
This is proving abundantly clear in the African utilities sector, where non-payment, consumption-based fraud, illegal connections and other factors are costing billions in lost revenue.
Power utility Eskom recently revealed that more than half of the electricity purchased by South African municipalities is lost to illegal connections and non-payment.
This has led to a R51-billion debt by municipalities, adding to Eskom’s significant R400-billion debt burden and hampering the utility’s plans to build additional capacity or its transition to renewable energy.
In East Africa, Kenya Power has investigated cases of fraud in its post-paid billing system, citing billions in lost revenue.
This issue is prevalent in the utilities sector of other regions too. A 2017 study estimated that electricity theft and non-technical losses cost the global utilities sector $96-billion per year.
This places enormous pressure on utilities and hampers efforts to improve service delivery to customers, adopt new, more sustainable forms of energy, and scale into new markets.
Revenue assurance mitigates fraud, reduces losses
In the utilities sector, several factors contribute to lost revenue, including faulty metering, inaccurate billing, ineffective revenue collection, consumption-based fraud, leaks, and issues with incorrect customer accounts and contracts.
As the sector shifts to meet the utility needs of a growing population – Africa’s population is expected to nearly double to almost 2.5 billion people by 2050 – and pressure grows to move to more sustainable, less carbon-intensive forms of energy, maintaining high levels of revenue collection will be critical.
A vital component of optimal revenue collection is the practice of revenue assurance.
Revenue assurance is a way of increasing an organisation’s income by identifying areas where revenue is lost, and minimising such losses by fixing the cause of lost revenue.
One global study found that it takes an organisation twelve months to detect a typical fraud case, with the average annual loss across industries amounting to $1.8-million. In fact, an estimated 5% of revenue is lost to fraud every year.
In response, organisations need to leverage the power of technology to improve fraud detection, risk mitigation and fraud prevention capabilities.
Using a revenue assurance tool is one way for utilities to detect anomalies earlier. This can help them reduce financial loss, improve the accuracy of detection at a lower cost, and improve their ability to predict and prevent future occurrences of revenue leakage.
Leveraging tech to improve revenue collection
A growing number of utilities are using tools such as SAP Business Integrity Screening in combination with SAP partner solutions to improve revenue assurance and plug any gaps in operations that may lead to revenue loss.
By leveraging powerful analytics and big data capabilities, revenue assurance tools help utilities identify potential cases of fraud and proactively inform technical teams to investigate.
For example, if a customer’s energy consumption stays exactly the same month after month despite seasonal changes, there is a likelihood that some form of fraud is being committed. Energy use usually increases and decreases in different seasons, with most customers using less power in summer when it’s warm compared to winter when heaters are used and electrical hot water heaters work harder to stay warm.
By tracking energy consumption patterns over long periods of time and matching that data to seasonal consumption models, utilities can leverage their revenue assurance tool to ensure they always collect the optimal revenue from every customer.
By using predictive models and integrating the revenue assurance functionality to their enterprise resource planning core, utilities can develop a better understanding of known customer usage patterns.
Over time, utilities can apply this knowledge to develop detection methods and strategies that can highlight unknown patterns that may indicate fraud or revenue leakage.
African utilities are at a pivotal moment as booming population growth and rapid economic development pushes them into building greater capacity while also transitioning to a clean energy future. However, without optimal revenue collection, utilities will lack the financial agility to survive and thrive during this disruptive time.
With the clever application of technology, however, utilities can mitigate the risk of fraud and ensure they have the financial stability to take a leading role in our continent’s development and just energy transition.