NERC, Stakeholders Express Worry over Electricity Regulations
The Nigerian Electricity Regulatory Commission (NERC) and key players in the Nigerian power industry are urging a reassessment of the Nigerian Electricity Act (2023). They underscore the importance of establishing a cohesive and uniform regulatory framework to prevent the proliferation of 37 different electricity industry regulations at the state level. This proliferation, if unchecked, could lead to inefficiencies and a multitude of electricity standardizations within the Nigerian electricity sector.
These sentiments were expressed by participants in a panel session discussing the impact of the Electricity Act 2023 on Nigeria’s power sector during the 14th edition of PwC’s Annual Power Roundtable held in Lagos on Thursday.
The recently enacted Electricity Act, 2023 in Nigeria, signed by President Bola Tinubu, seeks to provide a comprehensive legal and institutional framework for the power sector. It includes provisions for the integration of renewable energy and aims to stimulate investment throughout the electricity value chain.
Inspired by the Indian electricity market, experts are advocating for a review to establish uniform regulations that can be universally adopted by all subnational regulators. The goal is to ensure that the same set of regulations applicable in Lagos can also be effective in Kaduna, Ondo, and other regions.
Rasak Obe, the Commissioner for Energy, Mines, and Mineral Resources in Ondo State, emphasized the importance of coordinated collaboration among subnational governments to develop a common and effective electricity regulation. He acknowledged that having subnational regulators for the power sector is not complicated.
Engr. Obe believes that Nigeria needs uniform regulations that all subnational regulators can implement, providing a consistent framework for Lagos, Kaduna, Ondo, and other regions.
He sees the Nigerian Electricity Act as a turning point for those aspiring to bring about positive change in Nigeria. According to Obe, challenges in the Nigerian Electricity Supply Initiative (NESI) have been addressed so that subnationals can now promote a power sector tailored to their specific interests.
Obe is optimistic that Nigeria’s electricity challenges will soon be resolved, citing the commitment of the Nigerian Electricity Regulatory Commission (NERC) and other stakeholders to unlock the opportunities presented by the Nigerian Electricity Act.
He highlighted that the Electricity Act empowers subnationals with significant authority, allowing them to choose the nature of their relationship with Distribution Companies (DisCos) in their respective states. This, in turn, compels optimal performance as the market becomes more competitive.
He said, “I do not believe that having subnational regulators for the power sector should be seen as something so convoluted.
“Of course, we may stumble at the initial state, but we will surely rise again. There may be some iterations, but we just have to start somewhere. If we want to wait until things are right, we might be waiting for another decade.
“I understand some states are not committed at the moment, but as far back as 2020, Governor Rotimi Akeredolu signed into the electricity law, providing all of the terms required to govern the subnational power sector.
“Do we have to tweak it a bit? The answer is yes. We are not just acting alone. We are talking to energy consultants.
“Ondo state has hired consultants and is working with quite a lot of professionals to structure the review of the existing legislature on power.
“We are getting support from organizations including Shell Foundation and other multinational institutions to fund the sector,” the Ondo State Energy Commissioner said.
Rasak, however, cautioned that Nigeria cannot afford to have a diverse array of electricity regulations in every state. He emphasized the need for a certain degree of coordination to ensure consistency and efficiency across the country.
He said, “Nigeria needs the same form of regulations that all the subnational regulators can adopt. Something workable in Lagos, Kaduna, Ondo, and everywhere.
“If there would be any change in the existing regulations being operated by NERC, it would be the one tailored towards some specific reason.
The Commissioner further underscored that, under the new Act, the power sector demands collaboration and a revised funding model. He noted that the funding approach would differ significantly this time due to robust financial backing from Governors and other private institutions.
Obe said, “The Ministry of Energy persuaded Governor Akeredolu to allocate intervention funds to the DisCos. This strategy has stimulated economic growth and led to improved living standards in the state through all forms of companies and businesses that sprang up as a result of the improved power supply within the state.
“The state’s House of Assembly also increased the power sector’s allocation to 30 percent, signaling a strong commitment to the initiative.
“It is important to understand that improved power supply can drive industrial and economic growth in the state and extend development to the rural communities across the state,” the Commissioner said.
Engineer Obe highlighted that Nigeria’s low power consumption contributes to the country’s poor living standards. He pointed out that countries like China, the United States, and Europe prioritize energy consumption due to its direct correlation with economic development.
During the panel session, Engr. Lere Odusote, former Lagos State Commissioner for Energy and Mineral Resources, advocated for a more competitive and transparent electricity market in Nigeria. He critiqued the current electricity tariff review process, which he argued focuses solely on forex volatility and inflation, lacking a market-driven approach.
Odusote emphasized that advanced societies do not use foreign exchange inputs to determine electricity tariffs, a practice unique to Nigeria. He stressed the need for an efficient and competitive electricity market where tariffs are determined by real economic values and factors beyond forex volatility and inflation.
Expressing concern about the Nigerian electricity market, Odusote questioned the rationale behind denominating tariffs in dollars, emphasizing that, in a competitive market, utility prices should be determined by all inputs. He criticized the bi-annual review of electricity tariffs by the Nigerian Electricity Regulatory Commission (NERC) and operators in the Nigerian Electricity Supply Industry (NESI).
Odusote also emphasized the importance of an integrated resource plan to guide investment and infrastructure development in the energy sector. He mentioned the Lagos State Government’s initiation of the Lagos State Development Plans (LASDP), which forecasts growth over the next 30 years, including a 20-year projection for electricity requirements across the energy value chain.
Engr. Odusote advocated for the regulator to provide a methodology for determining tariffs to avoid political influence. He suggested that the utility sector in Nigeria could benefit from the Lagos State’s databases, as various state agencies possess data on the same customers that Distribution Companies (DisCos) aim to include in their databases.
He said, “For instance, LAWMA, Lagos State Residents Registration Agency (LASRRA), and other agencies have a comprehensive database of all the utility customers in the state.
“We can track customers when they move from one location within the state to the other through our integrated databases. The DisCos can adopt this to monitor the movement of their customers,” he said.
The former Lagos State Commissioner for Energy pointed out the distinction between regulation and ownership, emphasizing that the State Government can regulate the power sector without owning the power infrastructure. He stressed that effective regulation should attract additional investment and adhere to a market-driven approach.
He said, “Market-driven regulations must be separated from the unregulated aspects of the business.
“The cost of unregulated activities by the state-regulated company should not be incorporated into the cost of the regulated business, as this could create more crises in the electricity market,” he emphasized.
Engr. Odusote underscored the importance of a robust regulatory framework at the state level to attract investment, enhance efficiency, optimize collection, and improve profitability within the energy sector.
Dafe Akpeneye, NERC Commissioner for Legal, Licensing, and Compliance, issued a warning during the panel session, expressing concern that Nigeria could encounter a constitutional crisis arising from disparate regulations in the electricity market. He recommended a review of the new Electricity Act to facilitate consensus among all stakeholders on a coherent trajectory for the market. Akpeneye cited India as an exemplary model of efficiently operating a decentralized regulatory framework in the electricity market.
“In India, the big states do the regulations on their own, and the small states form a regional group, and they also work together with a common regulation that works for all,” NERC Commissioner, Legal, Licensing, and Compliance said.
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In his presentation, Abimbola Banjo, PwC’s Partner and lead Finance Advisory for the West Market, expressed concerns about potential wide regulatory disparities arising from the new Electricity Act. He highlighted the risk of different states, such as Lagos and Kaduna, developing their electricity regulations, leading to significant divergence.
Banjo underscored the crucial need for clear and consistent guidelines, especially as Nigeria is lagging compared to other federating states that have already established their laws. The PwC Partner and lead Finance Advisory for the West Market emphasized the importance of understanding the implications of the new regulatory framework and stressed the necessity for collaboration to ensure a smooth transition and the consistent application of regulations.
