Foreign investors edgy over tariff increase reversal judgment

Reactions have continued to trail the July 13 judgment by a Federal High Court in Lagos that voided the upward review of electricity tariff by the Nigerian Electricity Regulation Commission (NERC), with experts saying if it holds on appeal would cripple further investments and compound problems in the troubled Nigerian electricity sector.
Investors, who already have the deck stacked against them due to dearth of foreign exchange, currency instability, threat of political volatility and militancy in the Niger Delta, which has crimped gas supply to eight power plants, will lose incentive to play in the sector.
“The decision is set to go to appeal; it will be a while before we really know what is going to happen. It might tend to discourage investment in the electricity sector,” Francois Conradie, head of research at NKC African Economics, a research firm specialising in political and economic research, said.
Opeyemi Agbaje, CEO of RTC Advisory, said private sector involvement in energy generation and distribution would “suffer mortal damage if the judgment is not reversed on appeal.”
Even though the distribution companies collect electricity tariffs from consumers, they do so on behalf of the entire electricity value chain, and only retain 24 percent of collections, with 57 percent going to the generating companies, and 11 percent to the transmission entity, Agbaje said.
Anthony Akah, acting chairman, NERC, had also warned that investors’ confidence might wane in the sector following the ruling.
“It is imperative as the sector regulator in pursuance of our mandate to ensure regulatory certainty and in our beliefs that much as we respect the judgment, we strongly believe that that judgment will be a setback to the sector. So, in pursuance of that mandate we went ahead to file notice of appeal and stay of execution,” he said.
He further said, “It really sent some strong negative signals to the investors, financial institutions, and almost all the contracts that were signed at that time predicated on 2015 got threatened by it.”
Justice Mohammed Idris had declared as null and void the hike in electricity tariff on the grounds that it failed to comply with the provisions of the Electricity Power Sector Reform Act 2005, describing the actions of the respondents as hasty and awarded N50,000 cost in favour of the plaintiff, Toluwani Adebiyi, a Lagos-based lawyer.
Meanwhile, the outgoing US ambassador to Nigeria, James Entwistle, has advised Nigeria to strengthen its power sector to facilitate economic growth.
Entwistle gave the advice while answering questions in Abuja recently, saying the US was doing a lot in the energy sector to help “Power Africa’’ initiative of the Obama administration.
“We are doing a lot in the energy front, much of these are through President Obama’s Power Africa Initiative. Through that, we are trying to help Discos (Distribution companies) and Gencos (Generation companies) sort of privatise and get in business and so on.
He also said that due to limitations arising from Nigeria’s frail national grid, which restricts electricity access to some rural communities, the Power Africa fund was focusing on solar energy, and highlighted some US companies providing cost-effective solar energy equipment.
The envoy said the US had achieved a lot in strengthening the Nigerian economy, adding that some big US companies had invested in Nigeria, and listed some of them as General Electric, Procter & Gamble, oil companies and some hi-tech like Google and Microsoft.