Litigations may derail power sector eligible customers’ regime

Litigations may derail the power sector’s eligible customers’ regime as the distribution companies’ (DISCOs) foresee that its implementation may worsen their finances especially if government does not include useful safeguards or follow clear rules that will ensure that there is no breach of the contract terms.

“First, the DISCOs are likely to have their networks used for wheeling and then the users of power will pay a tariff under a distribution use of system agreement. Also, there are provisions under section 28 of the electric power sector reform act that may be triggered.

That section 28 of the electric power sector reform act, has provisions that allow the minister of power to issue directives to NERC for the collection of competition transition charges from consumers and eligible customers. The competition transition charges are to augment the loss of revenue by DISCOs and will thus, be distributed to affected DISCOs”, said Ayodele Oni, partner; Energy, Natural Resources & Fintech at Bloomfield law firm.

“If government, through the minister of power, does not take the initiatives mentioned above, there may be serious backlashes from investors in the DISCOs including litigation. It may also send a bad signal in terms of investors considering such actions as creeping expropriation under international investment law”, Oni added.

Odion Omonfoman, energy analyst and chief executive, New Hampshire Capital said the impact of the policy is positive to generating companies (GENCOs) but may not be favourable to DISCOs.

Some fears expressed by analysts on the implementation of the policy at this stage of the power sector market development is that the industrial clusters being targeted to be cherry-picked may eventually end up in the hands of cronies and political jobbers who may not add any value or deliver even up to the level of the DISCOs’ current performance.

“People just bought their assets, they have not made money from the assets and you want to take their “juicy” customers to hand over to cronies in the name of eligible customers’ regime implementation. How do you then want the DISCOs to be credit worthy?” said an investor in one of the DISCOs who does not want his name mentioned.

However, Sunny Oduntan, director of Research and Advocacy, Association of Nigerian Electricity Distributors (ANED) said “the minister of power is legally right to declare eligible customers’ regime. We are not in contention with that but we must realize that the market is still in transition”.

“We must realize that the maximum demand (MD) customers who are the target of the cherry picking are the ones that pay bigger money and promptly too. We need to look at the implications. If you cherry pick and take away the MD customers from the DISCOs, the residential customers will bear the brunt because the system is such that we cross-subsidize the residential customers with the big customers”, Oduntan said.

The eligible customers’ regime is meant to be declared when the power sector has become stable. However, BusinessDay investigations reveal that certain industrial clusters in Lagos, Kano and other commercial cities in the country are being planned for the first phase of the policy implementation.

FRANK UZUEGBUNAM