Imminent change in one of the three musketeers of Nigeria’s power sector- An assessment of performance of NERC
Since the year 1999, the federal government of Nigeria (FGN) has embarked on infrastructural rehabilitation and expansion programs in the Nigerian Electricity Supply Industry (NESI). The FGN also began the reform process with the enactment of the Electric Power Sector Reform Act (EPSRA) 2005, following the issuance of the NEPP. The FGN also established the Power Holding Company of Nigeria (PHCN), to hold, provisionally, the assets and liabilities of the defunct National Electric Power Authority (NEPA).
Those were subsequently hived-off to ‘successor companies’ as they are popularly called in the NESI. In the words of Ekpo Eyo (formerly of NERC), the ‘successor companies’ were established along the lines of NEPA/PHCN’s organizational structure and boundaries. So each power plant became an independent generating company (Genco) and each distribution zone became an independent distribution company (Disco).
The only major change was that the former Lagos Distribution Zone was broken into Ikeja and Eko Discos. Unlike the 9 other Discos that cover between 3 and 5 States each, Lagos State has two Discos. Clear recognition, if you ever needed it, of the economic powerhouse that is Lagos State. In his view, this also had constitutional and regulatory implications that we will one day, soon perhaps, have to fully comprehend and accommodate.
The Musketeers
The writer had stated several times, that the reforms would not yield sustainable results if three (3) key institutions- the musketeers upon which the sustainability of the reforms and improvements in the sector must be based, are not catered to. These Musketeers are the Nigerian Bulk Electricity Trading Plc. (the Bulk Trader) which is responsible for helping the NESI remain liquid and transactions bankable in NESI; at least in the short term, the ministry of power which is pertinent for policy formulation and the Nigerian Electricity Regulatory Commission (NERC) which is the regulator of NESI and also germane for policy implementation.
NERC‘s Excellent Foundation Yet Hectic Past
Whilst the NEPP recommends the establishment of an independent regulator for the electric power sector, the EPSRA specifically established NERC as technical and economic regulator for the entire NESI. Although NERC was established in March 2005, the first set of Commissioners was appointed on 6th October 2005. The first set of commissioners of NERC were: Dr. Ransome Owan (Chairman), Abdurahman Ado (Vice-Chairman), Dr. Sola Odubiyi, Professor Iloeje, Dr. (Mrs.) Grace Eyoma, Ibrahim Bunu and Alimi Abdulrasaq. Many of these individuals were excellent minds with international exposure and experience.
With the quality of these appointees, the lack of experience that should ordinarily have been the case, because electricity regulation of the type was only read in UK and USA textbooks without any practical expression was pleasantly not the case. There was a thorough recruitment process which brought in and trained high quality staff. The first set of commissioners also developed a comprehensive body of administrative and regulatory rules, regulations, practices and precedents which, for a new regulator with no prior experience, was phenomenal.
All of the foregoing was done in only about three (3) years and that was incredible. Despite the best efforts of these individuals (NERC commissioners) to build an excellent foundation that was free of FGN control or influence, certain persons in government wouldn’t want any of that as Dr. Ransome Owan, and 6 Commissioners, representing each of the geopolitical zones were sacked by the late President Umaru Musa Yar’Adua on February 4, 2009, without due process and recourse to the National Assembly. The sacked officials of the Commission were subsequently arrested by the Economic and Financial Crimes Commission over allegations of fraud that were largely unfounded. These commissioners were, however, compensated financially.
In his words, Eyo Ekpo confirms that “in all honesty that our predecessors laid a pretty good foundation for others to build upon, something which is made more remarkable by the fact of the very difficult circumstances of their short tenure. They are the ones we remember”.
The Achievements of the Current Commission
The erstwhile President of Nigeria, Goodluck Ebele Jonathan nominated seven individuals as the 2nd set of Commissioners of NERC. The nominations subsequently received parliamentary approval and the nominees were inaugurated as the new NERC commissioners in December 2010. In that period, NERC has, in the view of the writer, moved NERC to the next level. Specifically, NERC had re-set electricity tariffs, supported the privatization of Gencos and Discos which crystalized in November 2013, established an open and transparent framework for the competitive procurement of wholesale electricity, developed Interim Market Rules and successfully transiting the Industry through a turbulent Interim Rules Period from 1st November 2013 to 31st December 2014.
NERC also developed a new, cost-reflective tariff framework for the Industry and its implementation on 1st January 2015, prepared the entire electricity market between March 2011 and January 2015 for its evolution/progression into the Transitional Stage Electricity Market (TEM), assisted with the commencement of TEM on 1st February 2015; developed and implemented the CBN-NESI “Nigerian Electricity Market Stabilisation (Loan) Facility” and established of an Independent System Operator for the electricity industry.
Apart from the foregoing, NERC has introduced local content regulations, issued several other regulations for the technical, financial and economic regulation of NESI to encourage investment whilst still protecting consumers. It had indeed always been my view that NERC had performed its duties admirably in the last five (5) years. NERC had, apart from the foregoing, worked very hard at forging a good balance (which is a delicate one) between consumer protection and investment attractiveness of the sector.
In the year 2014, for instance, NERC issued enforcement regulations for the electricity industry, together with administrative sanctions (including fines) available to the commission against any operator (being a licensee in the power sector) found liable for breaching any of the sectorial rules. Just this year, the Commission also approved the Nigerian Electricity Supply and Installations Standards Regulations which specify standards for installations in the electric power industry.
Despite the achievements, it would appear that towards the end of the last administration of the FGN, NERC got too involved in politics and took certain actions/ decisions which simply smelt of political patronage without taking into consideration, the bigger picture. Specifically, on March 17, 2015 NERC issued a notice stating that “henceforth, collection loss, which is defined as the ‘amount billed but not collected’, will not be automatically passed on to consumers of electricity. Consequently, the collection loss for all Discos is set at zero”. NERC then specified that the removal of collection losses from customer tariff had reduced tariff by more than 50 percent in some places. The question to the writer’s mind, at that time was whether the setting of losses at zero did not amount to changing the rules mid-way into a game, especially considering that the Discos had only recently been privatized with agreements largely hinged on the provisions of Multi Year Tariff Order.
What made the decision of NERC particularly suspect at that time was that during the privatization of the Discos, the value of the service/efficiency parameters was considered viz-a-viz the investment proposals made by bidders aimed at reducing ATC & C losses over a five (5) year period. The owners of the Discos had specified clearly in their bid documents, the percentage rate at which the entirety of the losses (ATC&C) in the power industry would be reduced over a 5 year period and would legitimately expect that this be honoured as same affects other fundamental matters such as financing, and expected revenue to meet expenditure. Therefore the sudden reduction in the 5 year period was viewed with so much suspicion and adversely affected investor confidence. Very recently, NERC has also been very slow in decision making as regards obtaining licences and permits or, indeed, providing feedbacks to investors and prospective investors. The jury is still out as to whether the present administration of the federal government would retain all or most of the current commissioners of NERC. To learn more about the key issues in the electric power sector, read the excellent book “The Nigerian Electric Power Sector: Policy. Law. Negotiation Strategy. Business.”
Ayodele Oni
Ayodele Oni (ayodeleoni@outlook.com), a solicitor, specializes in international energy (oil, gas and power) investment law and policy and holds an MBA in power and electricity.