NBA Section on Business Law reacts to Senate Order to suspend implementation of MYTO

The Nigerian Bar Association Section on Business Law through an official statement, has reacted to reports that the Senate of the Federal Republic of Nigeria has ordered the suspension of the implementation of the amended Multi-Year Tariff Order 2.1 of 2015 (“Amended MYTO 2.1”) which was issued by the Nigerian Electricity Regulatory Commission (“NERC”) pursuant to the Electric Power Sector Reform Act of 2005 (“the EPSRA”) and which became effective on February 1, 2016.

The statement released by the Chairman of the Section, Asue Ighodalo read, “It has been extensively reported in the print and electronic media that the Senate has ordered the suspension of the implementation of the amended Multi-Year Tariff Order 2.1 of 2015 (“Amended MYTO 2.1”). We note that there is no constitutional or statutory provision that would make the resolutions/orders of the Senate freezing the implementation of the Amended MYTO 2.1 effective.”

“It is in the light of these uncontroverted reports that the Nigeria Bar Association (“the NBA”) in a Communiqué issued after the meeting of its National Executive Committee (“NEC”) held in Jos, Plateau State on Thursday the 18th of February 2016, stated inter-alia as follows: “3.3. ELECTRICITY PRICING CONTROVERSY, NEC noted the current controversy on electricity pricing and the resolution of the Senate directing NERC to suspend any proposed increase in the electricity tariffs. NEC urged all concerned parties to amicably resolve the controversy in the interest of all Nigerians. The rights of electricity consumers to a fair and reasonable tariff mechanism and the rights of Investors in the Power Sector as determined by our extant laws must be protected at all times.”

The SBL statement continued, “The Constitution of the Federal Republic of Nigeria recognizes the principle of separation of powers and assigns different functions and powers to the different arms of government – the Executive, the Legislature and the Judiciary.

Under our Constitution, the Senate does not have the power to suspend or reverse the implementation of regulatory actions. Whilst it may investigate such regulatory actions, it may only do so in order to make or correct laws or to expose corruption.

The group again noted that the power to check regulatory or executive action rest with the Judiciary and this power may be validly exercised where it is established that an agency has acted outside of the powers granted under its enabling legislation or has not followed the procedure required prior to carrying out such an action.

It stated that the purported suspension or reversal of the Amended MYTO 2.1 had no legal basis and therefore constitutes a usurpation of the functions of the judicial arm of government.

“In addition to the violation of the above mentioned legal principles, equally disconcerting is the dangerous signal that this purported action of the Senate sends to current and potential investors in the Nigerian economy.”  The NERC was conceptualized and established as an independent regulator that would be immune and insulated from interference by consumers, investors and government.

While NERC, like all other government agencies  is expected to function within the ambits of our laws it is however critical, for its credibility and effectiveness, that in the regulation of the Nigerian power sector, it has effective and demonstrable independence in order to make the necessary decisions with respect to its mandate.

“The Section on Business Law therefore considers the action of the Senate, whether or not intended as a palliative, as being most unacceptable as this will unfortunately suggest to the international and local investing community that Nigeria is not committed to upholding the principles of effective regulation which will in turn result in a concomitant slump in the country’s risk ratings particularly with regard to change in law defaults.  As Nigeria continues to seek desperately needed investment in the power sector, we cannot afford the reality or perception of a regulator that is not independent and/or that ours is a jurisdiction where investments cannot be made with the expectation of regulatory certainty.

In addition to the foregoing, it has been generally accepted that the erstwhile tariffs did not reflect the true cost of generating electricity and did not take into consideration other factors, such as foreign exchange fluctuations, the errors in the baseline values for determining previous tariffs thus necessitating the adjustments contemplated by the Amended MYTO 2.1.

The NBASBL is of the view that the NERC has shown good faith, by removing the fixed charge component of the tariffs such that consumers do not have to pay for electricity they do not consume.  If the power sector is to attract the quantum of investment required to bring about significant improvement in electricity supply, tariffs must of necessity be cost reflective and this will in turn reduce the incidence of businesses collapsing due to the prohibitive cost of generating their own electric power, which cost is in multiples of the Amended MYTO 2.1.

Undoubtedly, with the introduction of a cost-reflective tariff structure, the NERC will be expected to fulfill the other aspect of its mandate, which is consumer protection. There must be robust monitoring of the investment obligations imposed on the owners of the privatized entities particularly the enforcement of regulatory orders to reduce and ultimately eliminate estimated billing, and ensure universal metering of consumers.