Nigeria: Overview Of The Lagos State Electric Power Sector Reform Law

Last Updated: 20 November 2018
Article by Cephas Caleb, Oritsemone Awala-Velly and Oludare Senbore

The Lagos State House of Assembly recently passed the Lagos State Electric Power Sector Reform Law (the "Law") and same has since been assented to by the Lagos State Governor. The Law essentially aims to boost electricity supply in Lagos State (the State) through the establishment of an embedded power scheme and the creation of offences for energy theft. In addition, in line with the calls amongst industry stakeholders for stiffer penalties or offences to be created to curb the rampant level of energy theft which is significantly affecting the attempts to reduce commercial losses, the Law creates a variety of energy theft related offences with commensurate penalties.

Some of the Key Highlights include:

(a) The Embedded Power Scheme: One of the major features of the Law is the establishment of a scheme for the improvement of electricity supply within Lagos State through embedded power generating plants/projects. Under the Embedded Power Scheme, the Lagos State Government ("LASG" ) will work with embedded power generation companies licensed by the Nigerian Electricity Regulatory Commission ("NERC") and the Lagos State Electricity Board (the" Board" ) (Embedded Power Providers), feedstock1 merchants and suppliers, and the distribution licensees (Discos) operating within Lagos State (the" Lagos Discos") to improve power supply through the development of embedded power projects. Power generated under the Embedded Power Scheme will be deployed to certain areas of the State to be identified and designated by the Board.2

To guarantee supply of feedstock to embedded power plants under the Embedded Power Scheme, the Law provides that the LASG will appoint feedstock merchants (Feedstock Merchants) to aggregate feedstock from feed stock suppliers and sell aggregated feedstock to Embedded Power Providers under a Feedstock Supply Agreement.

The Law also empowers the Board to liaise with NERC to develop special cost reflective tariffs for all projects under the Embedded Power Scheme. The tariff will however still be subject to NERC's approval and the current regulatory framework under the Electric Power Sector Reform Act. In addition, section 23 of the Law provides that the Ministry may provide financial indemnities issued through the Lagos State Ministry of Finance and Debt Management Office to Embedded Power Providers and Feedstock Merchants. The objective of this is to guarantee liquidity and bankability of the projects under the Embedded Power Scheme. Similar to the role played by the Federal Ministry of Finance and DFls under the PRG schemes.

(b) Establishment of the Lagos State Electricity Board: The Board is established under the Law as the implementing authority of the Embedded Power Scheme. The functions and powers of the Board under the Law includes, providing support to Embedded Power Providers to obtain necessary licenses, permits and approvals, generating, transmitting and distributing electricity to areas not covered by the national grid, liaising with NERC and other relevant agencies in relation to projects under the Embedded Power Scheme, providing approval to entities intending to operate power plants in Lagos with capacity greater than 1 megawatt, and registering of all power plants in Lagos.

(c) Establishment of the Lagos State Embedded Power Council (the "Council"): The Council will be constituted by representatives of sector stakeholders such as, the Lagos Discos, Manufacturing Agency of Nigeria, Lagos State Electricity Consumers Association, Lagos, Embedded Power Providers, the Board, the Lagos State Ministry of Energy and Mineral Resources. Other entities that will have representation on the Council include, trade unions in Lagos State, the Lagos State Ministry of Finance, the lbile Oil and Gas Corporation, the Lagos State Ministry of Justice and all Local Government Council Development Areas. We note that upon due constitution the Council could potentially have a membership in excess of 50 people, which could become unwieldy, cumbersome and cumbersome.

The Council is mandated under the Law to primarily liaise with all stakeholders in the State and advice the LASG on all issues relating to power supply in the State and electricity tariffs, address consumer complaints in the State subject to NERC Forum Regulations and liaise with all stakeholders in the State on issues relating to electric power. The Council is to sit at least four times every year. The quorum for meetings is 15 members and decisions are made on a majority of votes of members.

(d) Ministry of Energy and Mineral Resources: Under the Law, the Ministry of Energy and Mineral Resources is given the remit to be responsible for the overall coordination of the energy policies and programs within the State. The Ministry is mandated to appoint and issue licenses to Feedstock Merchants to procure aggregate feedstock for utilization under the Embedded Power Scheme. The Ministry is also to initiate incorporation of special purpose vehicles for implementing the Embedded Power Scheme, potentially meaning that the state government could establish a private company to carry on business of electricity generation.

(e) Licensing Regime: Pursuant to section 51 of the Law, no person or company is to operate a power plant within Lagos State without the approval of the Board. In addition, section 17(w) of the Law, requires the Board to maintain a register of all power plants with a capacity of 1 megawatt and above in Lagos State. It is important to note that these provisions create a potential dual registration / licensing regime for power generating companies that are licensed by NERC but wish to locate their operations plants within Lagos State. This would potentially increase the administrative and regulatory burden imposed on such companies and make operating in Lagos State less attractive for them.

We note that the Electric Power Sector Reform Act empowers NERC to provide licenses to entities or persons seeking to own or operate an undertaking for electricity generation exceeding 1 megawatt, while allowing ownership of power generation equipment with capacity of 1 megawatt or less to do so without the need for obtaining a license from NERC4. Therefore if a power generation company has obtained a power generation from NERC, we are of the opinion that it will be in good standing if it does not seek approval from the Board to own or operate a power plant in Lagos State.5

(f) Establishment of the Embedded Power Stabilisation Fund: Section 27 of the Law provides that subject to NERC's approval, a sum of 2% of the tariff payable by consumers under the Embedded Power Scheme is to be added to end user tariffs and is to be paid into an account designated by the Board. The funds in the account (the "Embedded Power Stabilisation Fund") will be managed by a fund manager appointed by the Board. The accumulated funds will be used to, meet administrative expenses of the Embedded Power Scheme, and to mitigate losses arising from variables in the tariff model. A power fund management company is established under the Law to oversee management of the Embedded Power Stabilisation Fund. We note that in a situation where the consumers are objecting to increase in tariffs, this is an additional burden and the possibility of this being accepted by consumers is doubtful.

(g) Introduction of Energy Theft Offences: The Law has extensive provIsIons introducing various offences. These include offences for, unlawful connection of electricity lines or cables, meter tampering, diversion of electricity, destruction of electric meters equipment, lines, supplying of electric power without a license, dealing with unauthorized network/infrastructure, obstruction of officials of electricity companies who are carrying out their lawful duties, amongst others. The Law provides stringent punishments which include fines and prison sentences.

A Power Task Force is established under the Law for the enforcement of the provisions of the Law. Section 48 of the Law grants the Power Task Force with the power to search and inspect premises to ascertain if any energy theft offence is being committed, remove unlawful connections and devices, disconnect supply of electricity to any building for failure to pay for electricity consumed, and arrest persons in connection with the enforcement of the Law. The Law does not vest the Power Task Force or any other agency with the power to institute actions for the prosecution of the offences created under the Law. Therefore the duty of prosecution of offences under the Law may fall on the Police and the Director of Public Prosecutions.

(h) Developing Off-Grid Power Projects: Section 17(s) of the Law gives the Board the remit to establish power stations in areas not covered by the Embedded Power Scheme. In addition, section 17(0) of the Law empowers the Board to generate, transmit and distribute electricity to areas not covered by the national grid within the State. Such projects will likely be in rural areas or newly developed communities that are yet to be connected to the national grid or where there is very limited grid presence.

In conclusion, with the introduction of the Embedded Power Scheme under the Law, Lagos State appears to be wooing investors to invest in providing new generation capacity to improve electricity generation and distribution within the State. This is evident with the provision of financial indemnities and the assurance of special cost reflective tariffs (which stakeholders have long been calling for) for projects under the Embedded Power Scheme. This will likely attract existing generation companies to invest in the providing electricity in the State as well as provide opportunities for new players to invest in providing embedded generation or supply feedstock to embedded generation providers.

Footnotes

1. Feedstock is defined under the Law as natural gas, LNG, LPG, CNG, coal, biomass, waste and other feedstock which can be utilized by an Embedded Power Provider.

2. Section 17(n) of the Lagos State Electric Power Sector Reform Law

3. Section 17(g) of the Lagos State Electric Power Sector Reform Law

4. Sections 6 and 98(2) of the EPSRA

5. This is in line with the doctrine of covering the field. See Minister For Justice And Attorney-General Of Federation v. Hon. Attorney-General Of Lagos State 2013) LPELR-20974 (SC); National Lottery Regulatory Commission & Anor v Attorney General of Lagos State Suit No: FHC/ABC/CS/07

First published in Aluko & Oyebode Insights, March 2018

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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