Nigeria: Regulatory Update: Generation, Transmission And Distribution Of Electricity In Nigeria

Introduction

Inadequate power supply has remained a major factor affecting the growth of the Nigerian economy, as constant power supply is required by many indigenous companies and Micro, Small and Medium Enterprises.

Although Nigeria has the capacity to generate approximately 12,000 MegaWatts (MW) of electricity, the actual generated output is less than half at under 6,000 MW. This underperformance has been attributed to various factors including faulty government policies and inadequate infrastructure. To address these issues, the legislature proposed the Electricity Bill, 2022, and sought to amend the provisions of the Constitution of the Federal Republic of Nigeria (as amended) ("Constitution") in relation to the generation, transmission and distribution of electricity. With respect to the latter, President Muhammadu Buhari has now assented to the amendment of the provisions of the Constitution.

Today's newsletter briefly describes the constitutional amendment and its implications on the Power Sector and the Nigerian economy at large.

Power Generation, Transmission and Distribution in Nigeria

Prior to its 5th amendment, the Constitution granted the Federal Government exclusive authority to regulate the generation, transmission and distribution of electricity in or to any part of the federation and from one state to the other. In contrast, States were limited to regulating the generation, transmission and distribution of electricity in areas which are not covered by the national grid.

Although the Constitution did not make clear the meaning of "not covered by the national grid", in practice, the provision has been interpreted to enable the Federal Government monopolise the generation, transmission and distribution of electricity in the country, under the now defunct agency of the Federal Government, Nigerian Electric Power Authority ("NEPA"). Nevertheless, due to NEPA's inability to ensure adequate power supply across the country, the Federal Government moved to cancel its monopoly by enacting the Electric Power Sector Reform Act ("EPSRA"), 2005. The EPSRA dismantled NEPA into 18 business units, consisting of 6 generating companies (Gencos), 1 transmission company and 11 distribution company (Discos) and established the Nigerian Electricity Regulatory Commission. The EPSRA also mandated the privatization of these companies, except for the Transmission Company of Nigeria, which remained under the ownership of the Federal Government.

While the reforms have led to significant progress in Nigeria's Power Sector, the performance of companies within the sector still falls short of expectations, necessitating the need for further measures such as the constitutional amendment.

Provisions of the Constitutional Amendment

The Fifth alteration to the Constitution as assented to by President Muhammadu Buhari includes an amendment of Schedule II, Part II, Paragraph 14b. By virtue of this amendment, the State Governments now have the powers to regulate the generation, transmission and distribution of electricity to areas within their respective states. In addition, the states are empowered to regulate amongst others, the establishment of electric power stations and to establish an authority for the promotion and management of electric power stations established by the state.

Implications of the Constitutional Amendment

The decentralization of the generation, transmission and distribution of electricity has ushered in a possible breakthrough for the Power sector and the Nigerian economy at large. State governments can now develop facilities for electricity generation, transmission and distribution and more diligently seek out the unserved and underserved areas within the state. States will also be at liberty to achieve power generation and distribution by engaging experts through public-private partnerships or outright licensing to private service providers.

Although the Federal Government is still entitled to regulate the generation, transmission and distribution of electricity from one state to another state as well as any area within Nigeria, one major challenge that may arise from the Constitutional amendment is the multiplicity of laws, which may lead to multiple licensing, approval requirements and payment of levies for participating companies. To mitigate this, we recommend that the EPSRA be amended or repealed, as it currently gives the Nigerian Electricity Regulatory Commission the sole rights to grant licenses to companies participating in the generation, transmission and distribution of electricity. In addition, it is expected that the responsibilities of the Federal Government would now be narrowed to the regulation of entities involved in the generation, transmission and distribution of electricity across states.

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.