Nigerian govt halts transfer of regulatory oversight to states

The Nigerian government has halted the transfer of regulatory oversight of the electricity market to state governments.

Nigeria’s Minister of Power, Adebayo Adelabu, disclosed this while speaking at the eighth edition of the Africa Energy Market Place (AEMP) Nigeria, in Abuja, on Friday.

He explained that this was due to the need for state governments and stakeholders in the power sector to properly understand what is required to operate an electricity market.

“We must tread carefully, we should not be in a hurry. The market is not mature, it is not mature enough. With everything centralised for a single regulator, we have a myriad of issues.

“Now we tend to create a regulatory framework across 36 states, it is something that we must do in a highly systematic and strategic manner. We need just a couple of states as a pilot, which is why I halted granting of further regulatory autonomy to states,” Mr Adelabu said.

In June 2023, President Bola Tinubu assented to the electricity bill, which authorises states, companies, and individuals to generate, transmit and distribute electricity.

The new electricity law repeals the Electric Power Sector Reform Act (EPSRA), signed by President Olusegun Obasanjo in 2005.

The EPSRA (2005) provided the legal, regulatory and governance frameworks underpinning the Nigerian Electricity Supply Industry (NESI).

The new Act, signed by Mr Tinubu, consolidates all legislations dealing with the electricity supply industry to provide an omnibus and ideal institutional framework to guide the post-privatization phase of the Nigerian Electricity Supply Industry and encourage private sector investments in the industry.

It also provides a framework for improving access to electricity in rural, unserved, underserved, peri-urban and urban areas through the use of conventional sources and renewable energy off-grid and mini-grid solutions.

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With the new law, states would be able to issue licenses to private investors who can operate mini-grids and power plants, but such state licenses are not to extend to inter-state or transnational distribution of electricity.

In April, the Nigerian Electricity Regulatory Commission (NERC) directed the transfer of regulatory oversight of the electricity markets in Enugu, Ekiti and Ondo states from NERC to the Enugu State Electricity Regulatory Commission (EERC), Ekiti State Electricity Regulatory Bureau (EERB) and the Ondo State Electricity Regulatory Bureau (OSERB), respectively.

On Friday, Mr Adelabu said adequate understanding of the transfer of regulatory oversight of the electricity market to states is imperative for the survival and sustainability of the nation’s power sector.

He added that the transfer of regulatory oversight will be piloted in selected states across the geopolitical zones in the country while noting the peculiarities in each zone.

“When we have each of these zones represented in the pilot and we allow it to run for three to six months, or up to a year, all the possible issues would have been reflected so that we are going to have a learning curve, and all those issues will be addressed before granting further regulatory autonomy because I have a feeling that we don’t have a comprehensive understanding of what this autonomy means.

“The fact that we gave a state regulatory autonomy doesn’t mean that it’s just about distribution of electricity but it is regulation across the value chain. Generation within your territory, transmission within your territory, and distribution in your territory, including tariff setting,” he said.

For example, he said Lagos State has almost over 40 per cent of national consumption today in terms of electricity distribution.

“The moment you take over the regulatory activities of Lagos State, when we talk about tariff, about subsidy, it will be on your neck as a state. I do not know the balance sheet you want to leverage to guarantee the necessary settlements on a monthly basis.

“So we all have to sit down and let everybody have a complete understanding of what this means. And we will know if we are ready to have full autonomy or it will be a partial autonomy for the meantime before we achieve a mature electricity market,” he said.

He noted that most stakeholders underestimate the capacity required to have regulatory authorities in 36 states, including the FCT.

“Each state that takes up regulatory oversight must have a framework and structure to prevent energy theft, vandalism and enough capital for continuous investments and maintenance of infrastructures,” he said.

In his address, Bart Nnaji, the chairman of Geometric Power, said while the Act has been able to bring regulation closer to the people, there are a lot of challenges that may arise at the implementation stage.

He explained that many state governments may have difficulties with building adequate capacity to carry out the regulatory functions as required by the Act.

On the issue of capacity, he noted that what the national regulator has done so far would not be easy to just replicate by the states as each commissioner has a lot of training that has been done and they have an institution within a particular area.

“So success in terms of capacity for states will be, to say, we will face it over time. The first thing you begin to do is hand holding by the national regulator till eventually, you can now stand. Now, on the issue of limits, there is a tendency for state governments to believe that it is possible for them to have the ability to generate, transmit and distribute, that they can do it all.

“But there are distribution companies (DisCos) within the environment, and these DisCos are owned by companies. And so the wires are owned by this DisCos. So understanding that they just can’t act as if they can suddenly take over the wires would be an issue. So let them understand how to collaborate with the existing companies.

“Now, the last one about this is sensitivity. I think that all the state governments that are going to want to do this regulation need to be sensitive about a whole number of issues such as cost recovery. People who invest in infrastructure must recover their costs, and so it requires the federal government to work with the states to give them guidance,” he said.