The unprecedented quest for electricity regulatory autonomy by state governments warrants critical reflections, specifically, as to whether states understand the dynamics and intricacies of the Nigerian Electricity Supply Industry (NESI). A thorough grasp of the NESI’s structure, challenges and operational dynamics should be a prerequisite for seeking electricity regulatory autonomy from the Nigerian Electricity Regulatory Commission (NERC).
The NESI is bedevilled by deep-rooted systemic challenges, including but not limited to wide liquidity constraints, a high debt profile, obsolete and dilapidated infrastructure, persistent operational inefficiencies, etc. Another cardinal issue is tariff shortfall, as the market is currently not charging a cost-reflective tariff. This shortfall imposes a huge financial burden on the Federal Government, which bridges the gaps through subsidy payments. As recently disclosed by the Honourable Minister of Power, Chief Adebayo Adelabu, the tariff shortfall for Financial Year 2024 alone exceeds N450 billion.
Following the enactment of the Electricity Act, 2023 on June 8, 2023, significant expectations have arisen within the Nigerian electricity landscape. The overarching aim of this landmark legislation is to enhance electricity availability, affordability, and environmental sustainability, ultimately driving industrial growth and improving the quality of life for Nigerians.
The Act repealed the Electric Power Sector Reform Act (EPSRA) 2005 and other related enactments, consolidating existing laws into a unified legal and institutional framework for NESI. It introduced a progressive and liberalised regime, empowering State Governments, companies, and individuals to participate in electricity generation, transmission, and distribution.
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Whilst these provisions are laudable, the truth is that state governments need to properly evaluate their individual markets before jumping into the fray of having a state agency that regulates and supervises the market. As the saying goes, “All that glitters is not gold.” A strong note of caution needs to be employed while determining whether to seek state regulatory autonomy from the Nigerian Electricity Regulatory Commission (NERC).
The cardinal issues to review before opting for a regulatory license encompass the infrastructure and technical analysis, but include commercial and financial analysis of the tariff structure to be adopted by each state. Most states appear preoccupied with the prospects of revenue from licensing, taxes and levies on DisCo and GenCo while overlooking the fundamental issue of tariff shortfall. This omission underscores a fundamental misunderstanding of NESI’s structural deficits.
It is expedient for state governments to exercise caution and prudently assess their readiness for the implementation of this provision of the EA 2023 Act. It should be noted that adopting the provision will come with huge costs, which may range from engaging legal, technical and commercial advisors to investing in human resources, technology and establishing state-level structures. To ensure optimal cost and engender maximum potential benefits, it is recommended that states conduct a comprehensive evaluation of the current regulatory regime in their electricity market, review network infrastructure, and accompany these with thorough technical and commercial feasibility studies, as well as consider the profitability of the business.
A holistic appraisal of the Nigerian Electricity Supply Industry (NESI) is non-negotiable and paramount, as this would expose all the landmines embedded in the operations of the self-regulatory status. One is of the opinion that the issues of tariff shortfall, which is the substratum of the debate on the viability of self-regulation by states, should not be treated with kid gloves or downplayed.
It would be recalled that in May 2024, the Honourable Minister of Power, Chief Adebayo Adelabu, temporarily suspended the issuance of regulatory autonomy to state governments, stating that states and other stakeholders have yet to sufficiently understand what it takes to operate within the Nigerian Electricity Supply Industry. The market, in his assessment, is not yet mature enough for indiscriminate decentralisation.
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As of the time of writing this piece, the Nigerian Electricity Regulatory Commission (NERC) has transferred regulatory oversight functions to 11 state governments. These include Enugu, Ekiti, Ondo, Imo, Oyo, Edo, Kogi, Lagos, Ogun, Niger and Plateau states. Of the 11 states, Enugu State tends to have started off with speed, whilst the others are still experiencing teething problems, with some just being ambivalent about what to do next after obtaining the licence.
One wonders how governors or state governments will feel if a neighbouring state’s tariff for Band B is N68 per kWh, whilst in his state the tariff is N80 or N85. States are therefore required to diligently elevate the quest for regulatory autonomy: “As the proof of the pudding is in the eating, oh taste and see, as it is not a tea party for all.”
Although the NERC has recently released a regulation on asset and liabilities delineation, the implementation hurdles persist, as it is still not an easy rope to climb. A plethora of impediments still exists in the autonomy status; these include a lack of adequate manpower, as the requisite skills and capacities are not easily found in various states, and generation of below 6,000 MW as against the estimated required 33,000 MW.
In conclusion, utmost caution should be taken before venturing into seeking regulatory autonomy by state government, for states that have hitherto obtained regulatory approval derogation for extension of the period for full implementation of the autonomy may be required for a holistic appraisal of the pros and cons of the licence as well as enable states to seek proper guidance from experts and ensure the right staff are recruited for the new regulatory body. The issue of rate casing should, during the period, be properly evaluated, and a clear path for the payment of the tariff shortfall should be adequately put in place before going ahead with the autonomy.
Napoleon D. Okosu, PhD, FCA, is the Chief Financial Officer, Ibadan Electricity Distribution Company Plc. Email: [email protected]
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