Consistent and stable electricity is one of the most crucial determinants of any country’s Gross Domestic Products (GDP) alongside socioeconomic growth and development.
Over the years, Nigeria; the giant of Africa has performed rather shoddily in this sector. According to The Spectator Index in 2017, Nigeria was positioned second with the worst record in the world’s global ranking for electricity.
Where did we go wrong?
While the issues that fraught the sector ranges from an aggregate of technical and financial issues down to corruption, this question will be tackled from a legal perspective by examining the historical and developmental frameworks of laws meant to modulate the sector with particular focus on the current legal, policy and regulatory state of affairs.
Historically, electricity was first generated in Ijora, Lagos, Nigeria in 1896 by the then British Colonial Government and later established the Nigerian Electricity Supply Company which became operative pursuant to the Electricity Ordinance Act, 1929. To ensure impressive spreads across the country, the Public Works Department was established. In 1950, these institutions were consolidated forming the Electricity Corporation of Nigeria (ECN) by virtue of the Electricity Corporation Ordinance 1950. Also established was the Niger Dams Authority (NDA) responsible for construction and maintenance of dams.
In 1972, ECN and NDA were merged by the National Electric Power Authority Decree No 4 forming the monopolized National Electric Power Authority (NEPA); statutorily responsible for generation, transmission and distribution of electricity. The Electricity Act, 1990 was promulgated to replace the NEPA Decree, 1972. This was the state of the sector till the Electricity (Amendment) Act, No 28 of 1998 which slightly de-monopolized NEPA by introducing Independent Power Producers, leading to subtle reforms alongside new identity as Power Holding Company of Nigeria (PHCN). Other supplemental laws regulating the sector at this time are the Energy Commission Act 1990 and Utilities Charges Commission Act 1992.
Despite these mentioned reforms the sector had undergone, it mockingly earned some colloquial names from the society including ‘Never Expect Power Always’ (NEPA) and ‘Please Hold Candle Now’ (PHCN). Thus, a clarion call for more meaningful reforms. Consequently, the Electric Power Implementation Committee was set up for drafting the National Electric Power Policy in 2001 with focal point on restructuring and privatization. This led to the promulgation of current legislations regulating the sector – The Electric Power Sector Reform Act of 2005 (EPSRA), Nigerian Electricity Regulatory Commission (NERC) Act and Rural Electrification Agency (REA).
The development principally led to the unbundling of PHCN into eleven distribution companies, six generation companies and one transmission company. Whilst the distribution and generation subsectors were privatized, the Transmission Company of Nigeria remains wholly government-owned. The post-privatized era saw the Nigerian Bulk Electricity Trading PLC (NBET) purchasing power generated by the GenCos and IPPs at approved prices in the Power Purchase Agreements and sells to DisCos for final vending to the end users for efficient service delivery. Despite the division of labour in the sector, the expectations are unfortunately yet to be significantly attained due to a number of factors.
By the way, there is a misconception that once the sector is privatized, it would automatically fix the problems in the sector. Incidentally, privatization is not a “breakthrough medicine” but merely an instrument for laying a proper foundation for specific socioeconomic strategies towards productivity.
The sector’s critical issues include liquidity – electricity tariff, gas supply, pricing, electricity theft, vandalism, etc. Lack of liquidity majorly on account of a non-cost reflective tariff is a barrier. Simply put, electricity is being sold below the realistic cost of producing and supplying it.
By Section 76 of EPSRA 2005, NERC established a methodology for determining electricity tariff and issued a Tariff Order called the Multi-Year Tariff Order (MYTO) that sets out tariffs for the generation, transmission and distribution of electricity. The purpose of the MYTO is to set cost-reflective tariffs vis-à-vis funding of the sector for improved supply. It provides a tariff path for the sector with minor reviews biannually in the light of changes in variables such as inflation, exchange rates, gas price and generation capacity; and major reviews every 5 years.
Unfortunately, the current electricity tariff was reviewed in 2015 and took effect in 2016 with volatile inflation and exchange rate benchmarked at N178 per $1. It is therefore without a doubt that the tariff is due for a review in line with the MYTO. Unfortunately, it has inconsiderately remained a no-go area especially by the government. Whilst Discos are expected to distribute generated electricity, the current tariffs pose as a hindrance; knowing that the more electricity taken up from the grid for distribution, the more losses they are likely to incur as they resell below profitable rates. Alternatively, Government as a stakeholder can come in with a bailout towards loss reduction. Otherwise, it is more like using a sledgehammer on DisCos.
Critically, a holistic consideration of the liquidity issue in the sector is a huge step towards resolving the challenges. It would irrefutably help to generate the required capital investment to remedy infrastructural shortfall and other losses. Thus, despite the existing reforms in the sector through legal, policy and regulatory framework, until there are realistic adjustments towards protecting the sector from further deterioration especially a concrete plans for long-term financial stability, only then would uninterrupted supply be realistic and attainable
Ani Nkemjika wrote from Abuja.
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