Enactment of electricity constitutional amendment may create hurdles, incentives for industry players- Templars

Oredola Adeola

Power sector investors and other industry players are more likely to encounter more hurdles and enjoy incentives following the enactment of the Electricity Constitutional Amendment, which empowers States within the Nigerian federation to make laws on generation, transmission, and distribution of electricity in areas covered by the national grid system within the relevant State.

Templars, a leading pan-African law firm, made this known in a special review titled: “Nigeria Amends Constitution to Enable Electricity Decentralisation: Key Highlights for Investors and Stakeholders” seen by EnergyDay.

EnergyDay’s check showed that the law firm services clients across all sectors of the Nigerian economy, including mining, energy, infrastructure, financial services, education, franchising, telecommunications and fintech.

The law firm in the recent review however commended the FG for the enactment of the Electricity Constitutional Amendment which provides the necessary fillip for further liberalisation and decentralisation of the Nigerian Electricity Supply Industry (“NESI”) and to promote a competitive and efficient market.

The review cautioned that the legal, commercial, and practical implications of that amendment for investors and other stakeholders in the NESI can be far-reaching if the States follow through with the spirit of the constitutional amendment and implement the needed reforms for the electricity sector.

Templars said, ” The enactment of the Electricity Constitutional Amendment throws up several issues that may impact existing investments in the Nigerian Electricity Supply Industry (NESI), incentivise new investments in the sector, or even create more hurdles for industry players.

“To trigger any of these impacts or begin to actualise the intendment of the constitutional amendment within a State of the Federation, the relevant State must first enact its own law, or in the case of States that already have the relevant laws, they may need to amend those laws to align with the principles under the Electricity Constitutional Amendment.

Templars however noted that since the amendment has demonopolises the current regulatory powers of the Nigerian Electricity Regulatory Commission, some industry participants who already hold licences, permits or authorisations issued by the NERC for projects that are predominantly within a specific State, may consider a migration from the national regulatory regime to subnational regulations.

It said, “Especially if the compliance requirements and the terms and conditions attached to the State licences are less onerous than those in extant NERC regulations and licences.

The law firm also noted that the concurrent regulation of the power sector by NERC and the State Governments regulatory authorities is likely to raise a potential risk of overregulation, intrusive compliance requirements, and increased costs due to numerous toll points within the sector.

It stated that the issue can be avoided if deliberate efforts are made towards the creation of the needed synergy between the Federal and State level regulators.

Templars also warned that unless the regulators at the different tiers adopt the collaborative or dual approach to electricity regulation, conflicts among industry players are likely to occur as to which applicable law should trump in any situation.

It said, “This possibility could complicate the risk analysis for investors who may be unsure about the applicable regime, or whether the regime that applies to them could be invalidated in the event of a regulatory or legislative conflict.”

Templar also noted that implementation of the market regime introduced by the Electricity Constitutional Amendment may arguably activate contractual claims especially if the new regime reduces the revenue or returns expected by the investors and their project companies from the contracts that are impacted by the implementation of these constitutional changes.

The law firm in its review also emphasised the emergence of regional or isolated grids that run through respective States which would undoubtedly reduce pressure and overreliance on the national grid, that is susceptible to incessant partial and total collapses.

Templars noted that power sector investors may focus their attention on the new sets of electricity distribution companies (“Discos”) instead of the legacy Discos.

According to the law firm, issuance of a new set of distribution licences by the Subnationals -under a framework that is not controlled by the NERC – will abate perennial opposition of the legacy Discos to the issuance of independent electricity distribution licences to interested applicants.

Templars cautioned that as more consumers migrate to new energy suppliers under the new regime, the legacy Discos are likely to keep pushing the argument that they have exclusive rights or some form of monopoly on electricity distribution in their franchise or coverage areas and that the implementation of the constitutional amendments would substantially impair their initial investment assumptions and projections.

The leading law firm in West Africa however urged the State Governments not to focus only on enacting their own enabling local laws (or amend existing ones, as the case may be), but must also develop or engage the capacity and resources required to drive these reforms and initiatives efficiently and effectively, in order to fully actualise the objectives of the constitutional amendments.

It also charged the State Government to take useful lessons from the challenges and mistakes made in the NESI and create the enabling platform to engender investor confidence and unlock investments.

As a practical solution to the possible conflicts of interest under the new regime, Templars has charged the Federal and State Governments to actively synergise and collaborate with industry players at all levels.

The pan-African law firm encouraged the Federal and State regulatory authorities to issue joint regulations, specifying clear roles, functions, and powers of both regulators, including well-defined processes for the joint implementation of their respective roles and functions, to avoid conflicts and overlaps.