… say activating new Act is not cheap, emphasize high investment costs
The Nigerian Electricity Regulatory Commission (NERC) and stakeholders in the power sector have underscored the challenges that could impede the effective implementation of the recently enacted Electricity Act, emphasizing that investment under the new act is not cheap.
This was part of the issues discussed by key players from the power supply value chain, at the 14th edition of the 2023 PwC’s annual power and utilities roundtable, themed “The Electricity Act 2023: Powering Nigeria,”, held in Lagos on Thursday.
Abimbola Banjo, PwC’s Associate Director/Partner & WMA Finance Advisory Lead, in his lead presentation at the annual power roundtable, stated that investing in the power market under the new electricity act is not cheap, as investors will have to invest heavily in infrastructure, technical facilities, and hiring of competent personnel.
Banjo also emphasized the need for competent lawyers, advisors, and consultants to provide proper advice on the operating model, which needs to be implemented to recover costs.
He further noted that the Nigerian Electricity Act has brought much-needed context to how state governments can regulate and function without significant overlap between the subnational and Federal regulators.
The PwC’s Partner also encouraged the Federal Ministry of Power to collaborate with the Ministry of Finance and Ministry of Trade and Investment to provide an enabling environment for the new Act to become a reality and provide incentives to investors.
Banjo also emphasized the need for clear and consistent guidelines between the state and federal electricity regulatory commissions to avoid having different electricity laws in all states.
Dafe Akpeneye, NERC Commissioner, Legal, Licencing, and Compliance, in his comment during the panel session on the impact of the Electricity Act 2023 on Nigeria’s power sector, stated that it will cost billions of dollars to activate the Nigerian Electricity Act.
According to him, to bring a stream of 1 megawatt of generation electricity capacity onto the national grid system, the investor will be required a capital base of $500,000 to $1.5 million.
The NERC’s Commissioner, Legal, Licencing, and Compliance, also mentioned that building 1km of 330kv transmission line requires about $1 million, while 1km of 132kv line is $400,000.
He further stated that investment will only flow in a market with certainty, emphasizing the need for the Government to provide investors the comfort they require and the right incentives to operate.
He said, “Nigeria needs all available resources to fund infrastructure, which can only come through investment. He added that the government does not have the funds to finance the power sector, which is why private sector funds and multinational institutions will be needed to trigger the industry growth.
He also highlighted the importance of coordination and groundwork to achieve the mandate in the Electricity Act. He stated that the Act aims to encourage state government participation in the power sector and increase private investment.
Mr. Akpeneye, also highlighted the challenges arising from the concurrent amendment of the constitution and the assent to the Electricity Act, adding that the constitutional amendment has created more confusion within the NESI.
He said, “The states have historically had the power to establish regulators and invest in the state without needing to seek approval from the federal government. However, the recent developments have altered this landscape, giving the states full powers in the electricity sector.
“This has led to overlapping jurisdiction and the proliferation of state-specific electricity laws. The possibility of 36 different regulations will pose a significant challenge to the effective regulation of the power sector.
Akpeneye emphasized the need for coordination and groundwork to address these issues and ensure the successful implementation of the Electricity Act.
He therefore noted that the success of the Act will depend on the commitment of stakeholders to achieve the mandate. “It requires a lot of coordination and groundwork, but we are better placed today than we were yesterday when the reform started,” the NERC Commissioner said.
Folake Soetan, Ikeja Electric’s Chief Executive Officer, during the session, cautioned that if the government fails to address the root causes of the DisCos’ challenges, such as energy theft, high operation costs, and inability to recover costs, the new Electricity Act may not thrive.
She noted that setting up new electricity distribution networks alongside legacy Distribution Companies (DisCos) is a costly endeavor due to operational costs and an unfriendly business environment.
Soetan therefore called for collaboration between the state government and new investors under the new act to enforce sanctions and deterrents against energy theft, ensuring a level playing field for investors.
She said, “Despite the potential of the new Electricity Act, potential investors who have expressed interest in investing in our franchise network in the last few years, have concerns about the lack of a guarantee on return on investment in the heavily regulated environment. Their fears stem from the lack of an enabling environment to guarantee a return on their investment.
Soetan urged the government to leverage the enactment of the Nigerian Electricity Act to create a legal and commercial framework that attracts the right type of investment in the sector.
She also mentioned that the success of the new act depends on the political will of the political actors to implement stricter measures against energy theft, which has a direct impact on DisCos’ operational efficiency.
According to her, Ikeja Electric is excited about the potential of the Electricity Act 2023 to ensure energy access for all Nigerians and has been franchising some of its businesses to new distribution companies to improve operational efficiencies even before the enactment of the act.
She said, ” As a leading DisCo in Nigeria, we are willing to work closely with the Lagos State government on the implementation and take-off of the state electricity supply market model.
The Ikeja Electric MD therefore urged the SERC to work closely with the national regulator, adding that the experience of the NERC cannot be undermined. ” I think they need to have that handshake to achieve the objectives of the Electricity Act,” she said.
Ugochukwu Obichukwu, the Founder/CEO of Nairametrics, spoke about the impact of the Electricity Act 2023 on Nigeria’s power sector, during the panel session stated that the new electricity act is a step in the right direction, but cautioned that the act will not work if it doesn’t deliver 24/7 electricity supply to Nigeria, address the issues of estimated billings squarely, and deliver cost-reflective tariffs.
He emphasized that the act should create an enabling environment for states that are serious about attracting the right investment that they need to improve the power supply for their people.
The Nairametrics founder also stated that 24/7 electricity supply to Nigeria, 100 percent metering of customers, and delivery cost-reflective tariffs, are some of the essential benchmarks for the success of the new Electricity Act.
He said, “As a nation, the Nigerian Government must prioritize the power sector and ensure that the act will lead them to a sector that is pivotal to industrialization in Nigeria.
“It is one thing to invest millions of dollars in power generation, transmission, and distribution in the state and it is another thing to create an environment where investors would be able to recover the investment. That is where the support of the state is critical.
“It is not therefore enough to enact the Electricity Act, to score a political point, I think what is essential is to do the thing that works and improve power supply.
“The customers must be willing to pay for the electricity they consume at the right cost. For instance, I live in an area in Lagos where users pay about N200/kilowatts of electricity, and we have been enjoying 24/7 electricity in the estate over the last 10 years.
“This happened because a group agreed to pay at the right cost compared with N70/kw from the grid. So, If the Government wants to provide 24/7 power to their citizens, it must create an environment that makes power affordable and allows the power companies within the state to recover their investment,” Nairametric founder said.
Obichukwu therefore stressed the importance of investment and the need for the government to provide tax incentives to set up power plants and help enforce collection.