NERC, stakeholders fear proliferation of 37 different electricity regulations, call for review of Electricity Act to ensure consistency

Nigerian Electricity Regulatory Commission (NERC), and stakeholders in the Nigerian power industry have called for a review of the Nigerian Electricity Act (2023) emphasizing the need for a coordinated and consistent regulatory framework to prevent the proliferation of 37 different electricity industry regulations across the states, that may promote inefficiency and multitude of electricity standardization within the Nigerian electricity sector.

These were the views expressed by the participants during the panel session on the impact of the Electricity Act 2023 on Nigeria’s power sector at the 14th edition of PwC’s Annual Power Roundtable held in Lagos on Thursday.

EnergyDay’s check revealed that the recent Electricity Act, 2023 in Nigeria, signed by President Bola Tinubu, aims to provide a comprehensive legal and institutional framework for the power sector, including the integration of renewable energy and the stimulation of investment across the electricity value chain.

Meanwhile, the experts’ call for a review is inspired by the Indian electricity market and aims to establish uniform regulations that can be adopted by all subnational regulators, ensuring that the same set of regulations applicable in Lagos can also work in Kaduna, Ondo, and elsewhere.

Rasak Obe, the Commissioner for Energy, Mines, and Mineral Resources in Ondo State, emphasized the need for coordinated collaboration among subnational governments to develop a common and workable electricity regulation, acknowledging that having subnational regulators for the power sector is not convoluted.

Engr. Obe believes that Nigeria needs the same form of regulations that all the subnational regulators can use, something that is workable in Lagos, Kaduna, Ondo, and everywhere else.

According to him, the Nigerian Electricity Act was an inflection for those who aim to dream of doing things differently in Nigeria, and the existing challenges in the Nigerian Electricity Supply Initiative (NESI) have been debottlenecked to the extent that subnational can now promote a power sector in a way that will work for their peculiar interest.

Obe believes that Nigeria’s electricity issues will disappear soon, based on the commitment of the Nigerian Electricity Regulatory Commission (NERC) and other stakeholders to unlock the opportunities inherent in the Nigerian Electricity Act.

The Commissioner said that the Electricity Act grants significant powers to subnationals, allowing them to choose the form of relationship they want with DisCos in their respective states, leaving them with no other option than to perform optimally as the market becomes more competitive.

He said, “I do not believe that having subnational regulators for the power sector should be seen as something so convoluted.

“Of course, we may stumble at the initial state, but we will surely rise again. There may be some iterations, but we just have to start somewhere. If we want to wait until things are right, we might be waiting for another decade.

“I understand some states are not committed at the moment, but in as far back as 2020, Governor Rotimi Akeredolu signed into the electricity law, providing all of the terms required to govern the subnational power sector.

“Do we have to tweak it a bit? The answer is yes. We are not just acting alone. we are talking to energy consultants.

“Ondo state has hired consultants and is working with quite a lot of professionals to structure the review of the existing legislature on power.

“We are getting support from organizations including Shell Foundation and other multinational institutions to fund the sector,” the Ondo State Energy Commissioner said.

Razak however warned that Nigeria can’t afford to have all manners of electricity regulations in every state, adding that there should be some level of coordination.

He said, “Nigeria needs the same form of regulations that all the subnational regulators can adopt.  Something workable in Lagos, Kaduna, Ondo, and everywhere.

“If there would be any change in the existing regulations being operated by NERC, it would be the one tailored towards some specific reason.

The Commissioner further emphasised that the power sector under the new Act requires collaboration and the right funding model, which according to him will be different this time, because of the strong financial support from the Governors and other private institutions.

Obe said,  “The ministry of Energy persuaded Governor Akeredolu to allocate intervention funds to the DisCos. This strategy has stimulated economic growth and led to improved living standards in the state through all forms of companies and businesses that sprang up as a result of the improved power supply within the state.

“The state’s House of Assembly also increased the power sector’s allocation to 30 percent, signaling a strong commitment to the initiative.

“It is important to understand that improved power supply can drive industrial and economic growth in the state and extend development to the rural communities across the state,” the Commissioner said.

Engr. Obe, therefore, noted that Nigeria’s power consumption is low, which according to him is responsible for the country’s poor living standard. He noted that China, the United States, and Europe prioritize energy consumption because it is directly linked to their economic development.

Engr. Lere Odusote, former Lagos State Commissioner for Energy and Mineral Resources, in his intervention during the panel session, highlighted the need for a more competitive and transparent electricity market in Nigeria.

He argued that the current electricity tariff review process, focused solely on forex volatility and inflation. This, according to him, is not a market-driven approach.

Odusote pointed out that advanced societies do not use foreign exchange input to determine electricity tariffs, a practice unique to Nigeria.

He underscored the need for a more efficient and competitive electricity market in Nigeria, where tariffs are determined by real economic values and various factors beyond forex volatility and inflation.

The former Lagos State Commissioner for Energy, raised concerns about the electricity market in Nigeria, particularly the practice of denominating tariffs in dollars.

He questioned the rationale behind this approach, emphasizing that in a competitive market, utility prices should be determined by all inputs. He noted that advanced societies do not use foreign exchange inputs to determine electricity tariffs.

Odusote criticized the bi-annual review of electricity tariffs by the Nigerian Electricity Regulatory Commission (NERC) and the operators in the Nigerian Electricity Supply Industry (NESI).

Engr. Odusote also highlighted the importance of an integrated resource plan in guiding investment and infrastructure development in the energy sector.

According to him, the Lagos state government Government initiated development plans (LASDP) which support and made projections of what is expected to happen, in terms of growth in the state over the next 30 years.

Odusote added that the plan initiated a 20-year forecast for electricity requirements, which covers the entire energy value chain, including demand, distribution, transmission infrastructure, and potential generation infrastructure. He also stressed the need for the market to demonstrate its ability to recover investments over time.

Engr.  Odusote advocated for the regulator to provide a methodology for arriving at tariffs, rather than setting the tariffs themselves, to avoid political influence.

He also suggested that the utility space in Nigeria can benefit from the Lagos State repertoires of databases from different agencies.

According to him, there are agencies in the states that have the data of the same customers that the DisCos are looking to build their database.

He said, “For instance, LAWMA,  Lagos State Residents Registration Agency (LASRRA), and other agencies have a comprehensive database of all the utility customers in the state.

“We can track customers when they move from one location within the state to the other through our integrated databases.  The DisCos can adopt this to monitor the movement of their customers,” he said.

According to him, the regulation must attract additional investment and be market-driven.

He said, “Market-driven regulations must be separated from the unregulated aspects of the business.

“The cost of unregulated activities by state-regulated company, should not be incorporated into the cost of the regulated business, as this could create more crises in the electricity market,” he emphasised.

Engr. Odusote therefore emphasized the significance of a tight regulatory structure by the state to be able to attract investment, increase efficiency, improve collection, and enhance profitability in the energy sector.

Dafe Akpeneye, NERC Commissioner, Legal, Licensing, and Compliance, during the panel session, warned that Nigeria may face a constitutional crisis due to different regulations in the electricity market.

He therefore suggested a review of the new Electricity Act, so that all stakeholders can agree on a trajectory for the market.

He cited India as an example of how to run a proper electricity market in a decentralized regulatory framework.

Abimbola Banjo, PwC’s Partner and lead Finance Advisory West Market, had earlier in his presentation expressed concerns about the wide regulatory disparities that may arise from the new Electricity Act.

He highlighted the tendency for different states, such as Lagos and Kaduna, to develop their electricity regulations, leading to a level of disparity.

Banjo emphasized the need for clear and consistent guidelines, especially as Nigeria is starting from behind compared to other federating states that have already developed their laws.

PwC’s Partner and lead Finance Advisory West Market stressed the importance of understanding the implications of the new regulatory framework and the need for collaboration to ensure a smooth transition and consistent application of the regulations.