In a development that could set off numerous court cases, Nigeria’s federal government on Friday announced that it was temporarily halting the granting of electricity regulatory oversight to state governments in the country.
Under the new Electricity Act (EA) assented to by former President Muhammadu Buhari and amended under the Bola Tinubu administration, states have the authority to create an independent electricity market within their jurisdictions to oversee the entire power value chain.
It makes provision for states within the federation to license electricity generation, transmission, and distribution in all their territories, allowing them to establish state electricity regulatory agencies to supervise and provide guidance on electricity operations within the state.
Based on the provisions of the Act, State Houses of Assembly are expected to enact laws to guide the operations of the electricity markets within their jurisdictions.
Recently, the Nigerian Electricity Regulatory Commission (NERC) announced that it had kick-started the process of handing over the regulatory powers it hitherto wielded to states that requested them, including Enugu, Ondo and Ekiti.
But speaking at the 8th edition of the Africa Energy Market Place (AEMP) Nigeria, in Abuja, Minister of Power, Adebayo Adelabu, said the process has now been halted because of the imperative to ensure state governments and stakeholders in the power sector properly understand what is required to operate an electricity market.
Adelabu argued that if the market under a single regulator is currently problematic, it is a no-brainer that multiple regulatory agencies set up by the states will be chaotic.
He maintained that it was therefore important to embark on a pilot phase of the handing over of regulatory power of the states to see if it works or not and make amends where necessary.
Adelabu said, “We must tread carefully, we should not be in a hurry. The market is not mature, it is not mature enough. With everything centralised for a single regulator, we have a myriad of issues.
“Now we tend to create a regulatory framework across 36 states, it is something that we must do in a highly systematic and strategic manner. We need just a couple of states as a pilot, which is why I halted granting of further regulatory autonomy to states.”
According to Adelabu, an adequate understanding of the transfer of regulatory oversight of the electricity market to states was critical for the survival and sustainability of the sector.
He added, “When we have each of these zones represented in the pilot and we allow it to run for three to six months, or up to a year, all the possible issues would have been reflected so that we are going to have a learning curve, and all those issues will be addressed before granting further regulatory autonomy because I have a feeling that we don’t have a comprehensive understanding of what this autonomy means.
“The fact that we gave a state regulatory autonomy doesn’t mean that it’s just about distribution of electricity, but it is regulation across the value chain: Generation within your territory, transmission within your territory, and distribution in your territory, including tariff setting.”
The minister stressed that Lagos State for instance has over 40 percent of national consumption in terms of electricity distribution, wondering how the state will shoulder the enormous responsibility that comes with regulating that kind of large power market.
He said, “The moment you take over the regulatory activities of Lagos State, when we talk about tariff, about subsidy, it will be on your neck as a state. I do not know the balance sheet you want to leverage to guarantee the necessary settlements on a monthly basis.
“So we all have to sit down and let everybody have a complete understanding of what this means. And we will know if we are ready to have full autonomy or it will be a partial autonomy for the meantime before we achieve a mature electricity market.”
He noted that most stakeholders underestimate the capacity required to have regulatory authorities in 36 states, including the Federal Capital Territory (FCT), insisting that any state that takes up regulatory oversight must have a framework and structure to prevent energy theft, vandalism and enough capital for continuous investments and maintenance of infrastructures.
Also speaking, a former Minister of Power and current Chairman of Geometric Power, Prof. Barth Nnaji, highlighted that although the new law has taken the electricity value chain to the grassroots, there are obvious hurdles that must be surmounted.
“Success in terms of capacity for states will be, to say, we will face it over time. The first thing you begin to do is hand-holding by the national regulator till eventually, you can now stand.
“Now, on the issue of limits, there is a tendency for state governments to believe that it is possible for them to have the ability to generate, transmit and distribute, that they can do it all.
“But there are Distribution Companies (Discos) within the environment, and these Discos are owned by companies. And so the wires are owned by these Discos. So understanding that they just can’t act as if they can suddenly take over the wires would be an issue. So let them understand how to collaborate with the existing companies.
“I think that all the state governments that are going to want to do this regulation need to be sensitive about a whole number of issues such as cost recovery. People who invest in infrastructure must recover their costs, and so it requires the federal government to work with the states to give them guidance,” he argued.
He spoke on the need to build capacity, explaining that the enormous capacity built by NERC over the years, cannot be replicated in the 36 states in a very short time.
He stressed: “On the issue of capacity, it is very clear that what the national regulator has done so far would not be easy to just replicate by the states. Now each commissioner has a lot of training that has been done and they have an institution within a particular area and then you have states that are just coming up, it will take a while.
“So success in terms of capacity for states will be to say, we will face it over time. The first thing you begin to do is handholding by the national regulator and till eventually you can now stand.”
Emmanuel Addeh
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