Tuesday, February 27, 2024

What Impact Will State’s Ability To Generate And Distribute Power Mean For Nigeria’s Electricity Sector?

The National Assembly has amended section 14(b) of the concurrent legislative to allow states to generate, transmit and distribute electricity in areas covered by the national grid. This amendment is an essential step towards improving the electricity supply across the country.

 

Two experts in Electricity law and the Energy sector explain the impact of this amendment on electricity supply in Nigeria.

 

Chineye Ajayi, an expert in Electricity Law, discusses why the amendment could prove a turning point in our electricity sector. 

 

Before this development, the position had been that state governments only had powers to generate, transmit and distribute power in areas not covered by the national grid. Impliedly, this meant that the powers of the state government were restricted to off-grid areas. That in itself created some overlap between the powers of the Federal Government exercised through NERC and the power of the state government, given that NERC’s regulatory authority covered off-grid areas.

 

While the expansion of the powers of the state government to cover on-grid areas is applaudable, this development does not take probable way areas of conflict between the federal and state government as it relates regulatory powers over electricity generation, transmission, and distribution.

 

The amendment raises several pertinent issues:

 

  1. Given that NERC currently regulates both off-grid and on-grid areas of the sector, can the state government make concurrent laws to control the same set of activities?
  2. If yes, what will be the position if there is a conflict between the national and state regulatory regimes?
  3. Will this mean an additional burden on players within the sector to comply with both federal and state regulations?

 

In addressing these issues, it appears the principle of “covering the field” will apply. The principle postulates that where the National Assembly and a State House of Assembly are competent to legislate on a particular matter, a state house of assembly cannot pass a law on the same matter that is in conflict or inconsistent with the provisions of the enactment of the National Assembly. Where there is such inconsistency, the law enacted by the National Assembly shall take precedence.

 

That said, analyzing the amendment from an economic perspective, we expect to see more development in the power sector as states begin to galvanize efforts towards improving energy access and reliable power supply in their states. Furthermore, given the sensitive and fragile nature of the national grid, there needs to be a high-level synergy/alignment between the federal and state government in upgrading and expanding the grid to accommodate additional electrical energy to be generated. Also, the entire regulatory system must be carefully integrated to avoid further financial and bureaucratic burdens on existing players and potential investors.

 

Odion Omonfoman, the CEO of New Hampshire Capital, explains why he thinks the amendment will move Nigeria’s energy sector in the right direction. 

 

It is essential to point out that electricity has always been on the concurrent legislative schedule of the 1999 constitution and not the Exclusive Legislative List, as many experts have mistakenly assumed. However, the federal government unconstitutionally arrogated the sole management of the power sector to itself. And worse, the federal government frustrated many states like Lagos, Rivers, and Edo State from developing the power sector within their state borders due to a slight ambiguity in the interpretation of that Section 14(b).

 

It is noteworthy that recently, the leadership of the Nigeria Governors Forum decided to challenge the FG’s unconstitutional powers in the sector. Thankfully, the governor’s stance has led to correcting the ambiguity in the constitution.

 

With this amendment, the coast is now clear for progressive state governments and state legislatures to make policies, laws, and regulations within their states’ power sector. States can now operate electricity markets within their borders independent of the national grid.

 

I also expect the design and structure of the Nigerian Electricity Supply Industry to radically change as state governments begin to operate their electricity markets in tandem with a national electricity market. Further to this amendment, States now have full constitutional rights to do the following:

 

  1. Set up State Electricity Regulatory Commissions (SERC) to regulate the electricity sector within their states.
  2. License and operate their electricity market structures for the generation, transmission, distribution, and sale of electricity within their borders:
  3. License state-owned or private IPPs operating within the state without capping of generation capacity that SERCs can license.
  4. license, own, operate, and manage transmission infrastructure within the state.
  5. license, own, operate, and manage electricity distribution systems, including DisCos, operating within their state borders.
  6. Set wholesale and retail electricity tariffs for state-licensed entities operating within state electricity markets.

 

 

Additionally, a repeal of the Electric Power Sector Reform Act (EPSRA) 2005, which is the extant law for the power sector, is eminent. In its place, there will be a new National Electricity Act that will recognize the constitutional right of the states in electricity matters. The new act will put in place a sound legal framework for designing and implementing a holistic national electricity market and independent state electricity markets. I expect the new National Electricity Bill will also delineate the roles and functions of NERC and that of the SERC to ensure synergy and collaboration within the power sector.

 

 

Lastly, electricity customers are the greatest beneficiaries of this amendment. Finally, electricity customers will have a choice of who their electricity supplier is, rather than being stuck with non-performing DISCos.

 

 

 

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