DECENTRALIZATION OF THE NIGERIAN ELECTRICITY INDUSTRY (NESI): PROSPECTS AND CHALLENGES*
By ATER, Solomon Vendaga
1.0. Introduction
The availability of electricity is a vital component of a nation’s infrastructure, with far-reaching implications for its economic development, environmental sustainability, and the well-being of its citizens. This plays a crucial role in alleviating poverty and promoting economic growth. The challenges currently encountered in Nigeria are closely tied to the unsustainable condition of our public electricity supply. As highlighted in the extensive global research , particularly emphasized in the 1987 Brundtland Report by the World Commission on Environment and Development (WCED), the level of energy services in a nation is intricately intertwined with its stage of economic development. In the pursuit of a resilient and thriving national economy, the foundational role of a well-structured and efficient electricity market or industry cannot be overstated. This work examines the current move to decentralize the electricity market in Nigeria to see both the prospects and challenges the new phase will bring to the industry, as well as offer key recommendations for optimal results.
2.0. Overview of the NESI and the New Regime
Nigeria’s electricity generation began in 1896, with the first power plant in Lagos fifteen years after its introduction in England (Niger Power Review,1985). Since then, there have been several reform programs in the industry. These reforms started with the Nigerian Electric Power Authority Act in 1972 that created NEPA, NEPA was structured vertically (from top to bottom ) and enjoyed a national monopoly for so long. This resulted in perennial challenges, including managerial inefficiency, heavy debt overhang, underinvestment, weak transmission and distribution systems, high system losses and low revenue collection efficiency, which bedeviled the industry. So, it became necessary to demonopolize NEPA and give it a somewhat competitive shape that will drive competition and efficiency in the industry. This started with the liberalization of the economy in 1986, the amendment of the NEPA Act in 1988 and the policy suggestions of the Electric Power Sector Implementation Committee in 2000, which later culminated in the enactment of the Electric Power Sector Reform Act (EPSRA), 2005. This Act abolished NEPA and provided for the initial holding company- Power Holding Company of Nigeria (PHCN) in s. 1. Subsequently, the assets and liabilities of NEPA were transferred to 18 successor companies, which are six (6) GenCos, 1 TransCo, and 11 DisCos, paving the way for eventual divestment to private capital. This gave a new face to the vertically integrated industry under NEPA and started the privatisation journey in the industry.
It should be noted that the NESI, even with the EPSRA, has continued to be bedeviled by many shortcomings that have denied many Nigerians access to electricity. That is about 85 million Nigerians that do not have access to grid electricity. This represents 43% of the country’s population, making Nigeria the world’s most significant energy access deficit . Determined to turn this tide, NESI’s power generation and distribution subsectors in 2013 underwent privatization . However, as the challenges persisted, the need for legislative action triumphed. Thus, on March 17, 2023, the Constitution Alteration Act was enacted . The Act amended the concurrent list to grant state governments the authority to handle electricity generation, transmission, and distribution within their states, particularly in areas covered by the national grid . This marked a move towards decentralization in the NESI. It is important to note that the Federal Government of Nigeria has always been responsible for the policy formulation of NESI.
To facilitate the decentralization process, the Electricity Act of 2023, enacted on June 9, 2023, replaced the Electric Power Sector Reform Act of 2005 and aimed to establish a framework for the post-privatization competitive phase in the power sector. Sections 2(2) and 63(1) of the Act grant states authority to legislate, establish local electricity markets, issue licenses, create regulatory bodies, and perform regulatory functions within their jurisdictions. Furthermore, sections 230(2) to 230(9) delineate procedural steps for transferring regulatory responsibilities from the Nigerian Electricity Regulatory Commission (NERC) to a state electricity regulatory authority (state regulator) after the enactment of a law establishing a state’s electricity market.
3.0. Prospects and Challenges of the New Regime
3.1. Prospects
3.1.1. Improved Efficiency and Competition: The decentralization of the Nigerian Electricity Industry (NESI) holds the promise of enhancing efficiency and fostering healthy competition within the electricity market. By granting states the authority to legislate and establish local electricity markets, the new regime encourages innovation and responsiveness to local needs, potentially leading to improved service delivery.
3.1.2. Tailored Solutions for Local Challenges: The regional autonomy provided to states will enable them to address specific challenges unique to their electricity infrastructure and demand patterns. This localized approach may result in more targeted and practical solutions, contributing to the overall improvement of the electricity sector.
3.1.3. Increased Private Sector Participation: The comprehensive regulatory framework outlined in the Electricity Act of 2023 aims to attract private sector investments in the power sector. This could bring in much-needed capital, technology, and expertise, ultimately contributing to the development and modernization of the electricity infrastructure.
3.1.4. Empowerment of State Governments: Granting state governments the authority to handle electricity generation, transmission, and distribution within their states empowers them to take proactive measures to address energy challenges. This decentralization aligns with the principle of subsidiarity, allowing decisions to be made at the most appropriate governance level.
3.2. Challenges
3.2.1. Coordination and Standardization: The shift towards decentralization introduces the challenge of coordinating actions across multiple states. Ensuring standardization in regulations, licensing, and operational procedures becomes crucial to maintaining a cohesive and interconnected national electricity grid.
3.2.2. Capacity and Resources: State governments may face capacity and resource constraints in managing the complexities of the electricity industry. Building the necessary expertise, infrastructure, and regulatory capabilities at the state level could pose challenges and require substantial investments.
3.2.3. Regulatory Compliance and Oversight: The effective functioning of decentralized electricity markets relies on robust regulatory frameworks and enforcement mechanisms. Ensuring that states adhere to national standards and regulations while maintaining a balance with local autonomy poses a significant regulatory challenge.
3.2.4. Socioeconomic Disparities: The prospects of decentralization may lead to disparities in electricity access and service quality between states. States with more resources and economic strength may progress faster, potentially exacerbating socioeconomic inequality.
3.2.5. Transition Period Challenges: Transitioning from a centralized to a decentralized system may face resistance and teething problems. Stakeholder engagement, communication, and the smooth transfer of regulatory responsibilities, as outlined in sections 230(2) to 230(9) of the Electricity Act, will be critical during this period.
4.0. Conclusion
In conclusion, while the decentralization of NESI presents promising prospects for efficiency, competition, and tailored solutions, some challenges need to be addressed. Addressing the associated challenges will be essential to realizing the full benefits of the new regime and ensuring a sustainable and equitable electricity supply for all Nigerians.
5.0. Recommendations
To address the challenges associated with decentralization, it is imperative to:
1. Strengthen regulatory capacities at both federal and state levels.
2. Establish standardized regulations, licensing procedures, and operational protocols for consistency.
3. Foster public-private partnerships to attract investment and expertise.
4. Implement policies to ensure socioeconomic inclusivity and address regional disparities.
5. Maintain continuous and transparent stakeholder engagement during the transition.
6. Encourage investment in renewable energy sources for sustainability as provided under the Electricity Act.
7. Develop a monitoring and evaluation framework to track progress and impact.
About the Author
*ATER, SOLOMON VENDAGA is a final year law undergraduate at the University of Abuja with keen interest in technology law, energy law and policy, taxation and public policy. He can be reached on +2348025263078 and soloater12@gmail.com
References
1. UN Doc A/42/427. Our Common Future: Report of the World Commission on Environment and Development. Available at https://digitallibrary.un.org/record/139811. Accessed 11th November 2023
2. S. 3(1) of EPSRA 2005; This transfer includes also employees of NEPA see s. 5 of EPSRA.
3. Oloru, D Decentralizing Nigeria’s Power Sector (Apr 2023) Available at https://www.siemens-energy.com/mea/en/news/magazine/decentralizing-nigerias-power-sector.html. Accessed 12th November 2023
4. Detail Commercial Solicitors, Prospects of the Electricity Act 2023 in resuscitating the Nigerian power sector (Sep 2023) available at https://www.financialnigeria.com/prospects-of-the-electricity-act-2023-in-resuscitating-the-nigerian-power-sector-feature-535.html. Accessed 12th November 2023.
5. Constitution of the Federal Republic of Nigeria (Fifth Alteration) Act, No. 33, 2023 (the “5th Alteration Act”), amending Paragraph 14 (b), Part II of the Second Schedule to the Constitution.
6. Electricity Act. 2023
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