NextierIntroduction
Nigeria is the largest economy in Africa with a Gross Domestic Product of $375.8 billion (2017). However, in terms of power supply, it has significantly underperformed in comparison with other African giants. For instance, Nigeria’s per capita power consumption is 126 kilowatt-hour (kWh) which lags Ghana at 361 kWh and South Africa at 3,926 kWh.
Privatisation of the power sector in 2013, is one of the numerous attempts of successive Governments of Nigeria to liberate the sector towards efficient service delivery intended to stimulate economic prosperity. Nevertheless, more than five years onwards, significant growth in the sector remains marginal.
This piece highlights the political economy of the Nigeria electricity supply industry (NESI). It also discusses the impact of the political environment on the efficiency of power supply in Nigeria.
Context
In many developing economies including Nigeria, the political environment largely influences investment climate, adherence to the rule of law and independence of public and private institutions. Regulatory procedures are expected to be transparent, accountable and predictable upon outlined principles and processes that promote healthy competition and effectual service delivery. In clearer terms, a politically induced market regulator is a risk to both customers and investors, which ultimately unsettles the much-needed stability to stimulate sustainable development.
The National Assembly (1999— 2003) in protecting the autonomy of the Nigerian Electricity Regulatory Commission, refused the demands of the Obasanjo Government to appoint the Chairman and Commissioners of Nigerian Electricity Regulatory Commission (NERC) without confirmation by the Senate. The Electric Power Sector Bill that was passed by the National Assembly in 2003 was not approved by former President Olusegun Obasanjo up until 2005.
Also recall that the Federal Government had to negotiate an out-of-court settlement to enable it reconstitute the Board of NERC when the pioneer Board of the commission, led by its Chairman, Dr. Ransome Owan, took the government to court challenging its dissolution by President Umaru Yar’ Adua’s Government, after being in office for only three of its mandated five years. This is what regulatory and market independence entails; a prime requirement for the sustainable development of the Nigerian Electricity Supply Industry.
Cases of political interference
The ANED Vs. NERC
Case On September 11, 2018, NERC issued the communique at the end of its separate meetings with generation and distribution companies (GenCos and DisCos). Among other decisions, the communiqué with respect to the Discos stated that “…activities of Association of Nigerian Electricity Distributors were discouraged; The Association of Nigeria Electricity Distributors (ANED) should not interfere with policy directives or regulatory pronouncements made by the Honourable Minister of Power or the Commission; and no unwarranted remark should be made by ANED representatives against the person of the Honourable Minister, NERC Chairman or against any of the NERC Commissioners going forward.”
NERC’s pronouncement on the subject seemed contrary to constitutional provisions for freedom of expression and right of association in pursuit of a common legal interest. Power sector policy directives and regulatory declarations should be subject to objective analysis and stakeholder engagements across all sub-sectors of the value chain, in order to foster generality and industry harmony.
Ibadan Disco Board vs NERC
NERC suspended the board of Ibadan DisCo on 19th June 2018, for failure to recover the unauthorised grant of interest-free loan of about six billion naira to Independent Energy Distribution & Marketing Group. IBEDC in contention of this pronouncement, approached the Abuja Federal High Court who ruled that all parties are to maintain status quo prior to NERC’s Order until further hearing in suit No. FHC/ ABJ/CS/665/18 slated for 15th October 2018. Although the waiting period has since elapsed, there has been no further news on the expected hearing. It is also noteworthy to state that the legality of the Board of an electricity distribution company should not be allowed to remain shaky in such a period where they are expected to invest heavily in network expansion and infrastructure upgrade. Settlement of industrial disputes as such should be handled timely, in line with existing procedures and transparency to foster market stability.
The House of Representatives on 25th July 2018, through the Chairman, House Committee on Power ordered the Regulator (NERC), to reinstate the Board of IBEDC
within 48 hours while urging the regulatory agency to desist from any act that could send wrong signal to investors.
Thus, the National Assembly convened an investigative public hearing and issued a directive on a matter already subject to an interim ruling of a competent court. This situation depicts political interference and intimidation which is alien to international practices. The Legislature is therefore urged to conduct her affairs in ways that do not usurp the investigative role of the executive, nor the adjudicative functions of the judiciary.
Review of Performance Agreement with investors
As part of the processes leading to the successful privatisation of NESI, DisCos signed a five-year Performance Service Agreement (PSA) with the Federal Government for the privatisation of power assets with effect from 1st November 2013. In line with stipulations of the Memorandum of Understanding and Power Privatization Act, a final review of the DisCos performances ought to have been concluded by October
31, 2018.
Contradicting the original agreements, the Bureau of Public Enterprises (BPE) has announced December 31, 2019 as the final performance review for 10 electricity distribution companies in Nigeria. According to the Director General of BPE, NERC’s Tariff Order of January 1, 2015 was pursuant to a provision of the Agreement that provided for the Discos to establish the baseline level of aggregate technical, commercial and collection losses for the performance measurement within one year after takeover and the outcome presented to NERC for approval.
However, industry stakeholders and labour unions continue to counter this proposition on the perceived moral incompetence of BPE to coordinate this final review, while also managing Federal Government’s stake at the Board of these distribution companies. The position of BPE and the Federal Government on this matter is equivalent to an illegal extension of the operating licenses of DisCos, disobedience of Power Privatization Act and yet another situation of undue political interference in the power sector.
Conclusion
Government should not interfere with the power of the regulator regardless of her political and electoral ambitions. Such actions can offset the stability of the market, erode investor and consumer confidence and encourage market indiscipline leading to erratic power supply as currently witnessed in Nigeria. The market regulator must also manage and conduct her responsibilities in line with best practices devoid of bias or inconsistency. The Nigerian Electricity Supply Industry, in its current stage, requires the commitment of all market participants to achieve a reliable power sector for all Nigerians, immune to any given political environment.
Author
Godswill Ugochukwu is an analyst at Nextier Power.
Editor
Osasu Eghobamien is a power sector analyst
