FG signals policy shift on exclusive disco franchise rights

The recent statement of Babtunde Fashola, minister of Power, Works and Housing, that ‘no Disco has exclusive rights over any area and its ability to retain an area must be consistent with the ability to provide service to the area,’ may signal a shift towards more independent electricity networks in DisCo franchise areas.

Under section 62 of the Electric Sector Power Reform Act 2005 (ESPRA), the Discos were granted a license to distribute electricity at the authorised area for a term of 10 years. This has been interpreted as an exclusive preserve of the Discos, discouraging mini grid investors from setting up their plants in a Disco franchise area. Government appears to be rethinking the arrangement.

“The Nigerian Electricity Regulatory Commission (NERC) historically has been reluctant to grant off-grid licenses in unserved or underserved urban/industrial areas but would rather ask that developers get embedded licenses, particularly in which would entail some kind of agreement with the Disco, which most times is a challenge for developers,” says Dolapo Kukoyi, energy lawyer and partner at Detail Commercial Solicitors.

Kukoyi further said, “The minister’s position could be indicative of a changing stance of government from a policy perspective, which will still need to be clarified by the NERC.”

 

Godwin Aigbokhan, renewable energy market adviser at National Competitiveness Council of Nigeria, agrees that it does indicate a shift in thinking but “will need more legal interpretation.

“If the minister is contesting their “ability to retain an area,” what yardsticks are we to use to judge the service that the Disco’s provide to the area? Where those explicitly stated in the sale contracts?

Desperate for investors in 2013, Nigeria ceded its power assets to ill-equipped distribution companies and granted them generous concessions on the belief that they were coming on board with financial and technical competence.

 

Four years later, the much vaunted investments have not materialised and the DisCos who are supposed to pay everyone else on the value chain, kept more collections from customers for themselves. Analysts say a weak regulator worsened the problem by keeping tariffs below the cost of production, even when all the assumptions made have become obsolete.

 

“Factors that contributed to the illiquid state of the market are the in-built deficit in the current sculpted tariff structure, forex pass through costs in energy bills that cannot be recovered from retail tariffs, insufficient capital expenditure provision in the Multi Year Tariff Order (MYTO) when compared to the required level of investments,” says Ivie Ehanmo, energy lawyer and power sector legal and regulatory specialist.

 

ISAAC ANYAOGU