NERC v. NEMSA: an insight from P&G

Memorandum by Perchstone & Graeys, on the review of ‘A Bill For An Act To Establish The Nigerian Electricity Management Services Authority (NEMSA)’, delivered to the house of representatives committee on power

INTRODUCTION

President Goodluck Jonathan’s administration has performed admirably well in demonstrating utmost sincerity with its desire to privatise the electricity assets in Nigeria. Although this appeared ambitious as privatisation of this magnitude is done in phases, Nigeria (against all odds) on November 1, 2013, formally handed over the Successor companies to their respective owners. This of course has not come with its own criticisms as the owners of the Successor companies have expressed some dissatisfaction with the quality of assets bought when juxtaposed with its expected returns. The banks who funded the primary acquisitions are also not in a position to keep this exposure far longer than necessary so as to meet up with depositor’s instruction. It is for these reasons that a secondary electricity market becomes inevitable. This will allow new entrants with long term funding acquire interests in the assets; the birth of a new electricity market. To have a vibrant market-driven electricity market therefore, an independent Regulator becomes inevitable.

a) AN INDEPENDENT REGULATOR: A SINE QUA NON

The need to have an independent regulator for a sector such as the Power Sector cannot be over-emphasized. The independent regulator model is derived from English Common Law. The regulator, acting in the public interest, is given considerable discretion to take decisions on tariffs and service issues within a framework of laws and regulations. These decisions are made transparently and with full accountability.  Public proceedings are an integral part of this process and stakeholders are pro-actively given opportunities to present their views to the regulator for consideration before the decision is taken. This can only be achieved with an absolute independent minded regulator. Best technical and public interest judgment becomes the only criteria for informed regulatory decisions. 

It is international best practice that the regulator, although an appointee (of the President) may not be removed from office during his tenure unless it follows the due process. Although many developing and transitional economies adopted this framework (or leaned heavily in that direction), the functionality of many recently created regulators is still a work in progress. 

Whereas the objective was to establish a truly separate and autonomous organization of government that exercises independent regulatory discretion, many so-called regulators are either:

i. Separate regulators” – a functionally separate organization is established within a Ministry that acts with quasi-independence but whose “decisions” are either recommendations to the minister, who has the “final” decision, or decisions that are subject to de facto ministerial review.

ii. Embedded regulators” – one or more functions (e.g., offices, departments, “desks”, etc.) that are set up within a ministry or ministries and perform regulatory duties subject to the review and coordination of higher governmental authorities. 

In either of these cases, regulatory decisions are ultimately left to the discretion of a politician who may take or review decisions with a view to achieving purely political objectives.

b)  NERC AS THE INDEPENDENT REGULATOR

This regulatory risk (“regulatory capture”) – i.e., the degree to which the regulator is actually given “independence” to take regulatory decisions – is a significant issue for potential investors and this must be what the government had in mind when, in view of the provisions of Section 31 of the Electric Power Sector Reform Act, 2005, CapE7, Laws of the Federation of Nigeria, 2004. The Nigerian Electricity Regulatory Commission was established under the EPSRA as a body corporate with perpetual succession which can sue in its corporate name and subject to the Act, to perform all acts that bodies corporate may by law perform.

In furtherance of ensuring an appreciable level of independence for the regulator, the EPSRA also provides for the following:

i. By the provision of Sec 34(1) of the EPSRA, the board of Commissioners are empowered to make regulatory decisions 

ii. By the provision of Sec 96 of the EPSRA, the Board is empowered to make regulations on all matters on which the Commissions have powers.

iii. As regards funding of the Commission, Section 52 of the Act provides that the Commission shall be funded through:

(a)  fees, charged and other income accruing to the Commission from licensees and other things done by it in terms of this Act, excluding any fines or penalties recovered pursuant to this Act;

(b)  funds allocated to the Commission by the National Assembly, pursuant to a request by the Commission for additional funds required to meet its reasonable expenditures; and

(c)  such other moneys as may vest in or accrue to the Commission, whether in the course of its operations or otherwise.

(d) Currently, the Commission collects 1.5% of market revenue as regulatory charge vide the Market Operator 

In light of the foregoing, it is clear that the intention of the Act was to give the Commission as much independence as possible. This is further underscored by the establishment of various technical and commercial departments within the Commission to robustly administer/govern the electricity market.

c)  NERC AS A ONE-STOP REGULATOR

The Commission is sub-divided into key departments to allow for specialization of functions, efficiency as well as make provision for regulation and supervision of all activities in NESI. These departments are as follows:

 • The Renewable Energy, Research & Development- Muhammed Lawal Bello – Vice Chairman/ Commissioner 

• Legal, Licensing & Enforcement- Dr. Steven Andzenge / Commissioner 

•  Engineering, Standards & Safety.- Engr. Mary Eniola Awolokun / Commissioner 

• Finance & Management Services.- Mr Patrick Umeh / Commissioner 

• Government & Consumer Affairs- Dr Abba Armiya’u Ibrahim / Commissioner 

• Markets, Competition & Rates- Mr Ekpo Olagoke Eyo (profile) – Commissioner 

d) ACHIEVING NERC’S OBJECTIVES AS AN INDEPENDENT REGULATOR

The principal goals of NERC may be appreciated in the three broad areas of i) boasting private sector participation, ii) stimulating the attainment of an uninterrupted electricity supply and iii) ensuring the protection of consumers in the industry.

As part of its mandate to encourage private sector participation in the electricity market, NERC ensures that regulations which encourage profitable pricing and effective competition among market players are developed and appropriate codes of conduct/ rules of engagement  are also enforced to guarantee an efficient and investor-friendly market. It is anticipated that an enhanced participation of the private sector in the industry will significantly impact on the ultimate goal of achieving a steady supply of electricity to consumers, which is fundamental to the geometric progression of the economy.

Whilst expected to cover a wide national footprint to maximise electricity access in Nigeria, NERC is to monitor industry operators and prevent abuse of the market power. This is in tandem with its responsibility of ensuring consumers fulfill their obligations by paying for power used. To this end, it will develop in consultation with licensees, customer service standards, fair pricing rules, and facilitate constant communication with consumers to ensure they understand their rights and obligations.

NERC ensures that materials on consumer rights (safety, service, etc) are up to date, readily accessible and provide an effective dispute resolution mechanism to guarantee consumer protection while actively fostering private sector participation.

THE NEMSA BILL

The NEMSA Bill, which has gone past its 2nd reading at the House of Representatives, proposes to establish the Nigerian Electricity Management Services Authority (NEMSA). The proposed Nigerian Electricity Management Services Authority (NEMSA) is to carry out the functions of enforcement of technical standards and regulations, technical inspection, testing and certification of all categories of electrical installations, electricity meters and instruments. The proposed Authority is to take over the functions of the Electricity Management Services Limited (EMSL) which was created in 2007, as one of the successor companies from the unbundling of the defunct PHCN, to carry out the very exact function of technical inspections, test and certify electrical materials/equipment to ensure they are of right quality and standards.

In addition to assuming the functions of EMSL, the primary functions of the Authority would include the issuance of competency certificates/electrical installation licenses to qualified electrical personnel and contractors working in NESI; carry out electrical inspectorate services for the NESI; and enforcing all statutory technical electrical standards and regulations amongst others.

a) Similarities in the Functions of NERC and the NEMSA

It is important to careful understand the functions of NERC vis-à-vis, the proposed functions of NEMSA to objectively determine whether or not, the proposed Authority is necessary.

THEODORA KIO-LAWSON