Lagos power market holds gains for Nigeria if FG allows

If Lagos State were a country, it would be Africa’s fifth largest economy. Even with the smallest landmass, Lagos contributes at least 70 percent of taxable income to the Federal purse and its own power market could double this contribution if only the Federal Government backs the plan.

The Lagos State government led by Babajide Sanwo-Olu is on the point of developing its own electricity market, a move that involves excising the state from Federal Government agencies that control the Nigerian Electricity Supply Industry (NESI).

Under the plan, the government will establish an autonomous regulatory agency that will license participants, undertake market monitoring ensuring that prices charged by market participants are cost reflective and fair to end-users.

Legal and policy experts, who spoke with BusinessDay, say while Lagos has the constitutional powers to create its own market, success will depend on the Federal Government getting out of its way and not overly tipping over the current structure. At the very least, it may require packaging this gambit in a way that everyone with a stake can extract a win.

“The hurdles before the Lagos State government per the new electricity market are largely constitutional and regulatory hurdles,” says Odion Omonfoman, energy policy expert and CEO of New Hampshire Capital Limited.

Lagos is relying on Sections 13 – 15 of the 1999 Constitution, which earmarks electricity as an item on the concurrent legislative lists, meaning both the Federal and State governments can legislate.

The state government is also arguing it can secure an exemption for Lagos from the constitutional requirement or the expectation that only areas covered by the national grid system must be the exclusive preserve of the Federal Government on the basis that the creaking national grid barely delivers 1,000 megawatts (mw) of electricity to the state with over 20 million people.

“However, the Constitution is silent on the definition of a ‘national grid system.’ Thus there may be a constitutional interpretation of this provision, particularly if Lagos State intends to incorporate and regulate the operations of existing DisCos and TCN within the planned Lagos State electricity market,” Omonfoman notes.

Read also: Lagos State’s ambitious plan to generate its own electricity

The NESI is regulated by the Nigerian Electricity Regulatory Commission (NERC), a creation of the Electric Power Sector Reform Act, 2005, (EPSRA) and Omonfoman argues that the EPSRA has certain provisions that would prevent Lagos or any other states from licensing or establishing transmission and distribution entities other than those licensed by the NERC.

With regard to regulation, Ivie Ehanmo, electricity lawyer and doctoral researcher, notes that for Lagos Electricity Market (LEM) to work, it must conform with the existing regulatory, contractual and market structure and align with the existing structures without seeking to override those structures such as contractual commitments and obligations across the value chain, market remittance obligations of participants.

Wolemi Esan, energy and infrastructure partner at Olaniwun Ajayi, presents a different perspective.

“I do have significant doubts about how easily the Federal Government will accept the establishment of an independent LEM.

“This is in view of the differing interpretations of the provisions of the Constitution that relate to the State and Federal Government’s powers to legislate in relation to the power sector; the Federal Government of Nigeria’s historical stance on areas of legislative conflict between itself and the states, and the fact that the regulatory and market structures at the federal level currently underpinning the NESI have now been in place for well over a decade,” Esan states.

Ayodele Oni, energy lawyer and partner at Bloomfield Law Firm, offers yet a middle ground.

“I am of the view that, if the state works collaboratively with the Federal Government, any adverse interference will be minimal. The constitutional powers of Lagos and other states are clear,” Oni says.

The reality however is that the Federal Government has never allowed the constitutional powers of states to interfere with its intentions.

Over a decade ago, not even the courts could persuade President Olusegun Obasanjo to return Lagos State allocations he seized because Ahmed Tinubu created local government councils against his wishes.

Granted that the relationship between Buhari and many state governors have been pleasant – if anything, the opposition has soured on his penchant to ignore them. But while the buck stops at his desk, those kicking it his way, often determine how it arrives.

Therefore, those who may need persuading are officials like the minister of power, Maman Sale, the Bureau of Public Enterprises, NERC and Ahmed Zakari, who advises the president on infrastructure.

Other critical stakeholders include the management of the power distribution companies, generation companies and the Transmission Company of Nigeria. The list of those capable of throwing a monkey wrench into the plan is both long and troubling.

Findings show that both legal experts, analysts and some members of the public sampled for this article agree that the LEM, as far as ideas go, is clever.

Lagos hosts over 2,000 industries and about 65 percent of Nigeria’s commercial activities. It accounts for over 53 percent of manufacturing employment in Nigeria, which alone contributes to 7 percent of the national gross domestic product (GDP).

Yet, it gets barely 25 percent or 1,000mw of electricity from the creaking national grid and depends on dirty generators to generate 15,000mw of electricity to power industries and homes.

The Lagos power plan seeks to use available energy sources in the state, mostly gas and renewable energy sources, to attain at least 18 hours of supply daily over five years with growth in peak energy traded in the state from 12,000-15,000MWh daily in December 2022 to 81,000MWh by June 2028.

This will incentivise licensees’ adoption of cleanest, commercially viable modern technologies and generation sources to deliver energy to residents of the state and make the state a major global centre for innovation in the provision of electricity access to populations in megacities.

The state’s plan contains the basic factors that can make any electricity market work, including legal framework and Integrated Resource Plan (IRP), use of human resources and system planning tools, autonomous regulatory body, bankable commercial framework including cost-reflective tariff and an independent system operator.