Nigeria secures seat among African countries with well-developed electricity regulation

Despite Nigeria’s wobbly journey to service reflective electricity tariffs and a viable electric power market, the West African country has secured a seat among the top five African countries with well-developed electricity regulatory frameworks.

Nigeria came in fourth behind Kenya and Tanzania. For the third time in a row, Uganda has led the list. These top performers have regulators with the authority to exert the necessary oversight on the sector according to the just-published Electricity Regulatory Index (ERI) report 2020 by the African Development Bank (AfDB).

“Regulation is a catch-up game. If there are gaps, be happy to review your process and methodology,” Ziria Tibalwa Waako, CEO of Uganda’s Electricity Regulatory Authority said.

The ERI 2020 survey covered 36 African nations. The maiden edition in 2018 covered 15 countries. The report is prepared with two main objectives: diagnosing and identifying key gaps in electricity sector regulations and helping African regulators benchmark their performance and progress against their peers elsewhere on the continent and against international best practice.

The ERI consists of three sub-indices. The Regulatory Governance Index assesses how well the regulatory framework supports electricity sector reform, promotes efficiency, and meets desired economic, financial, environmental, and social objectives. It is concerned with the existence and content of electricity regulations.

The Regulatory Substance Index assesses how well the regulatory framework is implemented in practice.

The Regulatory Outcome Index assesses the outcomes of regulatory processes from the perspective of regulated entities and power consumers. It offers insights into how the actions of regulators have affected the performance of the sector.

This third edition of the ERI report was launched during the Digital Energy Festival of the Africa Energy Forum, recently. The event brought together more than 70 stakeholders in the energy sector, regulators, international organisations, and development finance institutions like Africa50 and the World Bank.

However, the overall electricity regulatory framework of African countries is poorly developed, and most countries experience major regulatory weaknesses.

“The African Development Bank has been at the forefront of efforts to mainstream electricity sector regulation issues in Africa within the broader sector discourse, recognising the importance of establishing robust legal and regulatory frameworks to support the financial sustainability of the sector and attract private sector investment,” said Kevin Kariuki, vice president, Power, Energy, Climate and Green Growth, at the African Development Bank.

AfBD’s ERI 2020 described Nigeria’s Service Reflective Tariff Scheme as an innovative mechanism to incentivise and drive utilities towards delivering the desired quality of service. Under the scheme, different consumer categories subscribe to defined minimum hours of electricity supply in a day and pay commensurate tariffs.

Wale Shonibare, director for Energy Financial Solutions, Policy and Regulations, at the African Development Bank said COVID-19 related restrictions had increased residential electricity demand and decreased industrial and commercial demand. This had resulted in shortfalls in the projected revenues of utilities.

“To address these challenges, regulators will be required to play an even more critical and central role post-Covid, to ensure that the sector recovers with a minimal and controlled impact on consumers and utilities,” Shonibare said.

Citing the negative impacts of the economic fallouts from Covid-19 for both households and businesses of different sizes, Nigeria’s the Nigerian Electricity Regulatory Commission (NERC) had initially suspended implementation of the service reflective tariffs as planned from starting from July 1, 2020. Nevertheless, Electricity Distribution Companies (DisCos) on November 1, 2020, began implementation of the revised electricity tariffs.

The revised tariffs are based on the decision of the technical committee set up to review the September 1 cost-reflective tariffs, which implementation was temporarily halted after organised labour threatened nationwide strike.

Koffi Klousseh, director of Project Development at Africa50, praised the ERI as a great tool for assessing the readiness of the electricity sector for private sector investments.

People with a deep understanding of the electricity sector on the continent such as Foibe Namene, CEO of Namibia’s Electricity Control Board reiterated that regulatory independence is a balancing act between multiple stakeholders while maintaining high levels of integrity in the regulatory processes and actions.

Peter Twesigye, head of Electricity Regulation Programme, Power Futures Lab, at the University of Cape Town, maintained that “regulators should support utilities through tariffs to finance investments in the backbone feeders with outage management systems that will enable them to monitor reliability and the quality of power on these feeders.”