A recent statement by 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,” could 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.
She 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 hope that they will provide the necessary financial and technical competence.
Four years after, the much vaunted investments have not materialised and the Discos who are supposed to pay everyone else on the value chain kept more they collected 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.
Nigeria’s 11 electricity distribution companies were granted franchise areas that cover sometimes three or more states. In Lagos alone, Eko Disco and Ikeja Electric are saddled with the task of distributing power to over 20 million people, a task they have proven incapable of fulfilling even as they fight off perceived threat to their franchise areas.
“I think the Discos should be willing to be more flexible for the sake of national interest. Their focus should be on servicing their already connected customers optimally. They should not eye unserved or underserved areas so that millions of dollars of off-grid investment can flow into the country.
“These investments will reduce the pressure on the grid allowing them to be more efficient and maybe one day even profitable. In the long run, I am a believer in net metering and what it can do for our discos.
“They should let the investment come and then seek to collaborate with these investors in the future and not in the “asset take-over model” that is stated in the current mini-grid law. Off-grid sites could become embedded generation sites in the future and that should be the long term view of the DisCos,” says Aigbokhan.
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