Market not mature, says Adelabu as FG suspends transfer of electricity regulatory oversight to state

Adebayo Adelabu, the minister of Power on Friday said the Nigerian government has suspended the issuance of regulatory autonomy to state governments.

This he said was due to the need for state governments, stakeholders in the power sector to properly understand what is required to operate an electricity market.

The minister disclosed this while speaking at the 8th edition of the Africa Energy Market Place (AEMP) conference in Abuja on Friday.

Read also: What state electricity markets mean for Nigeria’s power sector

According to him, adequate understanding of the transfer of regulatory oversight of the electricity market to states is imperative for the survival and sustainability of the nation’s power sector.

He said, “Therefore, we must tread carefully, we should not be in a hurry, the market is not a mature market, it is not mature enough. With everything centralized for a single regulator, we have a myriad of issues. Now we tend to create a regulatory framework across 36 states, it is something that we must do in a highly systematic and strategic manner.

“We need just a couple of states as a pilot, which is why I actually halted granting of further regulatory autonomy to states.”

The Nigerian Electricity Regulatory Commission (NERC), in compliance with the amended Constitution of the Federal Republic of Nigeria (CFRN) and the Electricity Act 2023 had issued an order to transfer regulatory oversight of the electricity market in Ondo, Ekiti and Enugu State from the Commission to the state electricity regulatory bureau.

However, the minister said that the transfer of regulatory oversight will be piloted in selected states across the geopolitical zones in the country, noting the peculiarities in each zone.

“When we have each of these zones represented in the pilot and we allow it to run for three to six months, or up to a year, all the possible issues would have been reflected so that we are going to have a learning curve, and all those issues will be addressed before granting further regulatory autonomy, because I have a feeling that we don’t have a comprehensive understanding of what this autonomy means.

“The fact that we gave a state regulatory autonomy doesn’t mean that it’s just about distribution of electricity but it is regulation across the value chain. Generation within you territory, transmission within your territory, and distribution in your territory, including tariff setting.

Using Lagos state for example, they noted that the state has almost over 40 percent of national consumption today in terms of electricity distribution. “The moment you take over the regulatory activities of Lagos state, when we talk about tariff, about subsidy, it will be on your neck as a state. I do not know the balance sheet you want to leverage to guarantee the necessary settlements on a monthly basis.

“So we all have to sit down and let everybody have a complete understanding of what this means. And we will know if we are ready to have full autonomy or it will be a partial autonomy for the meantime before we achieve a mature electricity market,” he added.

The minister speaking further said that most stakeholders underestimate the capacity required to have regulatory authorities in 36 states, plus the FCT.

He stressed that each state that takes up the regulatory oversight must have a framework and structure to prevent energy theft, vandalism and enough capital for continuous investments and maintenance of infrastructures.

In his remarks, Bart Nnaji, the chairman of Geometric Power noted that while the Act has been able to bring regulation closer to the people, there are a lot of challenges that may arise at the implementation stage.

He explained that many state governments may have difficulties with building adequate capacity to carry out the regulatory functions as required by the Act. Other issues as highlighted by Nnaji include issues of limits as well as sensitivity of the state governments to the operators within the environment.

“On the issue of capacity, it is very clear that what the national regulator has done so far would not be easy to just replicate by the states. Now each commissioner has a lot of training that has been done and they have an institution within a particular area and then you have states that are just coming up, it will take a while.

“So success in terms of capacity for states will be to say, we will face it over time. The first thing you begin to do is handholding by the national regulator and till eventually you can now stand.

Now, on the issue of limits, there is a tendency for state governments to believe now that it is possible for them to have the ability to generate, transmit and distribute, that they can do it all. But there are DisCos within the environment, and these DisCos are owned by companies. And so the wires are owned by this Discos.

“So understanding that they just can’t go to act as if they can suddenly take over the wires would be an issue. So let them understand how to collaborate with the existing companies.

“Now, the last one about this is sensitivity. I think that all the state governments that are going to want to do this regulation need to be sensitive about a whole number of issues such as cost recovery. People who invest in infrastructure must recover their costs, and so it requires the federal government to work with the states to give them guidance,” he said.

For Folake Soetan, the Managing director of Ikeja Distribution Company, implementing the regulatory oversight at the state levels would require the states to develop a regulatory policy framework that can create a conducive environment and attract sustainable investments into the power sector in the states.

She noted that states will have to develop strategies to address issues of liquidity in the sector