Decentralising the electricity sector – issues arising from the fifth amendment to the Constitution

In March 2023, the President of the Federal Republic of Nigeria signed 16 constitutional amendment bills into law, including “the Constitution of the Federal Republic of Nigeria (Fifth Alteration) Bill, No. 33, 2022” – (the Fifth Amendment”). The Fifth Amendment effectively alters the Constitution of the Federal Republic of Nigeria 1999 (as amended) (the “Constitution”) to empower States within the Federation to make laws concerning the generation, transmission, and distribution of electricity in all areas of each State, including areas covered by the national grid. This decentralises electricity regulation in areas already covered by the national grid.

Electricity regulation by different levels of government is not uncommon, as many countries with a federal system of government also implement the same model. For example, the Constitution of India places electricity under the concurrent list. Both the central government and the State governments in India can legislate on matters relating to electricity.

Notably, the Fifth Amendment represents a volte-face from the 1999 constitutional position, which restricts the States from legislating on areas covered by the grid. To distil the implications of the new amendment, we will briefly explore how the issue of electricity has been treated under previous Nigerian constitutions and then analyse the constitutional issues thrown up by the recent amendments.

Brief History of Electricity Regulation in Nigeria

Electricity was first generated in Nigeria in 1866 when two generating sets were installed to serve the Colony of Lagos. In 1951, the government of Nigeria, through an Act of Parliament, established the Electricity Commission of Nigeria (ECN) to regulate and operate the power supply systems in Nigeria. Subsequently, the Niger Dam Authority (NDA) was established by the Legislature of the Federation of Nigeria to develop the Kainji Hydroelectric Dam. In 1972, the ECN and the NDA were merged to form the Nigerian Electric Power Authority (NEPA).

After Independence, legislative authority to regulate electricity for the country resided in the Federal Government, albeit with a proviso that ensured that nothing could derogate from the power of the Regions to legislate for Electricity generation, distribution and transmission within their geographic areas. Both the 1960 and the 1979 Constitutions provided that Parliament may make laws for Nigeria or any part thereof with respect to electricity or gas, provided that nothing in those provisions shall preclude the legislature of a Region from making laws for that Region on electricity and gas.

Under the 1979 Constitution, electricity was situated in the concurrent list with the National Assembly being able to make laws for the whole Federation or any part thereof while the States’ Houses of Assembly could make laws for their respective states with respect to electricity generation, distribution and transmission, amongst other things. It is important to note that many states did not take advantage of these provisions, mainly because of the military takeover of power and the resulting pseudo-unitary system of military administration that characterised most of the period after.

The 1999 Constitution brought about a significant shift in Nigeria’s electricity regulation. Paragraph 14 of the 2nd Schedule to the Constitution restricted, for the first time, the powers of the State Houses of Assembly to make laws pertaining to electricity generation, transmission and distribution in specific areas covered by a national grid system within that state. Based on the 1999 Constitution, electricity has been regulated mostly at the national level, with only a few states making laws regarding the areas the Constitution did not limit, such as the establishment of electric power stations and authorities to promote and manage them.

An inevitable issue that would arise where both the Federal Government and the State Government may validly legislate on the same subject matter is the possibility of conflicting or multiple legislation co-existing side-by-side and the thorny question of which legislation should apply.

The (Fifth Alteration) Act 2023

By the recent amendment, the Second Schedule to the Principal Act is altered in Part II, paragraph 14 (b), by deleting after the word “areas” the words “not covered by a national grid system”. Therefore, the Fifth Amendment is a return to the pre-1999 constitutional position where the states have the liberty to make laws concerning the generation, distribution and transmission of electricity in all areas of their states, whether or not there is a national grid system in place.

The practical implication of the Fifth Amendment is that states are not precluded from making laws to regulate and license the generation, distribution and transmission of electricity. This is also with respect to areas covered by the national grid.
This amendment raises several commercial and constitutional issues. Some of the constitutional issues arising from the recent amendment are discussed below.

I. Constitutional Issues

a. The Doctrine of Covering the Field: As we noted above, the decentralised approach to electricity regulation is not uncommon in federal states. An inevitable issue that would arise where both the Federal Government and the State Government may validly legislate on the same subject matter is the possibility of conflicting or multiple legislation co-existing side-by-side and the thorny question of which legislation should apply.

In Nigeria, the doctrine of “covering the field” is usually applied between a law enacted by the federal legislature and that enacted by a state legislature on the same subject. The Supreme Court has examined this sort of situation in the past, and their decision in those cases gives us an indication of the rules to apply in judging the likely outcome of the recent constitutional amendment.

In the case of AG Lagos State v Eko Hotels, the Supreme Court listed two situations where the doctrine may arise –

I. If the law enacted by the House of Assembly of a State is inconsistent with the Law validly enacted by the National Assembly, the law made by the National Assembly shall prevail, and the law made by the House of Assembly shall, to the extent of the inconsistency, be void. Section 4(5) of the Constitution is emphatic on this; and

II. Where the laws made by both the National Assembly and the House of Assembly of a State with regard to the same issue or matter in the Concurrent Legislative List are not inconsistent, the law made by the National Assembly enjoys superiority or paramountcy over the law enacted on the subject by the House of Assembly of the State. The decision of this Court in A. G, ABIA v. A. G, FEDERATION (2002) 6 NWLR (Pt. 763) 264 at 435 F puts it succinctly thus – The doctrine (of covering the field) however renders the paramount legislation predominant and the subordinate legislation remains inoperative so long as the paramount legislation remains operative. Where, of course, there is obvious inconsistency, the subordinate legislation is void.”

The reasoning and conclusion of the Supreme Court were also the same in the case of OSIEC & ANOR v. AC & ORS.

Based on the foregoing judicial decision, the validity of laws passed by the State Houses of Assembly further to the Constitutional amendment shall be:
1. Where the provisions of the state’s law are different from the Federal legislation but consistent, the state’s law will be valid.

2. Where the provisions of the state’s law are different from the federal legislation and also inconsistent, the state’s law will be null and void to the extent of its inconsistency.

3. Where the provisions of the state’s law are the same as the federal legislation, the identical law passed by the State would be invalidated and remain inoperative for as long as the Federal law remains in force, on the ground that the law passed by the National Assembly has covered the whole field of that particular subject-matter.

An obvious application of the doctrine is that a federal law will apply to and prevail over state laws with respect to projects that involve cross-border or interstate generation and distribution or transmission of electricity. The key test in applying the doctrine is whether the Federal law expressly or impliedly manifests an intention to provide a complete statement of the law governing the matter, in which case, the state law cannot co-exist and must become inoperative.

Read also: Tribunal adjourns Obi’s petition till May 10

b. Implications for the EPSRA: With respect to the generation, distribution and transmission of electricity in Nigeria, the EPSRA makes it unlawful for any persons in Nigeria to construct, own or operate an undertaking to engage in the business of electricity generation (excluding captive generation), electricity transmission, system operation; electricity distribution or trading in electricity except in accordance with a license issued or deemed to have been issued in accordance with the EPSRA.

The only exclusion recognised under the EPSRA is owning, constructing or operating an undertaking for generating electricity not exceeding 1MW in aggregate at a site or an undertaking for distribution of electricity with a capacity not exceeding 100KW in aggregate at a site.

As we examined above, the Fifth Amendment provides a legal basis for states to establish their individual licensing framework for areas already covered by the national grid. Section 62 of the ESPRA is therefore inconsistent with the new constitutional provisions and is now void to the extent of its consistency with the application of the supremacy principle in section 1(3) of the 1999 Constitution.

c. Scope of Legislative Powers the States may Exercise: To give effect to the Fifth Amendment, the States would need to enact State Electricity Laws or amend existing electricity laws to incorporate the amendments. Some States already have state laws; therefore, what is needed would be an amendment to incorporate the rights granted under the recent constitutional amendment.

Based on the principles we have examined, the validity of the laws the States may pass would depend largely on consistency with Federal legislation on the subject. The removal of the restriction to areas not covered by the national grid makes it easier to ascertain the scope of powers the States may exercise. However, the specific inclusion of inter-state projects in paragraph 13b of the 2nd Schedule indicates that Federal Legislation on the subject will cover the field, and States will be unable to make valid laws on such scope, even when they seek to cooperate.

Also, the States would also need to take into cognisance existing legal provisions on ownership and operation of the national grid and distribution networks as there is nothing in the recent amendments to suggest that the States should be able to pass any law that would undo the legal framework that applied to existing assets and projects within their States, prior to the constitutional amendment.

II. Conclusion
While the Electricity Amendment Act is a welcome development for the industry, the Federal and State Governments must adopt a collaborative approach to solving these constitutional issues. To achieve sustainable growth and development in the electricity sector, both levels of government must come together to develop a holistic and comprehensive policy for the sector.