Ease of doing business index and the Nigerian Electricity Regulatory Commission

Proem

Last week, the writer participated at two sessions of the Africa Rising Conference 2014 in Liverpool, United Kingdom. The writer’s attendance at that event gave him the opportunity to feel the pulse of foreigners and understand first-hand, what most non-Nigerians think about Nigeria and whether they really do believe that it is worth expending risk capital in Africa’s most populous country.

The writer reached the verdict that many foreigners are genuinely interested in doing business in Nigeria but have concerns in relation to a number of issues including security, bureaucratic bottlenecks in obtaining approvals, the incessant introduction of new policies and change in such government policies and laws without prior notice. 

According to the most recent annual Africa Progress Panel (APP) report, economic governance has improved considerably over the past decade and monetary policy has helped to reduce inflation over the past couple of years. The APP consists of ten distinguished individuals led by Kofi Annan, former Secretary- General of the United Nations. Many other speakers at the Africa Rising Conference also shared the same view regarding better economic governance in Africa. 

The Nigerian Investment Promotion Commission (NIPC) on its part, also recently stated that Nigeria’s net returns on investments remains among the best globally at between 35% and 45% net on investment returns. 

The Challenges

A partner in the Liverpool offices of one of the Big Four (four largest international professional services networks, offering audit, assurance, tax, consulting, advisory, actuarial, corporate finance etc.) alluded to the foregoing positives of doing business in Nigeria. He, however, complained about the difficulty, particularly regulatory challenges, doing business in Nigeria and pointed to the 137th position Nigeria currently occupies, out of 189 countries assessed in connection with the difficulty or otherwise of doing business in them.

 In this writer’s view, the speaker was accurate.  In reality, there are several examples in this respect such as the hurried introduction and withdrawal of the requirement of a $300, 000 of inflow of funds or goods/equipment to set up a company in Nigeria; and the Nigerian local content legislation with its several impracticable and unclear provisions. The writer has also experienced situations whereby after giving clients advice, new regulations were issued, without prior notification, which rendered the advice the writer only just provided, stale.

There are also bureaucratic bottlenecks and legislation which are at best premature and then, individual companies need to begin to seek waivers or exemptions and deviations even outside the provisions of the relevant laws themselves. The foregoing, amongst other issues, make it more difficult in Nigeria to do business, than it is elsewhere like Ghana and South Africa.  

By way of example, prior to this time,, there was the policy of setting up a one stop shop for foreign direct investments in Nigeria. It would appear, however, that this is now dated or at least barely operational. There had also been in the past, a one day incorporation process for companies. This too, appears not to exist anymore.

The Nigerian electricity industry is currently divided into three broad segments: generation, transmission and distribution. Until recently, the industry had been run almost exclusively by the federal government, through the federal government-owned vertically integrated monopoly (the National Electric Power Authority). Recognizing the poor state of the industry, however, and the need for reform in order to attract the necessary investments to meet the electricity needs of the Nigerian economy, reforms are being implemented. 

The Nigerian Electricity Regulatory Commission (‘the NERC’) was also established, pursuant to the Electric Power Sector Reform Act (EPSRA), as the primary regulator of the electricity supply industry and has been mandated to regulate and issue licences to participants in the industry. The main regulatory framework for the electric power industry is provided by the EPSRA. 

By virtue of the EPSRA, NERC is empowered to issue licences in connection with activities such as electricity generation, transmission, system operation, distribution or trading and to generally regulate the electricity supply industry.

Currently, NERC is blazing the trail in efficiently regulating a sector in Nigeria, but must not fall into the trap of over-regulating the sector by not duplicating the role of varying regulations or introducing ‘unworkable’ regulations. 

NERC also has to ensure that thorough thoughts are given to the pros and cons of every regulation, guideline or such other similar instrument prior to issuing same. Additionally, sufficient public participation is recommended prior to issuing regulations in the power sector; particularly regulations that may be sensitive. The writer, however, acknowledges the fact that NERC has been quite interactive with stakeholders in terms of communicating their thoughts to same. However, NERC can do a bit more to sensitize members of the public of its activities, proposed regulations and guidelines.   

Apart from the foregoing, the writer is of the view that NERC needs to work more closely with other Ministries, Departments and Agencies of the federation; particularly the Ministry of Petroleum Resources. It is pertinent that NERC works with the Ministry of Petroleum Resources at least as far as natural gas (methane) regulation is concerned. This is because about 80% of Nigeria’s power plants are gas fired. This helps ensure efficiency such that gas and power related regulations are aligned and there is a more seamlessly relationship between natural gas and electric power generation. 

It is also important that there is some level of consistency in the policies, rules and regulations of both NERC and the Ministry of Power to guarantee some level of certainty as many investors have serious (and yet genuine) concerns around clarity and certainty of policies and rules.

Apart from the foregoing, many prospective investors want to see a regulator that does not only speak to independence but one which is truly independent and functional as NERC has proven to be so far. NERC should where and when necessary employ more experts to help with its functions.

The writer is of the view that NERC and other regulators in Nigeria together with the relevant Ministries, Departments and Agencies should continue to work hard to improve the ease of doing business in Nigeria; Nigeria’s current ranking is truly unacceptable and much more needs to be done to make policies investor friendly, consistent, clear and realistic. To learn more about this topic and much more, read the text on the electric power sector by Ayodele Oni.

AYODELE ONI {[email protected]}, a solicitor, specializes in International Energy (Oil, Gas and Electricity) Investment Law and Policy. He holds a mini-MBA in Power & Electricity.