• Saturday, March 02, 2024
businessday logo

BusinessDay

Decentralisation of electricity regulation in Nigeria: An elixir or a sugar pill? (I)

Nigeria only transmits 8,100MW of 13,000MW generated electricity – TCN

President Muhammad Buhari recently assented to 19 bills, 16 of which amended certain provisions of the 1999 Constitution. Of particular interest is the Fifth Alteration Bill No. 33, Devolution of Powers (National Grid System) which relates to the legislative powers of states to make laws in connection with the generation, transmission, and distribution of electricity within the relevant state (the “Constitutional Amendment”).

Understandably, a lot of excitement has trailed the constitutional amendment. However, it is important to reflect on what exactly Nigerians can expect from this change. Is it truly the “silver bullet” solution that it has been portrayed as? And is the constitutional amendment capable of providing a shot in the arm, which the Nigerian electricity supply industry (NESI) desperately requires?

As senior legal and banking professionals with multiple decades of experience and leadership in infrastructure development, with a particular focus on electricity in Nigeria, we have a unique perspective that we hope will be useful in providing clarity to some of the critical questions that are beginning to emerge.

In this article, we will try to provide answers to some of these key questions and outline the path forward for the sector in light of the constitutional amendment.

The best place to begin is with a brief legislative history of electricity regulation in Nigeria. Under Nigeria’s independence constitution of 1960, Section 73(1) and (2) permitted the regions to regulate the production, distribution, or supply of electricity within their domain. Similarly, the 1979 Constitution (in Paragraph 14(b) of Part II of the Second Schedule) provided the states with the power to make laws on the generation, transmission, and distribution of electricity within their respective states.

Despite this permissive regime under the 1979 Constitution, no state government in Nigeria leveraged the liberal regulatory environment to facilitate the development of any electricity project of significance, despite the lofty aspirations for power supply outlined in the manifestos of most of the major political parties during that time.

Subsequently, and for reasons best known to its framers, the (never-passed) draft 1989 Constitution altered this previously flexible regime for states by adding the unhelpful phrase “not covered by a national grid system within that state” to the law-making powers of the state assembly in relation to electricity.

The impact of this seemingly minor addition was significant, creating serious legal questions about the powers of state governments to get involved with providing solutions to electricity supply challenges within their borders.

The 1999 Constitution carried forward the constricting approach introduced by the draft 1989 Constitution, and in the process causing much uncertainty about the sharing of electricity law-making and regulatory powers between the Federal Government and state governments.

Fast forward to 2005, the Federal Government of Nigeria, ostensibly working based on the regime established under the 1999 Constitution, passed the landmark Electric Power Reform Act, which appropriated all the regulatory powers related to the NESI to the Nigerian Electricity Regulatory Commission, an agency of the FGN. This was done without consideration for any concurrent powers that the states might have possessed in this regard.

Coming now into the present times, the Constitutional Amendment of 2023 has intervened to smoothen the major wrinkle introduced by the 1999 Constitution, as originally drafted. In the main, by removing the ambiguous phrase “not covered by a national grid system within that state”, the Constitutional Amendment has expanded, or clarified, as the case may be, the powers of states to regulate the generation, transmission, distribution of electricity within their borders.

A few issues arise from the new legislative environment. The first point to note is that the Constitutional Amendment simply takes us back to the position that existed under the 1979 Constitution. As we have said, the legislative autonomy enjoyed by states governments under the 1979 Constitution was essentially unutilised, as no project of significance was developed by any State pursuant to the permissive regime then in place.

Read also: 39% of global electricity in 2022 from clean energy sources

As will be explained below, this underscores a critical point: state governments possessing the powers to make laws on electricity generation, distribution and transmission will not by itself result in successful projects and abundant electricity within a state.

Even prior to the Constitutional Amendment, there was nothing stopping state governments from sponsoring power projects. Indeed, many state governments since 1999 like Lagos, Akwa Ibom, Kano, and Rivers have sponsored utility scale generation projects successfully.

To that extent, it would be misleading to suggest that the previous constitutional phrasing was principally responsible for the lack of stable and sufficient electricity supply in Nigeria.

The challenges with electricity supply in Nigeria are not all or even mostly regulatory. Indeed, a number of different constricting factors are simultaneously at work, including feedstock supply deficits, grid design and capacity, foreign exchange availability, access to financing, operational weaknesses, poor project preparation, inflation, inadequate tariffs, as well as technical, commercial and collection losses, just to mention a few. Several of these issues are macroeconomic in nature and cannot simply be solved by decentralising regulatory responsibility for electricity operations.

Having said that, the Constitutional Amendment does contain within it the potential to stimulate radical, positive changes in electricity supply across Nigeria. But this potential will be realized only if States leverage the regulatory independence occasioned by the amendment, to resolve some of the issues besetting the various functional aspects of the value chain within their domain.

•Esan is the deputy managing partner at Olaniwun Ajayi LP.

•Fagbule is a deputy director at Africa Finance Corporation

•This is the first instalment of a two-part commentary.