For instance, all of the grid-supplied electricity in Nigeria currently originates from only 12 states, namely Niger, Lagos, Ogun, Rivers, Abia, Imo, Ondo, Cross River, Bayelsa, Edo, Kogi, and Delta, whilst consumption is spread across the entire country.
This could change with the more permissive regulatory regime for electricity generation. Also, according to the World Bank, at least 85 million Nigerians are not connected to the national grid. In the same way as with electricity generation, the constitutional amendment presents an opportunity for states to facilitate transmission grid capacity expansion within their territory.
State governments could put in place policy and regulatory frameworks that assist the accelerated development of mini-grids within their borders. And in relation to last mile distribution, states governments now possess more regulatory autonomy to regulate, and facilitate the development of, electricity distribution infrastructure within their borders.
However, in addition to opportunities, the constitutional amendment also throws up a number of new risks, particularly in the area of regulatory conflict between the federal and state governments.
Firstly, in line with the previous constitutional provisions, the current architecture of Nigeria’s most important electricity law, the Electric Power Sector Reform Act (EPSRA), is designed for a sole regulator with exclusive and overarching regulatory oversight across the country.
Accordingly, the mechanics of the EPSRA are not native to the multiple regulator regime created by the constitutional amendment. To avoid regulatory confusion, which would further deter much-needed private capital from flowing into the beleaguered sector, there will be a need to amend the EPSRA, such that it accommodates the new constitutional reality.
In this regard, the regulatory regime for electricity in India offers an insight into a possible solution for Nigeria. Under the framework provided by India’s Electricity Act 2003, the primary focus of the Central Electricity Regulatory Commission (which is India’s equivalent of Nigerian Electricity Regulatory Commission) is the promotion of competition, improving the standards of quality, and regulation of the tariff of central government-owned generating companies. On the other hand, the State Electricity Regulatory Commissions (SERCs) grant licences and regulate tariffs at state level, and regulate the wheeling, as well as wholesale and retail sale of electricity within their states.
Secondly, it is critical for policy and lawmakers at the state level to understand what the constitutional amendment empowers them to do, and what it does not. In commercial, financial, and operational terms, the new powers in their possession will not yield much positive developmental impact, if not carefully and thoughtfully wielded by its bearers.
In order to appropriately exercise these new powers, it is extremely important for any state seeking to intervene via new legislation or regulations to firstly conduct a thorough current position assessment of affairs within its boundaries, using a Baseline Energy Supply and Demand Study.
When conducted to proper standards, such a study will clearly reveal the nature of the energy deficit within the state, the areas within the supply value chain where the major bottlenecks lie, the current and future demand profile of the state, the most efficient potential energy sources and technologies to meet future demand at the lowest possible long-term cost to the consumers, and a list of priority projects meeting the foregoing criteria.
Any strategy for introducing new legislation or regulation must derive its life from such a thorough study, taking into consideration the very local realities of the state, and not any generic regional or international considerations.
Thirdly, it will be important for states to consider how any new legislation or regulations would interact with the existing regulatory landscape. New laws and rules should serve to enhance the capabilities of existing and future electricity supply industry participants, whether operators or consumers. Speaking plainly, new rules must remove bottlenecks rather than introduce new difficulties, if positive developmental impact is to be achieved.
Fourthly, it will be critical for states to develop the institutional capacity to manage and follow-through on implementation of any legislative interventions made pursuant to the constitutional amendment. In relation to capacity development, there is thankfully a wealth of resources available from donors, development partners, and international institutions available for states to tap into, particularly in renewable energy supply.
Finally, the state-level policy makers that succeed in the new environment will be the ones that adopt a mindset seeking to create a favourable environment within their borders for the key projects identified under their Baseline Energy Supply and Demand Study.
Read also: Decentralisation of Nigeria electricity grid – prospects and challenges
This mindset will entail focus on innovative ideas like creation of regulatory sandboxes, fiscal incentives, template documentation, pre-packaged projects, special tariff windows and islands, and collaboration with existing electricity operators or developers to incentivise new investment.
Most of these innovative ideas have already been tested with success in many markets across Africa and globally. It will be important for Nigerians to understand that the biggest advantage of the constitutional amendment is that it provides the opportunity for state governments to compete with innovation in attracting projects and capital, without being constrained to operate only at the speed of the Federal Government.
In conclusion, it is important to reiterate that the problem of sustainable, affordable, and efficient electricity supply in Nigeria is an organisational and financial challenge.
The constitutional amendment provides significant opportunities for well-organised states to attract competitive financing and advance their developmental agenda in relation to electricity supply at their own pace, without being shackled by the Federal Government.
Nonetheless, success in this endeavour will demand a strong focus on states being better organised, more innovative, and less bureaucratic than Abuja has been accused of being in the past. The state governments that succeed in doing this will be the ones that reap the rewards of the constitutional amendment.
The work is only beginning, and there is a lot to be done!
•Esan is the deputy managing partner at Olaniwun Ajayi LP.
•Fagbule is a deputy director at Africa Finance Corporation.
•This is the final part of a two-part commentary.
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
