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June, 2005
Legal Alert: Electric Power Sector Reforms Law
In This Issue
- June 2005 Legal Alert: Electric Power Sector Reforms Law & Efforts for
Change & Privatisation.
- Motivational Quote.
INTRODUCTION
Available literature shows that electric power generation in Nigeria began
in the year 1896. In 1929, NESCO (Nigeria Electric Supply Company) was
established. In 1951, ECN (Electric Corporation of Nigeria) was
established to take over the assets of NESCO. In 1962, NDA (Nigeria Dams
Authority) was established to develop the hydropower potentials in
Nigeria. In 1972, ECN and NDA were merged to form NEPA (National Electric
Power Authority).
The need to establish a substitute for NEPA was recognised to be immediate
and or urgent as a result of the many impeding conditions under which NEPA
was operating before it was dissolved. Examples of these conditions
include an ever increasing consumer consumption of electricity vis-à-vis
the ability and capacity of NEPA to meet the demand, non payment for the
utility, accumulation of debts, vandalisation of electric installations,
high cost of maintenance and scarce foreign exchange to purchase spares
and replacements, inadequate gas supply, low water levels, low tariff and
high incidents of corruption and abuse of responsibility by all sectors
responsible for managing NEPA.
BACKGROUND TO POWER REFORM LAW
Power generation, transmission, distribution and supply have become like
the proverbial parable, “water, water everywhere but non to drink”. To
combat the inefficiencies and incompetences' in this sector, the Nigerian
Government has attempted to have in place, the stage for the privatisation
of the electric power sector by enacting the Electric Power Sector Reform
Act, 2005 (The Electric Power Sector Reform Law).
The Electric Power Sector Reform Law, signed into Law on March 11th 2005,
has terminated the existence of the former holding electric power company
in Nigeria called NEPA.
ELECTRIC POWER SECTOR REFORM LAW
The new Electric Power Sector Reform Law seeks to achieve the following
primary objectives: -
(1) Unbundle the various aspects of NEPA’s businesses namely generation,
transmission, distribution, supply, etc.
(2) Privatise the unbundled entities of NEPA.
(3) Establish a Regulatory Commission for Electric Power in Nigeria.
(4) Establish a Rural Electrification Power Agency & Fund for Nigeria.
(5) Establish Power Consumer Assistance Fund.
(6) Develop competitive electricity markets in Nigeria.
(7) To provide for the determination of power electric tariffs.
TRANSITIONAL ARRANGEMENTS – Power Holding Company of Nigeria Plc
In accordance with the Electric Power Sector Reform Law, the Government of
Nigeria registered and finally constituted the Board of Directors of a
Power Holding Company of Nigeria Plc. The latter, a public limited
liability company, is mandated to take over all the assets and liabilities
of NEPA, unbundle, license, etc the various private sector-led players
that will privately manage all aspects of electric power business in
Nigeria.
The Power Holding Company is required after eighteen months of its
existence to transfer/unbundle 18 different firms into privately held
companies namely: -
I. 6 Generation companies.
II. A Transmission Company.
III. Distribution companies
ESSENTIAL SECTIONS OF THE ELECTRIC POWER SECTOR REFORM LAW
The Electric Power Sector Reform Law, in its introductory Section,
requires the registration of the Power Holding Company of Nigeria Plc. to
take over the functions, assets, liabilities and staff of NEPA. Prior
benefits and liabilities including guarantees or suretyship that the
Federal Government of Nigeria had enter into with other private sector
energy players, particularly the Independent Power Producers (IPPs) are
preserved and will continue to be in force. This is in spite of the
abrogation by the new Electric Power Sector Reform Law of the old
Electricity Act.
Section 7 of this Law provides that the Nigerian Electricity Regulatory
Commission shall issue an interim license to the initial holding company
for a period not exceeding eighteen months. Section 8 goes further to
require the Government to, within eight months after the registration of
the Power Holding Company, through the National Council on Privatisation,
register such additional companies who would be responsible for power
generation, transmission, trading, distribution and bulk supply and resale
of electricity.
Attempts are made in this Law to ensure a transcession from NEPA to the
initial Power Holding Company and then to the successor private companies.
The successor companies are required to apply for a substantive license,
within six months of the grant of an interim license, which interim
license is only valid for a period not exceeding one year. Subsequently,
the successor companies are required by Section 24 of the Electric Power
Law to be privatised by the NCP in accordance with the provisions of the
Public Enterprises (Privatisation and Commercialisation) Act.
NIGERIAN ELECTRICITY REGULATORY COMMISSION & COMPETITION
To achieve the intentions of this Law and its reforms, the Nigerian
Electricity Regulatory Commission is created with various objectives among
which are: -
(a) License and regulate persons and companies engage in the generation,
transmission, system operation, distribution and trading in electricity
power;
(b) Promote Competition and Private Sector Participation, when and where
feasible;
(c) Establish appropriate Consumers rights and obligation;
(d) Monitor the operation of the electricity market, etc.
Unfortunately, the Minister for Power and steel is empowered by Section 33
of this Law to issue general policy directions on matters concerning
electricity provided that such directions are not in conflict with this
Law or with the Constitution of the Federal Republic of Nigeria.
LICENCES AND TARRIFFS
Section 62 of the Electric Power Reform Law expressly forbids any person
who is not issued with a licence to engage in the business of:-
(a) Electricity generation, excluding electricity generated by generators
for private use and not for public sale;
(b) Electricity transmission;
(c) System operation;
(d) Electricity distribution;
(e) Trading in electricity.
Exceptions to the above rule requiring licence to operate are: -
(i) Persons who construct, own or operate a system for generating
electricity with a capacity not exceeding 100 kilowatts (kW) in aggregate.
(ii) Secondly the Electric Power Commission is allowed, where necessary
and in the public interest, to grant an interim licence to any person,
interested in the various aspects of power electricity enumerated above.
The liability for operating an electricity system without licence as
provided by the Electric Power Sector Reform Law is a fine not exceeding
Five Hundred Thousand Naira or imprisonment for a period not exceeding two
years or to both a fine and imprisonment.
There are numerous provisions in the Part IV of this Law (Sections 62 to
75) of the referenced Law under review which allows a licensee to apply
for the amendment of its licence or for the licence to be cancelled based
on the complaint of a customer or by the Electric Power Regulatory
Commission itself, etc. In all these instances, attempts are made to
ensure that all the parties are given an opportunity to state their case
before a decision is made by the Electric Power Commission.
Intending private sector investors are allowed to apply to the Electric
Power Commission for allocation of land required by them for constructing
their electric power installations. The Power Commission, if satisfied
with this application, is required to apply to the Governor of the State
where the land is situated for allocation of land for public use.
Compensation must be paid to the original Owners and where the Power
Company no longer requires the land, the land must be returned to the
original Owners who must now also pay a fair market price to the Power
Company.
TARRIFFS REGULATIONS
The Electric Power Section Reform Law in Section 76 authorises the Power
Reform Commission to regulate electric power tariffs using the defined
methodologies in sub-section 2 of Section 76; this is especially in cases
where there is a likelihood of abuse of market power by one or more
Licensee. This is a commendable provision particularly as there is no
anti-trust legislation or a strong consumer protection body to protect
consumers.
Any licensee or person, who sells electric power above the parameters of
the defined methodologies mentioned above, is liable to a fine two times
the charge to the licensee’s customers or to imprisonment of not more than
one year or to both a fine and imprisonment. See Section 78 (14) of the
Electric Power Law.
CONSUMERS PROTECTION
Section 80 part VI of the Electric Power Sector Reform Law requires the
Electric Power Reform Commission to develop consumer service standards and
procedures so that the Nigerian consumer does not continue to be at the
receiving end of a large stick. To further guarantee power supply, the
Power Commission is empowered to establish standards for compensation to
consumers who do not enjoy regular power supply.
Market power is defined by this Law to be “… the ability of a seller or
group of sellers to maintain prices above competition levels, or to
maintain stable prices while reducing the quality of products or service
provided.”
POWER CONSUMER ASSISTANCE FUND
The Electric Power Commission is mandated by this Reform Law to establish
and administer a Power Consumer Assistance Fund (The Power Fund). The
Power Fund is meant to subsidies underprivileged power consumers as are so
designated from time to time by the Minister for Power and Steel.
The income/revenues of the Power Fund is required to be derived from (a)
contributions by other consumers and customers of electric power; (b)
subsidies received from the Federal Government of Nigeria as approved by
the National Assembly.
RURAL ELECTRICITY AGENCY & FUND
A Rural Electricity Agency is established under this Law as a body
corporate, capable to sue or be sued in its own name. The primary
objective of the Rural Electricity Agency is to implement a sustainable
and coordinated Rural Electric fund strategy and plan for rural areas in
Nigeria.
A Rural Electrification Fund is established to achieve the above
objectives. Any body or person who fails to timorously make his
contribution to the said fund is liable to a fine not exceeding three
times the amount required to be paid.
OFFENCES AND GENERALPROVISION
To discourage the making of false declarations to the Power Commission,
vandalisation of electrical installations, etc., various fines and terms
of imprisonment are recommended in the Electric Power Sector Law. For
example, Section 94 (3) provides that any person, who wilfully destroys,
injures or removes electrical equipment or apparatus commits an offence
and is liable on conviction to imprisonment for a period of not less than
five years and not more than seven years.
CONCLUSION
A review of this legislation leaves its reviewer with only one conclusion
which is that old wine has been poured into new bottles. This would if
true make real and meaningful advancement very difficult.
The pitfalls of this Law include:
A. Transitional provisions that make a lot of effort to retain the
leadership and staff of the old NEPA who failed to improve all aspects of
electric power for over two or more decades.
B. Reported inconclusive Pension and business liabilities of NEPA, which
the government’s fund for discharging these liabilities under this Law may
not be sufficient to discharge as a result of other pressing government
obligations like local and foreign debts.
C. An overbearing reporting procedure by the Electric Power Commission, to
the Minister for Power and Steel. This may undermine the independence and
professionalism of the Electric Power Commission.
D. Continuation of multiple approvals for the eventual independent power
companies from the Electric Power Commission, Local Government areas where
the power installation, etc would be situated.
E. Appointment criteria for the Commissioners to the Power Commission.
The loyalties and responsibilities of the Commissioners including its
Chairman, who are all appointed by the Government, based more on
geo-political zones than on merit, would be to their political benefactors
than to the end consumers of electric power.
MOTIVATIONAL QUOTE
In troubled times lie the best business opportunities!
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------------------------------------------------------------------------------------------------------------------------------------------------------------------------- DISCLAIMER: This Newsletter is a free educational material, for general information ONLY. Recipients are adviced to seek legal counselling to specific situations when they arise. Comments, criticisms, suggestions, ideas, etc are always welcomed. This Newsletter may be shared with other parties (third parties) provided the author is acknowledged as the originator of the article contained herein and the disclaimer notice is attached.
EHIJEAGBON O. OSEROGHO
June, 2005.
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