Legal framework

Policy and law

What is the government policy and legislative framework for the electricity sector?

The National Electric Power Policy 2001 (the Policy) laid out the policy framework for the reform and liberalisation of the Nigerian Electricity Supply Industry (NESI). The critical goal of the Policy is to ensure that the NESI meets current and future electricity demand in Nigeria in an efficient and economically viable manner. The Policy provided the framework for the restructuring of the erstwhile state-owned utility which led to its unbundling into several successor companies.

The Electric Power Sector Reform Act (the Act) was enacted in 2005 to provide the legal framework for the achievement of the reform objectives of the Policy. In the words of the Policy, it was enacted with a view to:

‘Create efficient market structures, within clear regulatory frameworks, that encourage more competitive markets for electricity generation and sales (marketing), which, at the same time, are able to attract private investors and ensure economically sound development of the system.’

The Act essentially provides for the following, among others:

  • The vertical unbundling of the Nigeria Electric Power Authority along functional lines of generation, transmission and distribution and retailing and the incorporation of the various business segments as successor companies, and a method for the transfer of assets, liabilities and personnel to these successor companies, which are to be subsequently privatised.
  • The trading arrangements that will allow for competition in the wholesale electricity market. The independent power producers (IPPs) are also allowed to compete with distributors for the patronage of large consumers.
  • The establishment of the Nigerian Electricity Regulatory Commission (NERC) as a transparent and an independent regulator of the sector with a definition of its functions and powers.
  • The establishment of a regulatory regime including the granting of licences to the successor companies and new entrants in electricity undertakings of generation, transmission marketing and distribution companies, the determination of tariffs of regulated activities and the prevention of abuse of market power. Economic regulation of the power market will be applied independently by NERC. In the wholesale market the focus of the regulation will be to prevent abuse of market power. In the retail market the focus will be on balancing the interests of successor companies and IPPs as suppliers with the interests of customers.
  • The establishment of the Rural Electrification Agency to provide rural communities with access to electricity, the establishment of the Rural Electrification Fund to promote, support and provide rural electrification programmes through public and private sector participation, and the establishment of the Power Consumer Assistance Fund to subsidise underprivileged power consumers.

The Act conferred on NERC the powers to make regulations necessary to give effect to the provisions of the Act. Some key regulations that have been made are:

  • Regulations for the Investment in Electricity Networks 2015 - provides for the procedure for investing in electricity networks in Nigeria. The objectives of these Regulations are mainly to create strong incentives to encourage the Transmission Company of Nigeria (TCN) and the distribution companies to make appropriate and sustainable investments in capacity expansion.
  • Nigerian Electricity Supply and Installation Standards Regulations 2015 - these are a compendium of standards for the design, construction and commissioning of electrical infrastructure in the NESI.
  • Regulations on National Content Development for the Power Sector 2014 - the objective of the Regulations is to promote the deliberate utilisation of Nigerian human and material resources, goods, works and services in the industry as well as building capabilities in Nigeria to support increased investment in the industry;
  • NERC Regulation for the Procurement of Generation Capacity 2014 - provides for the process to be used by a buyer in procuring additional electricity generation capacity.
  • NERC (Embedded Generation) Regulation 2012 - provides for a legal and regulatory framework for the issuance of licences to qualified operators to engage in embedded generation of electricity in Nigeria, and to ensure compliance with set standards.
  • NERC (Independent Electricity Distribution Networks) Regulations 2012 - these provide a legal and regulatory framework for the issuance of licences to qualified operators to engage in electricity distribution, independent of the already existing successor distribution companies, and to ensure compliance with set standards.
  • NERC Permit for Captive Power Generation Regulation 2008 - provides for a legal and regulatory framework for the granting of permits to qualified operators to engage in captive power generation in Nigeria, and to ensure compliance with set standards.
  • NERC Mini Grid Regulation 2016 - governs the development of integrated electricity generation and distribution supply systems of under 1MW either in isolation from the distribution companies or interconnected to the distribution companies’ existing network infrastructure.
  • Nigerian Electricity Smart Metering Regulation 2015 - this is a technical regulation that applies to all licensees who deploy smart metering. It sets out the requirements for a smart metering system in the NESI.
  • Feed in Tariff for Renewable Energy Sourced Electricity in Nigeria 2015 - this is the regulation that gauges the tariff for renewable energy and permits the energy capacity to be bought by the offtaker and placed on the grid.
  • NERC Metering Asset Provider (MAP) Regulations 2018 - provides for a new class of market participants (meter asset providers) who are charged with the responsibility of providing metering services. The objective of the Regulations is to close the national metering gap through accelerated meter roll out to customers, eliminate estimated billing and attract private investment in the meter services provision in the NESI among others.
  • NERC Eligible Customer Regulations 2017 - outlines the terms that would guide the direct purchase of electricity by end-users from power generation companies.

The Market Rules 2009 were approved by the president in 2009 pursuant to section 26(2) of the Act. The Rules provide a framework for an efficient, competitive, transparent and wholesale electricity market in Nigeria. They set out the responsibilities of the market operator, system operator, transmission service provider (all housed within the TCN), bulk trader and other participants in the market in relation to trading, coordination, dispatch and contract nomination, pricing of imbalances and ancillary services, metering, settlements and payments.

2Organisation of the market

What is the organisational structure for the generation, transmission, distribution and sale of power?

NERC as the market regulator issues each of the market participants a licence in accordance with its activities. Electric power produced by the generation companies is transmitted to the distribution companies through the transmission network of TCN and delivered to the consumers.

Generation companies can sell electricity to the bulk trader, Nigeria Bulk Electricity Trading Company (NBET), distribution companies and eligible customers. For on-grid electric power and ancillary services, NBET enters a power purchase agreement for bulk procurement from the generation companies and resale to the distribution companies through a vesting contract. Transmission from the generation companies to the distribution companies is done by TCN who executes grid connection agreements with generation companies and transmission use of systems agreements with distribution companies. Upon distribution, payment is made by consumers and distribution companies remit to the market operator for further distribution along the value chain to the market participants.

Generation

Prior to privatisation of the sector, generation of electricity was controlled mainly by the government. In this regard, the government owned and managed three hydropower plants and seven thermal power generating stations. The need to ramp up generation capacity led to the government’s quest for privatisation of its assets, which were unbundled as successor generation companies. Under the National Integrated Power Project (NIPP) programme, the government also constructed 10 thermal power plants. The government commenced the privatisation of the NIPP plants in 2013. Private investors are also encouraged to apply for generation licences under the Act and set up independent power plants with guaranteed offtake by NBET for on-grid power subject to execution of a power purchase agreement.

Transmission

The transmission network is under the control of the government-owned entity TCN. It is one of the successor companies that arose from the Act resulting in the unbundling of the state utility provider. TCN has licences for the following activities: as a transmission service provider for the maintenance and operation of the transmission infrastructure, as a system operator for system operations and administration of the wholesale electricity market under its functions, and as a market operator.

Distribution

The unbundling of the government-owned utility provider led to the formation of 11 distribution companies for its distribution assets and liabilities. Each distribution company may hold a dual licence for distribution and trading; the distribution licence entitles it to construct, operate and maintain a distribution network for connection of consumers, and the installation and maintenance of meters, among others; the trading licence enables it to procure electric power from another trading licensee and, with the permission of NERC, from other sources.

Bulk trader

The Act provides for the licencing of a bulk trader (NBET) for the bulk procurement of electric power and ancillary services through a power purchase agreement from generation companies and the resale to distribution companies by vesting contracts. NBET was created primarily for payment guarantee assurance to generation companies for the bulk procurement of electric power and ancillary services. It also ensures through the vesting contracts that a minimum capacity from the available megawatts is provided to each of the distribution companies.

Regulation of electricity utilities – power generation

Authorisation to construct and operate generation facilities

What authorisations are required to construct and operate generation facilities?

To construct and operate a generation facility, the developer must apply to obtain a generation licence from NERC. In addition to the licence, the following authorisations are required:

  • certificate of incorporation and memorandum and articles of the company duly registered in Nigeria;
  • evidence of registered title for the land acquired for the project;
  • environmental impact assessment performed by the National Environmental Standards and Regulations Enforcement Agency (NESREA) and the relevant state agency where the plant is located;
  • environmental and social impact assessment, especially for projects seeking funding from international lenders and development finance institutions (DFIs);
  • development or building permit for the construction of the power project - this is issued by the relevant state building control agency in the state where the power plant is being constructed; other state-specific approvals may be required depending on the location of the power plant;
  • Evacuation Certificate from the TCN for on-grid projects;
  • Permit for Storage of Chemicals and Petroleum Products issued by NESREA;
  • Permit for Disposal of Petrochemical Effluent issued by NESREA;
  • Permit for Waste Disposal issued by NESREA;
  • Air Quality Permit issued by NESREA;
  • Ground Water Licence issued by NESREA;
  • water licence for hydroelectric projects;
  • permit to survey pipelines route for thermal generation facilities granted by the Minster of Petroleum Resources and processed by the Department of Petroleum Resources;
  • oil pipeline licence for thermal generation facilities granted by the Minster of Petroleum Resources and processed by the Department of Petroleum Resources;
  • business permit (where developer has foreign participation) issued by the Federal Ministry of Interior;
  • pioneer status certificate and foreign investment approvals issued by the Nigerian Investment Promotion Commission where the project involves foreign participation;
  • financing agreements or letters of intent to fund the project from a reputable bank;
  • work permit and expatriate quota from the Nigerian Immigration Service where expatriates will be employed;
  • certificate of capital importation from an approved finance institution (where the investors are non-Nigerians) to satisfy NERC that the applicant is capable of meeting the project’s capital requirements;
  • certificate from the National Office for Technology Acquisition and Promotion, certifying registration in respect of transfer of technology contracts;
  • compliance with the Market Rules, Grid Code, Metering Code, health and safety regulations and other regulatory instruments issued by NERC; and
  • annual compliance audits on the activities of the generation company and reports to be filed with NERC.
Grid connection policies

What are the policies with respect to connection of generation to the transmission grid?

Generation companies connect to the transmission grid subject to the Grid Code. The Code contains the day-to-day management operating procedures and principles governing the development, maintenance and operation of an effective, well-coordinated and economic transmission system for the electricity sector.

Alternative energy sources

Does government policy or legislation encourage power generation based on alternative energy sources such as renewable energies or combined heat and power?

The government sees renewable energy as an important part of diversifying the country’s energy mix. A number of policies have been developed over the years which have enhanced government’s pursuit of renewable energy as an additional means to solve the electricity challenge the country faces. Some of the policies that have been passed by the government to encourage alternative energy sources such as renewables are:

  • Electric Power Sector Reform Act 2005 - the Act provides the legal and regulatory framework for the sector. It is the principal law for the regulation of the sector.
  • Roadmap for Power Sector Reform 2013 - the Roadmap’s targets for renewable energy technologies that contribute to the overall target to achieve 18 per cent of electricity generated from renewables by 2025 and 20 per cent by 2030 are:
    • small-hydro: 2GW (600MW in 2015);
    • solar photovoltaics: 500MW;
    • biomass-based power plants: 400MW (50MW in 2015);
    • wind: 40MW; and
    • electrification level of 75 per cent in 2025 (60 per cent in 2015).
  • National Renewable Energy and Energy Efficiency Policy - the policy consolidates the objectives of previous policies. The policy was developed by the Federal Ministry of Power in 2013 and 2014 and was approved by the Federal Executive Council in 2015 with an objective to develop power generation through renewables and energy efficiency capacity by 2020.
  • National Renewable Energy Action Plan - the National Action Plan presents the expected development and expansion of renewable energies in Nigeria in order to achieve the national target under the Economic Community of West African States (ECOWAS) Renewable Energy Policy, thus Nigeria’s contribution to the overall ECOWAS target of 23 per cent and 31 per cent renewable energy in 2020 and 2030 respectively. It contains existing and currently planned measures with which the national target is to be achieved.
  • Rural Electrification Strategy and Implementation Plan - this is a follow-up to the Nigerian Rural Electrification Policy. The primary objective is to expand access to electricity as rapidly as possible in a cost-effective manner through the use of grid and off-grid approaches from renewable and thermal sources in rural areas.
Climate change

What impact will government policy on climate change have on the types of resources that are used to meet electricity demand and on the cost and amount of power that is consumed?

Nigeria is a signatory to the Kyoto protocol and has in place a National Policy on Climate Change and Response Strategy for implementing climate change activities in the country. The Policy is a framework for tackling environmental challenges occasioned by global changes in climate. It is expected that this Policy will enhance Nigeria’s abilities to meet her obligations towards reduction of emission of noxious substances in the environment. The policy envisages a shift away from fossil fuel or coal-generated energy towards renewables as the resources to meet the local growing energy demand using clean technologies.

Storage

Does the regulatory framework support electricity storage including research and development of storage solutions?

There are no specific regulations to support electricity storage, including research and development of storage solutions. However, the regulatory framework does not discourage it.

Several pilot projects, surveys and studies have been undertaken under the supervision of the Energy Commission of Nigeria (ECN), which has registered energy research centres. Centres dedicated to renewable energy and energy efficiency include:

  • National Centre for Energy Research and Development at the University of Nigeria, Nsukka (responsible for research in solar and renewable energy);
  • Sokoto Energy Research Centre at Usman Danfodiyo University, Sokoto (also responsible for research in solar and renewable energy); and
  • National Centre for Hydropower Research and Development at the University of Ilorin (responsible for research in hydropower).
Government policy

Does government policy encourage or discourage development of new nuclear power plants? How?

The government has taken steps to encourage nuclear power plants in Nigeria. Towards this, the 1976 Nigeria Atomic Energy Act was enacted to establish the Nigeria Atomic Energy Commission for the development of atomic energy and all matters relating to the peaceful use of atomic energy. Though the Nigeria Atomic Energy Commission (NAEC) was initially created in 1976, it was reactivated in 2006 with the mandate to develop the framework and technical pathway to explore, exploit and harness atomic energy for peaceful application in all ramifications for the socio-economic development of Nigeria. The objective of NAEC is to fast-track and act as a catalyst in the process of development and deployment of nuclear power plants for electricity generation.

The Commission has also developed a National Nuclear Power Development Programme. Through the Programme, the Commission developed a National Nuclear Power Road Map which was approved by the Federal Executive Council in 2017. The Road Map entails generating at least 1GW by 2017 and 4GW by 2027.

The Nuclear Safety and Radiation Protection Act 1995 was also enacted to establish the Nigerian Nuclear Regulatory Authority (NNRA) for nuclear safety and radiological protection regulation in Nigeria. NNRA regulates all nuclear activities in the country, including the enforcement of all nuclear laws and regulations.

In addition to the above, nuclear energy research centres have been established by the government. They include:

  • Centre for Energy Research and Training (CERT), Ahmadu Bello University, Zaria, Kaduna State;
  • Centre for Energy Research and Development (CERD), Obafemi Awolowo University, Ile-Ife, Osun State;
  • Nuclear Technology Centre (NTC), Sheda Science and Technology Complex, Abuja, FCT;
  • Centre for Nuclear Energy Studies (CNES), University of Port Harcourt, Port Harcourt;
  • Centre for Nuclear Energy Research and Training (CNERT), University of Maiduguri, Maiduguri; and
  • Centre for Nuclear Energy Studies and Training (CNEST), Federal University of Technology, Owerri.

Regulation of electricity utilities – transmission

Authorisations to construct and operate transmission networks

What authorisations are required to construct and operate transmission networks?

To construct and operate a transmission network, a transmission licence is required from NERC. TCN, which is a wholly government-owned company, is the only entity that has a transmission licence and is empowered to provide transmission services in Nigeria. Other authorisations include:

  • approval from the National Environmental Standards Regulations Enforcement Agency (NESREA);
  • environmental impact assessment certificate; and
  • authorisations from the Federal Ministry of Land, Housing and Urban Development, including for right of way.
Eligibility to obtain transmission services

Who is eligible to obtain transmission services and what requirements must be met to obtain access?

Transmission services can be obtained by users who according to the Grid Code are any persons or a party using the transmission system as agreed and permitted by the transmission service provider and NBET. Users who are eligible to obtain transmission services must make an application to the transmission service provider for connection to a new substation or an existing one. This is done through an application form that contains, among other things:

  • description of plant or apparatus to be connected to the transmission system;
  • confirmation that the user’s plant and apparatus at the connection point will meet the required technical standards in the Grid Code and will be agreed with the transmission service provider where appropriate;
  • confirmation that the user’s plant, apparatus and procedures will meet the safety provisions in the Grid Code;
  • technical data specifying the load characteristics and other data of the plant or apparatus;
  • the desired connection date and operational date of the proposed user’s development; and
  • a proposed commissioning schedule, including commissioning tests, for the final approval of the system operator and transmission service provider .

The underpinning agreements for obtaining transmission services are:

  • grid connection agreement: this defines how a user is to be connected to the transmission system;
  • ancillary services agreement: this is for the provision of defined ancillary services by the generation company to TCN; and
  • transmission use of system (TUOS) agreement: this sets out the commercial terms for the transmission and delivery of electricity by TCN from the generation facility to the distribution system.
Government transmission policy

Are there any government measures to encourage or otherwise require the expansion of the transmission grid?

TCN is responsible for the transmission grid. Currently, the government provides funds for the development and expansion of the grid. Owing to the enormous costs involved in grid expansion and the competing demands on funds from the government, TCN is on a fundraising drive from development finance institutions to enable a fast-track expansion of the grid system. It developed a five-year transmission system expansion plan that covers the period 2016-2022 and the plan is meant to bring wheeling capacity of 5.3GW to 20GW by 2022 and to urgently address the shortfall in transmission.

In 2017, the government launched the power sector recovery programme. One of the expected outcomes from the intervention programme is the stability and expansion of the transmission grid. Under the Nigerian Electricity Transmission Project, the World Bank approved in February 2018 funds for the rehabilitation and upgrading of electricity transmission substations and lines in Nigeria.

Rates and terms for transmission services

Who determines the rates and terms for the provision of transmission services and what legal standard does that entity apply?

NERC regulates the rates and the conditions for the provision of transmission services through the relevant multi-year tariff order. As part of this role, NERC introduced the multi-year tariff order for the determination of the cost of electricity transmission the payment of institutional charges. The tariff order is based on a set of principles designed to provide tariffs for each sector in the NESI. The multi-year tariff order for transmission is applied to transmission services.

The multi-year tariff order incentivises and assumes a steady continuous reduction in transmission and distribution or retail losses. Revenue earned by operators is made dependent on achieving these performance improvements. NERC establishes the regulated TUOS charge to be paid to the TCN by distribution companies in the transmission of electric power from generation companies to the distribution companies.

TCN determines the terms for the provision of the services. It has developed a standard form that also sets out the obligations of generation companies, distribution companies and TCN in relation to the operation and maintenance of the connection to the grid. These terms must comply with the Grid Code, Market Rules and NERC regulations.

Entities responsible for grid reliability

Which entities are responsible for the reliability of the transmission grid and what are their powers and responsibilities?

The TCN is responsible for the transmission grid and houses three operations: the transmission service provider, the system operator, and the market operator.

The transmission service provider is responsible for the construction, operation and maintenance of transmission facilities to secure reliable evacuation of power and new interconnection points.

The system operator is focused on procurement and scheduling of ancillary services and system planning, administration and grid discipline. Its responsibilities, among others, include implementing and enforcing the Grid Code and Market Rules, and drafting and implementation of operating procedures as may be required for the proper functioning of the system operator-controlled grid and market operations.

The market operator is charged with the responsibility of administering the wholesale electricity market, plus promoting efficiency and, where possible, competition.

Regulation of electricity utilities – distribution

Authorisation to construct and operate distribution networks

What authorisations are required to construct and operate distribution networks?

To construct and operate a distribution network, the following authorisations are required:

  • distribution licence issued by NERC;
  • environmental impact assessment certificate;
  • building or development plan approval;
  • governor’s consent for use of the project site;
  • compliance with the requirements of the Distribution Code issued by NERC;
  • compliance with the Market Rules, Grid Code, Metering Code, health and safety regulations and other regulatory instruments issued by NERC;
  • annual compliance audits on the activities of the distribution company and reports to be filed with NERC; and
  • regular environmental audits based on directives from the NESREA.
Access to the distribution grid

Who is eligible to obtain access to the distribution network and what requirements must be met to obtain access?

End-use consumers, eligible customers, embedded generators and Embedded Independent Electricity Distribution Network (IEDN) operators can obtain access to the distribution network if they meet the requirements. Each user must comply with the provisions of the Distribution Code.

The procedure for end-use consumers who are customers eligible to obtain access to the distribution network under the Connection and Disconnection Procedures for Electricity Services, 2007 is detailed below. Customers are defined as persons or organisations who are supplied with electricity by the distribution licensee for personal use.

For customers to obtain access, they need to:

  • submit an application for connection to the distribution network and electricity supply in a format provided by the distribution company and approved by NERC;
  • provide a declaration of supply requirements completed by an appropriate authority in a format provided by the distribution company and approved by NERC;
  • provide acceptable identification and necessary information to enable electricity supply to the address; and
  • pay the capital contribution, connection charge and security deposit requested by the distribution company and approved by NERC.
Government distribution network policy

Are there any governmental measures to encourage or otherwise require the expansion of the distribution network?

The 11 distribution companies were privatised through a 60 per cent share sale and are under private sector management, with the exception of Yola Distribution Company, where the core investor had declared force majeure on the basis of the insurgency in parts of northern Nigeria under its network. Currently, most of the distribution companies are faced with huge operational challenges owing to poor revenue arising from high technical, commercial and collection losses as well as constraints in funding for capital projects. The distribution companies opine that the lack of a cost-reflective tariff and legacy debts have made difficult the task of carrying out necessary capital projects. To address these as well as other issues in the value chain, the government launched the Power Sector Recovery Programme in conjunction with major development finance institutions so as to raise the necessary funding and devise processes to be made available as well as timely process flow. The intervention of the government through the NIPP has also led to the expansion of the distribution network.

Rates and terms for distribution services

Who determines the rates or terms for the provision of distribution services and what legal standard does that entity apply?

NERC regulates the rates for the provision of distribution services based on the projections given by each distribution company for the reduction of its aggregate technical, commercial and collection losses. The distribution companies are required to fix the rates in line with the rates provided in the multi-year tariff order. The Act empowers NERC to establish methodologies for regulating electricity prices. To regulate the tariff for distribution NERC introduced the multi-year tariff order for the determination of the cost of electricity sold by distribution or retail companies. The tariff design in place for distribution companies is intended to ensure that a distinction is made among the users with regards to electricity pricing and is dependent on the customer’s class, including residential, commercial, industrial, special class and streetlights. Each distribution company’s tariff reflects its uniqueness in terms of cost, location and customer profile.

The building blocks approach was used as a regulatory method to set tariff. It is simply a way of bringing together all the industry’s cost in a consistent accounting framework. The multi-year tariff order methodology combines the positive attributes of regulating the rate of return and a price cap, which changes by region and type of electricity customer. The regulators factor three modules into the calculation: the allowed return on investment, the allowed return on capital, and efficient operating costs and overheads. Rates differ because costs factored into the prices are assessed individually for power generation, transmission, distribution and retail.

Regulation of electricity utilities – sales of power

Approval to sell power

What authorisations are required for the sale of power to customers and which authorities grant such approvals?

In the NESI, a licence issued by NERC is required for the sale of power. Trading licensees such as the distribution companies and NBET require their licences for the sale of power. To obtain the licence an application is made to NERC:

  • in a prescribed form and manner;
  • accompanied by the prescribed fee; and
  • accompanied by such information and documentation as NERC may prescribe.
Power sales tariffs

Is there any tariff or other regulation regarding power sales?

The multi-year tariff order regulates the sale of power to consumers. It stipulates the rate for retail of electricity to consumers.

The feed-in tariff for renewable energy sourced electricity provides the tariff framework for renewables at a threshold.

Rates for wholesale of power

Who determines the rates for sales of wholesale power and what standard does that entity apply?

The rate for the sales of wholesale power is regulated by NERC through the multi-year tariff order. However, the costs of power in the bulk and wholesale markets are fixed and negotiated by the generation companies and the power purchasers in the power purchase agreement taking into consideration the cost of generating the power and the risk involved. These power purchase agreements for the sale of power though negotiated by the generation companies must be approved by NERC to become effective.

Public service obligations

To what extent are electricity utilities that sell power subject to public service obligations?

The unbundling of the electric power sector under the Act was intended to encourage private sector investment. Currently there are no public service obligations on the electricity utility companies although at the transition stage NBET, through the vesting contract, ensures that each distribution company gets a minimum amount of megawatts from the available capacity procured from the generation companies.

Regulatory authorities

Policy setting

Which authorities determine regulatory policy with respect to the electricity sector?

NERC is an independent regulatory agency with authority to regulate the electric power sector. Other authorities that determine regulatory policies in the sector include the:

  • Federal Ministry of Power, Works and Housing;
  • Nigerian Electricity Management Services Authority; and
  • Energy Commission of Nigeria.
Scope of authority

What is the scope of each regulator’s authority?

Nigerian Electricity Regulatory Commission

As a sector regulator NERC undertakes technical and economic regulation of the power sector, such as:

  • tariff regulation and fair pricing;
  • promoting competition and private sector participation;
  • establishing or approving appropriate operating codes and standards regulation;
  • licencing and regulating entities engaged in generation, transmission, distribution and trading; and
  • approval of amendments to the Market Rules and monitoring the operation of the electricity market.

The Act is the major instrument of regulatory control adopted by NERC in carrying out its regulatory functions.

Federal Ministry of Power, Works and Housing

The Federal Ministry of Power, Works and Housing (FMOPWH) provides general direction to other agencies involved in the power sector. The key objective of the Ministry is to develop and facilitate the implementation of broad policies and programmes for the provision of adequate and reliable power supply from all sources of energy in the country.

Nigerian Electricity Management Services Authority

The Nigerian Electricity Management Services Authority (NEMSA) regulates and enforces technical standards in the power sector. It inspects, tests and certifies electrical materials, equipment, power systems and electrical installations of the Nigerian power industry. Installations are tested for their adherence to technical standards and regulations. Furthermore, NEMSA provides advanced training for technicians as well as licencing of technical personnel.

Energy Commission of Nigeria

The ECN was established with the statutory mandate of the strategic planning and coordination of national policies in the field of energy. The Commission is empowered to carry out overall energy sector planning and policy implementation and promote the diversification of energy resources through the development and optimal utilisation of all resources, including the introduction of new and alternative energy resources.

The Commission’s roles include:

  • serving as a centre for gathering and dissemination of information relating to national policy in the field of energy;
  • inquiring into and advising the government of the federation or the state on adequate funding of the energy sector, including research and development, production and distribution; and
  • monitoring the performance of the energy sector in the execution of government policies on energy.
Establishment of regulators

How is each regulator established and to what extent is it considered to be independent of the regulated business and of governmental officials?

NERC was established as an independent regulator of the power sector under the provisions of the Act. The Act is designed in such a manner so as to reduce the influence and interference of the federal government in the regulation of the power sector. To ensure regulatory certainty, it provides: defined regulatory functions and objects of NERC which are backed by law; a clear process of appointment and removal of commissioners and chairman of NERC outside of the normal civil service appointments; isolation from civil service rules, including in relation to reporting structure, compensation structure and retirement benefits of commissioners and staff; and autonomous funding with direct appropriations by the National Assembly, outside of appropriations to the Ministry of Power.

Despite the above provisions of the Act, NERC still has some form of dependence on the government. Section 51 of the Act requires NERC to submit its annual budget with proposed expenditure to the Minister of Power, while section 28 provides for the issuance of further directives by the Minister under some circumstances for certain competition transition charges to be made arising from the declaration of eligible customers under section 27, if the Minister so determines after consultation with the president.

Federal Ministry of Power, Works and Housing

The ministry is an administrative arm of the Federal Government of Nigeria.

Nigerian Electricity Management Services Authority

The Nigerian Electricity Management Services Authority (NEMSA) was established by virtue of the Nigerian Electricity Management Services Authority Bill 2014, which was passed by the National Assembly to take over the functions of Electricity Management Services Limited, one of the successor companies created by the Act. NEMSA, as a government agency, is not independent nor devoid of government interference.

Energy Commission of Nigeria

This commission was established by Act No. 62 of 1979, as amended by Act No. 32 of 1988 and Act No. 19 of 1989. The agency is not independent of government interference.

Challenge and appeal of decisions

To what extent can decisions of the regulator be challenged or appealed, and to whom? What are the grounds and procedures for appeal?

Section 50 of the Act provides generally for instances where a person aggrieved by the decision of NERC may apply to NERC to review the decision or order.

In addition to the provisions of the Act, nothing precludes an aggrieved person from seeking redress in court. An aggrieved person can challenge the decision of the regulator by commencing an action at the Federal High Court by filing originating processes.

Acquisition and merger control – competition

Responsible bodies

Which bodies have the authority to approve or block mergers or other changes in control over businesses in the sector or acquisition of utility assets?

NERC approves any merger or change in control over businesses in the power sector. By the provisions of section 69(1) of the Act, a licensee shall not assign his or her licence or transfer his or her undertaking by way of sale, mortgage or lease without the consent of NERC.

Prior to the enactment of the Federal Competition and Consumer Protection Act 2019 (FCCP Act), mergers and acquisitions were regulated by the Securities and Exchange Commission. However, following the enactment of the FCCP Act, which establishes the Federal Competition and Consumer Protection Commission (FCCP) as the primary regulator for mergers and acquisitions in Nigeria, all mergers and acquisition in the sector now require the approval of the FCCP Commission in addition to the approval obtained from NERC. The FCCP Act provides that notification and approval are required for large mergers while only notification is required for small mergers. The threshold for determining small or large mergers is yet to be set by the FCCP Commission.

Review of transfers of control

What criteria and procedures apply with respect to the review of mergers, acquisitions and other transfers of control? How long does it typically take to obtain a decision approving or blocking the transaction?

NERC Order on the Procedure for Obtaining Approval of the Commission for Assignment or Ceding of Licences, Transfer of Undertakings, and Changes in the Shareholdings of Licensed Entities (Order No. NERC: LLE/ACT127) provides the procedure for transfer of licence or assignment or ceding of an undertaking and change in shareholding of a licensed entity.

The applicant must submit an application to NERC for approval, attaching the following:

  • board resolutions of the board of the licensee and the new entity;
  • an undertaking by the directors of the new entity against service disruption, to honour all existing contracts executed by the licensee and comply with the terms and conditions of the licence;
  • certificate of incorporation of the new entity;
  • profile of the new entity and its directors highlighting their experience, in line with the KYL forms for directors or shareholders of NERC licensees;
  • proposed changes to senior management, if any (prior approval must be obtained from NERC for any changes in senior management);
  • resume form containing employment history of heads of division or senior management staff (Curriculum Vitae, NERC form 2b);
  • asset and liability register (Declaration Form, Appendix 1);
  • the duly executed share sale agreement; and
  • payment of processing fees.

NERC will conduct due diligence on the new entity. If the new entity meets the required conditions, the approval will be granted. The licensee shall within 30 days submit to NERC the Certified True Copy of CAC2 (Statement of Share Capital and Return on Allotment) and a brief profile of the new shareholding structure of the applicant.

There is no specific timeframe for obtaining an approval or refusal for a merger, acquisition and other transfer of control.

Prevention and prosecution of anti-competitive practices

Which authorities have the power to prevent or prosecute anticompetitive or manipulative practices in the electricity sector?

Under the EPSR Act, NERC has the responsibility to continue to monitor the NESI to determine its potential for additional competition. NERC is required to send a report on this to the minister annually, and also after the declaration of a competitive market by the minister.

NERC also has the powers to determine whether to restrict the introduction of competition to certain geographical areas or to certain licensees or customers, and the basis for such restriction. Any proposals in this area should reflect the principle that competition is more likely to produce a more efficient result than regulation.

One of the objectives of the FCCP Act is to promote and maintain competitive markets in the Nigerian economy and to prohibit unfair business practices and the abuse of dominant position of market powers. The FCCP Commission is charged with the responsibilities of investigating anticompetition practices, eliminating anticompetitive agreements and misleading, unfair, deceptive or unconscionable business practices in all sectors, once it is fully constituted.

Determination of anti-competitive conduct

What substantive standards are applied to determine whether conduct is anticompetitive or manipulative?

Prior to 2019, there was no single piece of legislation regulating competition in Nigeria,. The recently enacted FCCP Act prohibits unfair business practices or abuse of dominant market position by any company, as well as any agreement to restrain competition such as agreements for price fixing, price rigging, collusive tendering etc. Section 59 of the FCCP Act also provides for any agreement among undertakings or a decision that has the purpose of actual or likely effect of preventing, restricting or distorting competition in any market is unlawful, void and of no legal effect.

In addition to the above, the EPSR Act empowers NERC to ensure continuous competition and prevent the abuse of power under section 82. There are no specific standards to determine conduct that is so classified under section 82(1)-(5) and the Act fails to state what standard will be used to determine what constitutes an anticompetitive or manipulative practice.

The licence terms and conditions issued to licensees in the electricity sector by NERC contain provisions prohibiting discrimination and anticompetitive practice.

Preclusion and remedy of anti-competitive practices

What authority does the regulator (or regulators) have to preclude or remedy anticompetitive or manipulative practices?

In respect of services in competitive markets, the Act gives NERC continuing powers to prevent or mitigate abuses of market power in its decisions and orders in relation to:

  • licence applications and the grant of licences;
  • licence terms and conditions;
  • the setting of prices and tariffs; and
  • whether or not to approve a merger, acquisition or affiliation.

In addition, NERC has powers to levy fines on any licensee engaged in such practices.

The FCCP Act imposes penalties and fines on companies that breach the provisions of the FCCP Act with regards to anticompetitive or manipulative practices.

International

Acquisitions by foreign companies

Are there any special requirements or limitations on acquisitions of interests in the electricity sector by foreign companies?

There are no limitations on acquisition of interests in the electricity sector by foreign companies. However, a foreign company which invests in a company must obtain certain approvals prior to commencing business. They include the following:

  • Business registration - the NIPC Act stipulates that any company with foreign participation must register with the Nigerian Investment Promotion Council after incorporation of the company, before commencing business, and obtain a certificate of registration. Hence where a foreigner holds shares in any company in the electricity sector, the company must register with NIPC.
  • Business permit - companies with foreign participation in Nigeria are required to obtain a business permit from the Federal Ministry of Interior before they can carry on business in Nigeria. This permit is a further prerequisite for the processing of work and residential permits that entitle expatriates that may be employed by the company to work and live in Nigeria.
  • Local content requirement - the Regulations on the National Content Development for the Power Sector (2014) provides that foreigners can only hold 5 per cent of the management positions in a licensee in the electricity sector or such percentage that may be approved by NERC. Additionally, all junior and intermediate cadre in the licensee must be held by Nigerians. Unskilled labour must be locally sourced. Furthermore, licensees in the NESI are required to give first consideration to goods made in Nigeria and services provided by Nigerian firms in the awarding of contracts.
Authorisation to construct and operate interconnectors

What authorisations are required to construct and operate interconnectors?

Currently, interconnectors are operated and handled by the market operators under the TCN, which is wholly owned by the government. The authorisation to construct and operate interconnectors still lies within the purview of the government.

There are ongoing discussions with the government, NERC and NBET on defining required authorisations and regulating the tariff for interconnectors.

Interconnector access and cross-border electricity supply

What rules apply to access to interconnectors and to cross-border electricity supply, especially interconnection issues?

The Market Rules and Grid Code apply to interconnectors and cross-border electricity supply. The cross-border country is also required to enter into an interconnection agreement with the TCN. There are ongoing plans to ensure that power purchase agreements are executed between the cross-border countries and NBET.

Transactions between affiliates

Restrictions

What restrictions exist on transactions between electricity utilities and their affiliates?

Currently, the licence terms and conditions issued by NERC to electricity utilities restrict them from entering into agreements for the supply of goods or services or dealing with any of their affiliate businesses except where they can demonstrate that they will not receive any material gain from such transaction or unduly discriminate in favour of their affiliate business.

They are also restricted from giving cross-subsidies to their affiliates at the expense of the licensed business or receiving cross-subsidies from their affiliates. They are required to ensure that their affiliates do not use any information in the electricity utilities’ possession to gain a competitive advantage and shall ensure that they do not disclose information to affiliates that will give the affiliates some kind of commercial advantage.

Enforcement and sanctions

Who enforces the restrictions on utilities dealing with affiliates and what are the sanctions for non-compliance?

NERC enforces the restrictions on deals between electricity utilities and their affiliates in the NESI. Where NERC determines that there has been an abuse of market power, section 82(7) of the Act empowers NERC to issue cease orders as may be required and levy fines on the electricity utilities.

Update and trends

Key developments of the past year

Are there any emerging trends or hot topics in electricity regulation in your jurisdiction?

Key developments of the past year36 Are there any emerging trends or hot topics in electricity regulation in your jurisdiction?Transmission Rehabilitation and Expansion Programme

As part of the Transmission Rehabilitation and Expansion Programme (TREP), which began in 2017, where it was projected that TCN will inject the sum of US$1.57 billion into the power transmission infrastructure to raise the electricity grid to 20GW by 2021, TCN recently announced that the investments by the federal government and multilateral agencies on transmission infrastructure under the TREP have risen to US$1.63 billion. TCN currently plans to invest in higher capacity conductors that have the capacity to carry about two and a half times more load than the regular conductors, with the expectation that the installation of these conductors will increase the country’s transmission capacity to more than 10GW. The managing director disclosed that funds have been sourced from multilateral donors to install multiple transformers and transmission lines with the global N-1 standard, which implies having double equipment in a power station to create redundancy in the case of a fault. The Japanese International Cooperation Agency (JICA) and the Agence Française de Développement (AFD), as well as other development partners are some of the key funders of the project.

Further to the above, on 11 July 2019 the TCN stated during its quarterly news conference that it has received US$1.661 billion from multilateral donors to boost power supply in the country. The power projects that will be invested include the Abuja Wheeling Scheme that will create five sub-stations and bring a new supply route to the territory. The new route will be from Lafia to Abuja with 330kV line and two 330kV sub-stations in Abuja and put an additional three numbers 132kV sub-stations in the territory. The contract for the project has been signed and divided into six slots of which 10 contractors have prequalified. The projects embarked upon will raise the wheeling capacity to 10GW from 8GW.

Regulation on National Content Development for the Power Sector

In January 2019, NERC announced the commencement of the implementation of the regulation by all licensees and operators in the sector.

Following the privatisation of the NESI, there has been an increase in foreign direct investment in the power sector. The NESI is now heavily dependent on imported human resources, material, equipment and services. It is based on the above that NERC issued the ‘Regulation on National Content Development for the Power Sector’ in 2014 to ensure that indigenous companies are utilised for goods, works and services in the NESI. The regulation was issued to regulate the deployment of foreign equipment, workforce, and other services in Nigeria without allowing them to dominate operations in Nigeria’s electricity market. However, implementation of the regulation did not commence immediately.

Following the announcement of the implementation of the regulations, licencees and operators in NESI are mandated to retain a maximum of 5 per cent of management positions for foreigners and 95 per cent for Nigerians, while priority will be given to Nigerians for the supply of goods and services.

Permits to Meter Asset Providers

On 5 April 2019, NERC commenced the issuance of permits to meter asset providers (MAPs). The Meter Asset Provider Regulation 2018, introduced MAPs as a new set of service providers in Nigeria electricity supply industry. As assets with a technically useful life of 10-15 years, the regulation provides for the third-party financing of meters, under permits issued by NERC, and amortisation over a period of 10 years. Section 4(3) of the MAP Regulation 2018 requires all electricity distribution licensees to engage MAPs that would assist, as investors, in closing the metering gap, which currently stands at 3.4 million, thus eliminating the practice of estimated billing in the NESI. Following the privatisation of the NESI, the industry has been faced with the huge burden of metering customers of the 11 distribution companies. The MAP programme represents a bold move by industry players to address the metering gap in the industry. The rollout of meters officially began on 1 May 2019.

Draft regulations by NERC

NERC is working on three draft regulations that are aimed at injecting more efficiency and competition into the NESI. Currently, NERC is conducting public consultations with various stakeholders in the different geopolitical zones of Nigeria

The regulations include the:

  • Competitive Transition Charge Regulations - this will provide for a competitive transition charge which is the amount a distribution company is entitled to collect outside its normal tariff to cater for loss of revenue or its inability to earn permitted rates of return on its assets arising from the exit of an eligible customer from its network;
  • Regulation on Distribution Franchising - this seeks to allow third-party investors to take up and maintain parts of the vast electricity distribution networks currently owned by the distribution companies; and
  • Capping of Estimated Billing Regulation - this aims to incentivise metering of electricity customers and discourage estimated billings by distribution companies.