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. It was enacted with a view to, in the words of the Policy, ‘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 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 and 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; and
- 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 (DisCos) 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 Nigerian Electricity Supply Industry;
- 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 DisCos or interconnected to the DisCos’ 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 Nigerian Electricity Supply Industry;
- 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 Nigerian Electricity Supply Industry (NESI) among others; and
- 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 (GenCos) is transmitted to the DisCos through the transmission network of TCN and delivered to the consumers.
GenCos can sell electricity to the bulk trader, Nigeria Bulk Electricity Trading Company (NBET), DisCos and eligible customers. For on-grid electric power and ancillary services, NBET enters a power purchase agreement (PPA) for bulk procurement from the GenCos and resale to the DisCos through a vesting contract. Transmission from the GenCos to the DisCos is done by TCN who executes grid connection agreements with GenCos and transmission use of systems agreements with DisCos. Upon distribution, payment is made by consumers and DisCos remit to the market operator for further distribution along the value chain to the market participants.
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 PPA.
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 (TSP) for the maintenance and operation of the transmission infrastructure; as a system operator (SO) for system operations and administration of the wholesale electricity market under its functions; and as a market operator (MO).
The unbundling of the government-owned utility provider led to the formation of 11 DisCos for its distribution assets and liabilities. Each DisCo 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 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.
The Act provides for the licencing of a bulk trader (NBET) for the bulk procurement of electric power and ancillary services through a PPA from GenCos and the resale to DisCos by vesting contracts. NBET was created primarily for payment guarantee assurance to GenCos for the bulk procurement of electric power and ancillary services. It also ensures through the vesting contracts that a minimum capacity from the available MW is provided to each of the DisCos.
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 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?
GenCos 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 which 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: 2,000MW (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; and
- 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.
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.
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 five 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).
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 Nigeria Atomic Energy Commission (NAEC), which was initially created in 1976, 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 Program. Through the Program the Commission developed a National Nuclear Power Road Map which was adopted by the Federal Executive Council. The Road Map entails generating at least 1,000MW by 2017 and 4,000MW by 2027.
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 TSP and NBET. Users who are eligible to obtain transmission services must make an application to the TSP 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 TSP 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 TSP.
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 GenCo 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 5,300MW to 20,000MW by 2022 and to urgently address the shortfall in transmission.
The government recently launched the power sector recovery progamme. 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.
Tax relief in the form of import duty exemption is granted by the government to contractors importing equipment for the expansion of the grid.
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 determines the rates for the provision of transmission services. As part of this role, NERC introduced the multi-year tariff order (MYTO) for the determination of the cost cf 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 Nigerian Electricity Supply Industry. The MYTO for transmission is applied to transmission services.
The MYTO 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 DisCos in the transmission of electric power from GenCos to the DisCos.
TCN determines the terms for the provision of the services. It has developed a standard form that also sets out the obligations of GenCos, DisCos 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; TSPs, SOs and MOs.
The TSP is responsible for the construction, operation and maintenance of transmission facilities to secure reliable evacuation of power and new interconnection points.
The SO 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 SO-controlled grid and market operations.
The MO 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 DisCo 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 DisCo and approved by NERC;
- provide a declaration of supply requirements completed by an appropriate authority in a format provided by the DIsCo 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 DisCo 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 DisCos were privatised through a 60 per cent share sale and are under private sector management, with the exception of Yola DisCo, 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 DisCos 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 DisCos 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 Program 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. The distribution projects under the NIPP cover upgrades and expansion of the 11 distribution zones across the country.
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 determines the rates for the provision of distribution services based on the projections given by each DisCo for the reduction of its aggregate technical, commercial and collection losses. The Act empowers NERC to establish methodologies for regulating electricity prices. To regulate the tariff for distribution NERC introduced the MYTO for the determination of the cost of electricity sold by distribution or retail companies. The tariff design in place for DisCos 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 DisCo’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 MYTO 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 Nigerian Electricity Supply Industry, a licence issued by NERC is required for the sale of power. Trading licensees such as the DisCos 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 tariff that governs the sale of power by the distribution companies is the MYTO.
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?
NERC determines the rates for wholesale power using the MYTO methodology. The MYTO is a calculation tool set up for the sole purpose of determining rates in the electricity sector, and consists of cost assumptions (ie, installed capacity, capital cost, O & M cost (fixed), O & M cost (variable), capacity factor, auxiliary requirement, economic life, construction period, sent out efficiency, availability and fuel cost). In 2008, at MYTO’s first application in Nigeria, it was restructured to meet the electricity market; domestic parameters were also factored into it before arriving at the current standard it is at today. Currently MYTO 2015 is structured such that a major review is carried out every five years and minor reviews of the indices are expected to be done every six months.
Stakeholder consultation initiated by NERC on the review of the MYTO methodology is ongoing.
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 DisCo gets a minimum MW from the available capacity procured from the GenCos.
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:
- Federal Ministry of Power, Works and Housing;
- Nigerian Electricity Management Services Authority; and
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; 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. ECN 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. ECN, among other roles: serves as a centre for gathering and dissemination of information relating to national policy in the field of energy; inquires into and advises the government of the federation or the state on adequate funding of the energy sector including research and development, production and distribution; and monitors 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 chairmen 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.
The Federal Ministry of Power, Works and Housing
The FMOPWH is an administrative arm of the federal government of Nigeria.
Nigerian Electricity Management Services Authority
The NEMSA was established by virtue of the Nigerian Electricity Management Services Authority (NEMSA) 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 or devoid of government interference.
Energy Commission of Nigeria
The ECN 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
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.
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 anti-competitive or manipulative practices in the electricity sector?
Under the Act, NERC has the responsibility to continue to monitor the Nigerian Electricity Supply Industry 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.
Determination of anti-competitive conduct
What substantive standards are applied to determine whether conduct is anti-competitive or manipulative?
There is currently no legislation that is dedicated solely to anti-competition issues in Nigeria. However, the 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 anti-competitive or manipulative practices?
In respect of services in competitive markets, the Act gives NERC a continuing power to prevent or mitigate abuses of market power in its decisions and orders, for example 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 to the above, NERC has powers to levy fines on any licensee engaged in such practices.
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 - 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; and
- 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.
Authorisation to construct and operate interconnectors
What authorisations are required to construct and operate interconnectors?
Currently, interconnectors are operated and handled by the MOs 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 for 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 PPAs are executed between the cross-border countries and NBET.
Transactions between affiliates
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
Update and trends
Are there any emerging trends or hot topics in electricity regulation in your jurisdiction?
Meter Asset Provider Regulations 2018
Prior to the enactment of the MAP Regulations, there was a major metering gap that led to the DisCos’ use of estimated billing on unmetered customers. The liquidity challenge in the sector has been flagged as one of the challenges affecting the ability of DisCos to meter all customers.
The NERC recently issued the MAP Regulations, which came into force on 3 April 2018. The MAP Regulations aims to encourage the development of independent and competitive metering services, eliminate estimated billing practices, attract private investment to the provision of metering services, close the metering gap through accelerated meter roll-out and ultimately enhance revenue assurance and improved customer service in NESI.
The Regulations make provision for a meter asset provider, who will be responsible for providing the meter and carrying out all meter-related services. The creation of the meter asset provider relieves the financial and operational burden of metering from the DisCos. It is expected that the Regulations will reduce the metering gap, improve revenue generation for the DisCos, eliminate estimated billing and reduce commercial losses for the DisCos.
Nigeria’s first project-financed independent power plant, the Azura-Edo IPP, completed construction of the 450MW independent power plant in early 2018. The power plant is expected to reflect significantly in the power supply across the nation when it begins to function at its full capacity of 459MW for the first phase of implementation of the project. The Azura-Edo IPP is also the first Nigerian power project to benefit from the World Bank’s Partial Risk Guarantee structure and the political risk insurance supplied by the Multilateral Investment Guarantee Agency.
Eligible customer regulations
Following the Eligible Customer Declaration on 19 May 2017 by the Minister for Power, Works and Housing, the NERC issued the Eligible Customer Regulations 2017 (The Regulations). The Regulations outline the terms that would guide the direct purchase of electricity by end-users from power generation companies.
The Regulations provide standard rules to facilitate competition in the quality and supply of electricity, and promote rapid expansion of generation capacity. Through the Regulations, NERC seeks to improve the overall financial liquidity of the electricity industry by allowing GenCos with uncontracted capacity to access unserved and underserved consumers, with the aim of improving financial liquidity in the sector and encouraging third-party access to transmission and distribution infrastructure, as a precursor to full retail competition in the NESI.
Implementation of the Power Sector Recovery Programme - Nigerian Electricity Transmission Project
On 22 March 2017, the Federal Executive Council approved a Power Sector Recovery and Implementation Plan that was prepared in consultation with the World Bank Group. The plan is a set of policy actions, operational and financial interventions to be implemented by the federal government of Nigeria to attain financial viability of the power sector.
Under the Power Sector Recovery Programme, the World Bank approved, in 2018, an international development Association credit and a scale-up facility credit in the total amount of US$486 million for the rehabilitation and upgrading of electricity transmission substations and lines, in Nigeria.
The investments under the Nigeria Electricity Transmission Project will increase the power transfer capacity of the transmission network and enable distribution companies to supply consumers with additional power. In addition to other investments and policy measures, the project will contribute to ensure adequate and reliable electricity supply that is necessary for Nigeria’s continued economic development. It will also support private sector participation, capacity development and better governance in the TCN.
Rural electrification fund grant
The federal government of Nigeria, through the Rural Electrification Agency (REA), is set to partly fund capital grants to be provided to private investors through the rural electrification fund. The fund was set up as a scheme to incentivise investors interested in developing mini-grids in rural areas. This is the first grant that will be provided in order to support the deployment of hybrid mini-grids and solar home systems towards accelerating access to electricity to rural and underserved areas across Nigeria.
On 3 September 2018, a workshop on access to finance was conducted by the REA in collaboration with the German Cooperation, GIZ, for the qualified developers who had been selected through a public bid process.