By Oyebanjo Idowu, PhD
On Friday 17th March, 2023, history was made when His Excellency, President Muhammadu Buhari, signed into law, the constitutional amendment allowing States in the country to licence, generate, transmit, and distribute electricity in areas covered by the national grid.
It is important to state that before this amendment, electricity generation, transmission, distribution in the areas not already covered by the existing national grid was in the concurrent legislative list which states have jurisdiction over.
The implication of Sections 13 and 14 of the constitution in this regard has been a subject of debates for many years now, as some have argued that it has prevented the states which want to accelerate their development to do so at their own pace. Although States currently have the right to generate, transmit, and distribute electricity in areas not already covered by the national grid, they haven’t taken much advantage of the law before this amendment. This piece seeks to examine the strengths, weaknesses, opportunities and threats presented by this historic action aimed at deepening competition in the Nigerian Electricity Supply Industry (NESI).
Strengths
Effectively speaking, the amendment means a restructuring of the electric power system via the constitution and has the potential to turn the Nigerian power sector to a decentralized system.
This initiative has come at no better time in view of the dismal performance of the privatization as against what it was intended to do. Potentially, this will lead to improvements in the power supply systems to consumers in the NESI as a result of competition between State owned utilities and existing distribution network licensee(s) in the State. New licencees will also emerge who will invest in power systems, meter all consumers, reduce Aggregate Technical Commercial & Collection Losses (ATC&C), improve reliability, quality and quantity of power supply, respond to customer complaints and remunerate staff appropriately. Yes, when properly implemented, we can say that certain sections of the country will start to celebrate improvements in quality and quantity (period of availability) of power supply. Distribution companies (DisCos) will treat consumers more fairly as they will have the option to switch to alternatives in the face of deepening competition. The end game is to progressively hear of “20 to 24 hours of uninterrupted supply” till we forget “UP NEPA”!
We already have examples of states that have tried the generation, transmission and distribution of electricity to their citizens including Lagos, Ogun, Rivers, Katsina, Borno, Akwa-Ibom, Edo and Delta States. Kaduna State has a number of similar projects that have reached advanced stages.
Clearly, most states will start with investments in generation and seek to provide supply to state-owned offices, buildings, and consumers nearby. For sure, industrial clusters, universities and other higher institutions will seek to connect to more reliable electricity supply systems and the DisCo in the network franchise area can then focus on serving the remaining customers better. There is also the opportunity for captive power to be captured in the scope of the power supply program in the State. Generally speaking, it may be far easier for States to generate electricity and sign an agreement with the existing DisCo in the area for distribution and supply.
Following this path, Nigeria will be able to increase her compliance with UN sustainable development goals (SDG 7 – affordable and clean energy) as the paradigm shift will further strengthen the network in the northern corridor with hydropower generation springing up here and there, such as the ones in Zungeru, Kashimbilla, Gurara etc in addition to Kainji, Shiroro and Jebba.
Weaknesses
The existing power system is weak and fragile and fragmenting it may have further weakening consequences. As some states will not be proactive in the early days, it will leave a huge gap between states or regions of the country that enjoy improved power supply while others lag behind. In a way, one will expect migration and over-population in certain cities whilst other States buckle up.
As with anything else, the amendment will not lead to improvements as intended if the implementation is not done right. In this regard, all relevant stakeholders including but not limited to experts in the field of power systems, professional bodies, investors, entrepreneurs, policy makers, consumer groups and advocates, relevant ministries, departments and agencies of the governments (States and Federal) must work hard to make a success of this development.
As highlighted in the opening paragraphs, and for many years now, states have had the provision to invest in generation, transmission, and distribution of electricity within their boundaries, albeit restricted to areas not already covered by the national grid. While this may appear limiting, one would have expected states to have improved power supply in the unserved and underserved areas of their domain before now.
It is now left to be seen how states that have been unable to fund rural electrification, pay salaries and pensions, provide basic public services for years, are indebted, depend on federal government bailouts from time to time, will be proactive enough to invest in power systems considering the fact that investments in power systems require a huge amount of capital. This has the potential for many states to go into debt financing which has to be well considered. Of course, one must say, not all states are included in this bucket of description. The situation where several states take foreign loans that grossly overwhelm the forex available from CBN can be dreadful.
As laudable as the amendment is, it has the potential to lead to chaos and unintended consequences if not well managed. Except for market-driven approach by way of involvement in the retail/supply business, asking states to build independent power networks in parallel with the existing grids have major technical and safety implications. For overhead systems, we will soon see dangerous high voltage lines criss-crossing themselves without safety clearances that can cause electrocution and limit operational flexibilities.
Having two or more wires owned by different utilities supplying the same customer group is a no brainer, and will be more expensive compared to having only a single network. Also, except if underground networks are built where possible, rights of way issues will exist if this approach is followed.
There will of course be the disenfranchisement of existing DisCos whose customers will be “poached” by new licensees and this may lead to court cases that may hamper development of the power system. The arguments will be whether or not the DisCos have been given exclusive rights to their network franchise areas in the terms and conditions of their licences and whether they have the typical “change in law provision” in their contracts with the Federal Government. Also to be checked is whether or not this is a force majeure situation.
Opportunities
The power system that will evolve will throw up opportunities. States can progressively electrify areas where the national grid does not exist so that, when interconnected with the existing grid, industrialization can get to the rural areas. Also, they will now have the opportunity to buy up a non-performing utility and, hopefully, end monopoly for good. This will be the case since States also own a fair percentage of the DisCos in their domain. Furthermore, States can now implement private-sector led design-build-operate-maintain (DBOM) model in an integrated procurement model that combines design and construction responsibilities with operation and maintenance. In deepening competition, States can also employ robust market designs to implement a retail choice model where competition is created at the metering and supply end of the value chain. What is more, States can attract private sector investments through a licensing regime while creating conducive environments with opportunities for reliable and sustainable revenue stream.
This can also be an incentive for clean energy technologies. One expects more renewable and non-renewable energy systems (gas, oil, coal, micro and mini grid systems, solar homes, rooftop solar, wind farms, solar farms, mini-hydro, biomass, landfill etc) featuring in the Nigerian power system with the attendant benefits and advantages.
The need for proper protection and coordination of the national, regional and State grids will be a must. Supervisory Control and Data Acquisition Systems (SCADA), digitalization, and other Data Management Systems will be key. The regional or State grid can be ring-fenced and interconnected to the existing national grid which provides back-up to it in times of disturbance and excess demand. This will lead to inter-area transfer of power with its benefits and challenges.
The discovery of gas and crude oil in various basins in other parts of Nigeria will potentially lead to increased refining capacity and gas-fired power generation systems in these areas and cause more exploratory activities which can add to the local economy. If we consider the fact that power supply is abysmally poor for now, any initiative that helps some parts of the country to have improved power supply systems is positive because we can then concentrate efforts on those other areas “in darkness”. Also, this will throw up healthy rivalry and competition in neighbouring states. Where a State does not have the resources to generate electricity, we expect collaboration with neighbours in a regional grid system that has to be carefully managed.
Since states will now have regulatory agencies of their own, this is expected to lead to an improvement in the quality of regulation in the country. The relationship between the electricity market regulator at the federal level and those of the States have to be well defined with clear responsibilities and governance arrangements.
Before giving licences, the Nigerian Electricity Regulatory Commission (NERC) needs to ensure that the applicant licencee (the franchisor) has needed capacity in terms of knowledge and experience to perform creditably. Also, people with experience in power systems and power system regulation will be required nationwide. Power system professionals especially will be required to manage the day-to-day planning, operation, control, protection and maintenance of the multi-systems that this will bring about. Asset Management will be key!
In general, this presents an opportunity for Nigeria to showcase an uncommon form of privatization and to think outside the box and be innovative. Smart Grid technologies will notably assist in many ways.
Threats
A commendable act of this nature requires careful thinking, and if not well thought through, can lead to chaos. It is not enough to travel down the path and later regret and not know how to go forward after a few years just as we have experienced in the case of the privatization which took place almost a decade ago now.
Also, the transmission company of Nigeria (TCN), ahead of facing competition, will have to figure out how to operate in the different markets to be thrown up by this move. For sure, it has to respond to the creation of regional and State grids to maintain competitive advantage while improving customer service.
There is also the fact that many states have started many generation projects for up to two decades now and those projects haven’t been successfully completed. It is hoped that States will not hold back from seizing the opportunity this amendment presents to them after pushing so hard to play a bigger role in the electrification of their local economies.
From experience, the fact that this amendment took place at the twilight of this administration, it is important to have an incoming administration that will have the political will to guide the implementation of the new law until teething problems are surmounted and a more stable situation is attained.
There are many questions begging for answers including what the role of NERC was in arriving at this position, the role of the Nigerian Electricity Bulk Trader (NBET) in this new arrangement, whether or not an agency was created to manage the new structure with the mandate to clearly define the way and manner existing institutions and agencies will amend their roles and functions to accommodate the change in the constitution under review.
As highlighted earlier, this policy portends a threat to many DisCos in the NESI. Independent Electricity Network (IEDN), Embedded Generation (EG), Eligible Customers (EC), power traders and more players will operate in the hitherto franchise area, previously believed to be exclusive to them. It may be that DisCos themselves will apply to become eligible customers and the power system will surely become more competitive and complex to manage.
The restructuring of the electricity supply system in Nigeria from centrally managed to a decentralized one has commenced. The revolution has started and only those who have the vision to think differently will be the early benefactors. Hopefully, this will lead to further competition, better service delivery and reduced tariffs for consumers.
While it is doubtful that all the States will get involved in the three major levels of generation, transmission, and distribution of electricity at the same time, the progressive development will benefit customers who are the ultimate beneficiaries of this amended constitution.
Welcome to the dawn of an emerging power sector in Nigeria. Interesting times ahead!
By Idowu Oyebanjo