A Legal Appraisal of the Electric Power Sector Reforms in Nigeria

A Legal Appraisal of the Electric Power Sector Reforms in Nigeria

CHAPTER ONE

OBJECTIVES OF STUDY

The aims and objectives of this research work are; firstly to make us understand the reforms in the power sector in its strict legal sense. Secondly, to examine the practical application of the reforms in the Nigerian policy and thirdly to know what extent the reform is practicable and whether the doctrine has been given a chance to operate in its strict legal sense. This research work is also aimed at bringing out suggestions to restructure the understanding of the populace, especially at correcting the erroneous notion of the majority of people about the impossibility of a reliable power sector.

CHAPTER TWO

INTRODUCTION

In order to understand fully the reason behind the power sector reforms in Nigeria, we need to have an insight into how the power sector came to be, what led to the origin, and how it got to this level of decadence.

Light is perhaps the most important amenity to mankind as God himself made provision for it when he created man because He understood how important light is to man. Light is anything that helps human beings to see clearly especially when it is getting dark. From time immemorial man has always found a way of helping himself see clearly especially when it is dark.

The early man uses sticks, woods and leaves to create light when it is dark by striking two stones together and using it to light up the sticks. This helps to create a form of light for them which they use during the night (bonfire for security), cook and do some other things to aid their survival.

From this era, there was an evolution to the use of lanterns and candles by our great-grandparents. These lanterns provided light whenever it was dark and also helped with a lot of things that aided their survival at that time¹⁴. After that time, technology brought about a lot of innovations that needed the use of light.

DISCOVERY OF ELECTRICITY

Ever since the discovery of electricity by Michael Faraday and its commercial production by Thomas Edison of the United States of America¹⁵ culminating in the formation of the General Electric Company in 1892¹⁶, the lifestyle of modern man has experienced an incredible transformation.

Of all the discoveries of modern science in the last millennium, none seems to have fundamentally altered our outlook and the way we do things as that of electricity. We need to understand that light had been part and parcel of our planet earth since the dawn of creation but, as with all other discoveries, we only recently in the last century stumble on how to harness it for our use and benefit.

Electricity generation and consumption had become the indices for measuring growth and development in modern societies. The classification of nations into developed, developing and subsistence economies is directly or indirectly linked to the aggregate production and consumption of electrical energy. It therefore, becomes imperative for any nation that aspires to join the league of developing and eventually developed economy to map out strategies for providing adequate or optimum electrical energy needs for a total transformation of her people’s living standard and that of the society from the backwaters of technological backwardness to an industrial, modern and affluent economy.

One of the greatest drawbacks of bulk electricity production is that it cannot be stored rather it must be consumed as produced. This necessitates the need for the two other important components of electricity supply which are the transmission and distribution aspect of the industry. This utility aspect of electricity production is as important as the primary source of power generation and indeed confers on it, its status as agency for growth and development.

The fear that electricity generation and supply is a technology-intensive area of specialization had made it rather unattractive to most social scientist. However, a closer examination and acquaintance with the nature and problem of the electricity industry reveals that it could benefit substantially from inputs by the social scientists as to the right strategy needed for production and delivery of its highly technical product, without delving much into the technical and operational details.

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CHAPTER THREE

POWER SECTOR REFORMS

INTRODUCTION

Reforms are going on in every part of the world and in every sector in different countries of the world⁸⁶. These reforms been adopted in the electricity sector are becoming more sophisticated and different large countries like China, India, United States of America and also small countries like Bolivia adopt reform models according to their own needs and circumstances. This is therefore to say that both developed and developing nations of the world have embarked on a program of liberalizing and reforming their electric power sectors.

Most developing countries have however experienced different problems in the process of reforming their power sectors which includes, high technical losses, a lack of cost recovery pricing, poor maintenance, low equipment reliability, high staff levels, low productivity, corruption, crippling non-payment problem and mounting debt. All these factors have made the power sectors of these developed countries commercially neglected and have consequently led them to the inability to charge the consumers for the full cost of power; the public must then make up the difference in one form or another through direct or indirect taxes that support subsidiaries⁹⁰. These stated subsidies necessary for financing the power sector’s financial shortfalls have become a mounting burden that is no longer sustainable for many developing countries.

The Nigeria power sector with respect to generation and the power available to the consumers has been on the downward trend for a very long time now. The transmission and distribution network were not any better as the infrastructure on ground were far too inadequate to meet the demands of the citizens of the country. On the other hand, demand for supply of electricity had been on a steady increase and because of logistics and financial reasons, electricity plants, transmission tie lines and the distribution networks are not adequately maintained.  In some cases where maintenance is attempted, scheduled maintenance that in most cases is very expensive is adopted.

It was therefore not surprising to know that when the immediate past civilian administration came on board in 1999, one of the main aim of the government was economic reform strategy which was intended to ensure the complete revamp of the electric power sector leading to the setting up of a working group specifically focusing on the adoption of the National Electric Power Policy which defined the framework for the power sector reform in Nigeria.

CHAPTER FOUR

STATUTORY REGULATORY SCHEME FOR THE ELECTRIC POWER SECTOR REFORM IN NIGERIA

INTRODUCTION

The long period of abandonment and mismanagement has taken the sole funding responsibility of the power sector far beyond the Federal Government’s reach. The Federal Government currently has estimated that the power sector would require about $1.5 trillion investments over the next few years to ensure adequate electricity is generated, transmitted and distributed.

It was in realization of this that the Federal Government, at the advent of democratic dispensation in 1999, started the process of reversing the decay in the power sector with the inauguration of the Electric Power Sector Implementation Committee.¹⁴² That effort brought about the Electric Power Sector Reform Act¹⁴³, which was enacted on March 11, 2005¹⁴⁴. Major objective of the Act was to ensure private sector participation and bring about a competitive power market in place of monopoly market dominated by erstwhile NEPA¹⁴⁵.

ELECTRIC POWER SECTOR REFORM ACT 2005

These initiatives will help to fast track the restructuring and privatization of the sector. For instance, the unbundling of Distribution into 11 semi autonomous business units occurred in January 2004 to improve billing and collection.

The Act led to the transition of the erstwhile NEPA to the Power Holding Company of Nigeria and formation of such other structures like the National Electricity Liability Management Company to wind down the government utility. Such other development that had followed the enactment of that Act was the breaking down of the erstwhile NEPA strategic business units into 18 different companies; 1 Transmission Company, 6 generation companies and 11 distribution companies. The Federal Government during this period repaired some of the broken down power station and constructed new ones.

The NCP is expected to take such steps as are necessary under the Companies and Allied Matters Act to incorporate a company limited by shares which is to be the initial holding company for the assets and liabilities of the Authority¹⁵¹ and a date is to be fixed for the transfer of this assets. The shares of this company shall be held by the Ministry of Finance and the BPE¹⁵² on behalf of the Federal Government of Nigeria This is expected to be finalised by either confirming or specifying the transfer of assets and liabilities after eight months from the initial transfer date.

CHAPTER FIVE

GENERAL CONCLUSION

CONCLUSION

In the above appraisal, we have studied the evolution of the power sector, privatization, the power sector reform process, the statutory regulatory scheme for the power sector reform and we can see that the Nigerian government seems to be taking concerted actions to reform the Nigerian power sector to drive expansion of capacity so as to enable the growth of the overall Nigerian economy.

The implementation of the Act has been challenging for the Nigerian government and largely seems to have stalled in recent years considering the fact that more than six years after the enactment of the Act, the reform process is still dawdling.²⁴⁸ However, the process of implementing the Reform Act of 2005 was revitalised when President Goodluck Jonathan established the Presidential Task Force on Power and published a roadmap for power sector reform in August 2010 potentially opening the door to significant private investments in the Nigerian Power Sector.

The establishment of the Presidential Task Force on Power²⁵⁰ has led to the renewed governmental commitment to privatise the gas-fired GenCos²⁵¹ and DisCos²⁵², its commitment to enter into concession agreements for hydro GenCos and the regulatory and commercial framework that has been put in place to make Nigeria an attractive market in which to explore IPP’s has the potential to open the door to significant private sector investment in the Nigerian Power Sector presenting opportunities and challenges to potential investors.

RECOMMENDATIONS

After appraising the legal frameworks put in place by the government to reform the power sector and ensure stable power supply for the nation, the following recommendations would be necessary for the effective implementation of the reform, which has been generally lauded.

1. The major recommendation to the problem of the power sector reform in Nigeria is the implementation of the Reform Act. The reform Act is not being fully and strictly implemented. It is therefore the opinion of this writer that there should be machinery put in place specifically for the strict enforcement of the Act and this machinery would ensure the proper transition from the holding company to the successor companies under a very fair and transparent process.
2. The National Assembly that ought to check the excesses of our Privatization Czars all seem compromised in their functions or don’t have enough information.²⁵⁴
3. The Judiciary is doing its best but it still lacks the basic information required to sweep the entire process clean of corruption.
4. Government itself can ensure public accountability of the entire exercise by passing the Freedom of Information Bill and allowing the National Assembly more supervisory roles.²⁵⁶ There ought to be checks and changes of preferred bidders to alternative bidders, undue political interference, due diligence conducted by non professionals instead of external independent auditing and law firms which is usually the practice in privatization exercises.
5. The intention of the power sector reform is to encourage free competition of the IPPs within a regulated framework to improve quality, quantity of services at reduced prices. There is a high tendency for successor companies to operate as private monopoly except it is controlled by specific competition or anti- trust laws. For the last eight years, there has been a Competition Bill and Anti Trust Bill at the National Assembly of Nigeria which is yet to be passed. The absence of a Competition Regulatory Commission will therefore inadvertently convert the power sector into private monopolies rendering expensive and spasmodic services. Establishment of a Competition Regulatory Commission would therefore go a long way in the success of the electric power sector reform.
6. An effective post privatization regulatory framework should be put in place. This scheme would be put in place to monitor post- privatization exercise and ownership and control should be reverted to the regulatory
7. Section 23 of the Privatization Act 1999, which contains an ouster clause of court suits against the BPE should also be expunged as it is anachronistic and a hangover of military authoritarianism.
8. National policies and laws such as the National Independent Power Project are initiated without the knowledge or participation of Nigerian legal professionals. There should therefore be a complete judicial and juristic review to the reform process to enhance its juristic evolution and growth.
9. Corruption has remained the omnipresent obstacle that has eroded the very essence of the power sector reform exercise which is to provide efficient public service to the Nigerian public through the private sector at subsidized and competitive rates. The corruption leads the Reform Act to be partially relegated or entirely discarded for expediency or self-interest in the conduct of the exercise. Certainly, enforcement of stricter corporate regulations and ethics will enhance the quality of the electricity been produced.
10. Exclusivity in the reform process is also important. The Federal Government should be stopped from unnecessary interference or national privatization policy.

The Federal Government rather than budgeting huge sums of money Public-Private Partnership in the power sector.²⁶⁷ The power reforms ought to have assumed a national project status involving the Bureau for Public Enterprises or the Infrastructure Concession and Regulatory Agency, foreign private equity funds and firms, foreign and local power experts, reputable professional consultants such as engineers and lawyers are not qualified.

Conclusively, the infusion of the above recommendations will certainly galvanize and ensure optimal value of a transparent power sector reform process. With a new government and economic team, the reforms in the energy sector, a new National Council on Privatization, it is hoped will be a brand new opportunity to inculcate best global practices into the Nigerian power sector to achieve a maximum electricity output to satisfy the entire populace and to aid the development and growth of this country.

REFERENCES

• ‘Privatization’ < http://www.wikipedia.org,2004> accessed on 19 September 2010
• Aderemi Aluko, ‘NERC’ <http://nigeriaelectricityprivatization.com/wp-content/plugins/download-monitor/download.php%3Fid%3D37-> accessed on 13 April 2011
• D.O, ‘Public Enterprises reform in Nigeria; A Review’ <http://www.krepublishers.com/02-Journals/JSS/JSS-10-0-000-000-2005-Web/JSS-10-3-153-238-2005-Abst-PDF/JSS-10-3-223-231-2005-267-Adeyemo-D-O/JSS-10-3-223-231-2005-267-Adeyemo-D-O.pdf-> accessed on 26 March 2011
• Adoghe A.U et al, ‘Power Sector Reforms-Effects on Electric Power Supply Reliability and Stability in Nigeria’ <http://www.medwelljournals.com/fulltext/%3Fdoi%3Dijepe.36.42> accessed on 15 October 2010
• Akpan Etukudo, ‘Issues in Privatization and Restructuring in Sub-Sahara Africa’ <http://www.nigerdeltacongress.com/articles/issues_in_privatization_and_ htm> accessed on 25 March 2011

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