The Current Status and Future Challenges of Electricity Market in Nigeria in the Face of Deregulation

The Current Status and Future Challenges of Electricity Market in Nigeria in the Face of Deregulation

CHAPTER ONE

OBJECTIVES OF THE STUDY

Objectives

Examine the nature and status of electricity regulation in Nigeria;
Appraise the legal and contractual obligations agreed upon by parties to address the challenges of electricity supply in Nigeria;
Evaluate the effective utilisation of both legal and institutional framework for ensuring electricity in Nigeria;
Assess the role of law in ensuring compliance with statutory obligations for electricity supply in Nigeria.

CHAPTER TWO

LITERATURE REVIEW

INTRODUCTION

In this chapter, it must be emphasized that this is a developing area in terms of research and as such, it explains why there are limited local literatures on it. Notably, most of the authors that have been recognized in this field have expressed views that are socio- economic in nature. It is therefore not surprising that majority of the literature that will be reviewed in this chapter will be biased towards fields other than law. In this regard, majority of the authors have written from purely economics, engineering and scientific point of view. The legal aspect have however been sparsely considered. This chapter will also offer a theoretical framework that will provide guidance to the development of this research. Notably, the research focused on the use of both Socio-Legal theory and Legal Positivism in its analysis.

LITERATURE REVIEW

There are several works that have considered the issue of electricity globally. These have been viewed in various perspectives particularly as it relates to the problems that face consistent supply of electricity. In this regard, it is therefore necessary to take a look at some of the existing literature in terms of problems, impacts and solutions in order to consider the extent of discussions in this area and to highlight the gaps that have been created. This will enable this research to adequately fill the gaps for the purpose of extending the discussions on the issue of electricity supply as it relates to Nigeria.

Problems

In the build-up to the reform process in Nigeria, Onakoya observes that the commercialization and privatization decree No. 25 was promulgated partly to tackle the consistent power shortages.¹⁴ This was unable to produce the required outcome because of the unwillingness by the government to carry out the necessary reforms.

The work of Aliyu, Ramli and Salehconceives that there is crisis in Nigeria with regards to the electricity sector as it is being reflected in the current legal framework. The work goes further to highlight the fact that the industryfacedpoor financingduring the 90s which results into the current predicament of poor electricity in Nigeria.¹⁵ Furthermore, it is noted that there were reasons for the poor handling of the power plants which includes the fact that human resources were poorly trained and the equipments were not properly managed. ¹⁶ This study emphasized the role of limited funding and accountability issues as part of the problems facing the electricity sector. It did not however take into consideration the study of the various legal issues that are inherent under the existing legal framework as it affects consistent supply and availability of electricity in Nigeria.

In a research conducted by Oseni, it is shown that detailed analysis of the overall performance of the sector, particularly after the introduction of the on-going reform, shows that the power sector requires further attention for efficiency purposes. The work therefore focuses on the progress of the electricity industry and also makes some directions for policy development.¹⁷ This research did not however, consider the legal aspects of the electricity sector as it concerns supply obligations.

Furthermore, Oricha and Olarinoye addressed the importance of regular power supply in a nation by pointing out that it is the key to economic expansion.¹⁸ The work emphasized that Nigeria is facing enormous technical issues in the energy sector that calls for an immediate attention.¹⁹ Notably, it was observed that the factors affecting stable and efficient power supply constitute both government policy and economy factor. The work concludes that the components affecting the electricityindustry in Nigeria are problematic in nature and as such, there is a need to critically attend to the issues causing the complexity.²⁰ In essence, while this work considers the importance of stable power supply in Nigeria, it did not discuss the legal aspect dealing with supply obligations as a tool to tackle the identified problems.

In the work of Olugbenga, Jumah and Phillips, it was observed that global attention has continually been paid to electricity market.²¹ Their work identifies several problems in the continuous reform process in the electricity market. These include corrupt practices, delayed progress in expansion of generation capacity, undue government interference amongst others.

CHAPTER THREE

METHODOLOGY

INTRODUCTION

In this chapter, procedures and instruments utilized in conducting this research are described. This chapter also discusses and analyses the primary resources that were utilized in this research work.

RESEARCH DESIGN

This research adopted the doctrinal legal research methodology. It is conceived as research into legal doctrines through evaluation of statutory provisions and case laws by the utilisation of reasoning.⁴⁹ The focus is upon evaluation of legal directives.⁵⁰ This is carried out by taking up a proposition as a focus. The applicable law is then located in enactments, judicial directives and discussions in commentaries and books. This is read in a holistic manner for the purpose of analysis and report of findings.

In carrying out this research, the various electricity laws of Nigeria and particularly the provisions of the Nigerian Constitution 1999 was studied while the legal obligations in the various licensed electricity companies were considered to determine their adequacy. This process involved interviews and discussions with the major stakeholders. Visits were paid to some of the various established institutions and companies involved with generation and distribution to investigate extent of capacity to fulfil legal obligations and corresponding effectiveness of relevant regulatory institutions in ensuring compliance. This involved a visit to the Nigerian Electricity Regulatory Commission, Ministry of Power and Ibadan Electricity Distribution Commission. In this regard, inquiries into issues pertaining to the electricity industry with reference to electricity stability were carried out through interviews.

The thesis made use of both primary and secondary resources. The primary resources focused on legislations such as the Electric Power Sector Act 2005, statutes, case laws,

the Constitution of the Federal Republic of Nigeria 1999 (as amended) and interviews while the secondary resources focused on texts, journals, articles and monograms.

CHAPTER FOUR

RESULTS AND DISCUSSION OF FINDINGS

Electricity generation grows from few kilowatts used to serve the colonial masters in Lagos when the first generating plant was installed in 1898 (Isola, 2012). In the late 19^th century to the Electricity Corporation of Nigeria (ECN) established by Act of Parliament in 1951, a decade later 1962, Niger Dams Authority (NDA) was set up to develop hydroelectricity which was merged with ECN to form National Electric Power Authority (NEPA) in 1972.

However, there was a decline in electricity generation capacity despite an increase in population, with no visible plan to commensurately increase generating capacity. This caused electric power demand to increasingly overshoot available supply. By year 2000, the problem had sent Nigeria into electricity supply crisis, which caused the Federal Executive Council (FEC) in year 2001 to approve the National Electric Power Policy (NEPP), which called for fundamental changes of ownership, control and regulation of the power sector. The 2001 NEPP actually set the roadmap for Nigeria’s power sector privatization, but due to the bureaucracy in government; the policy could not be signed into law until 2005. The signed document became the Electric Power Sector Reform (EPSR) Act of 2005 (EPSR, 2005). The reform is expected to generate some economic implications for the citizens and the prospective investors (Makwe et al., 2012). According to Agboola (2011), Nigeria electricity problem will be a forgotten issue if the IPP participation comes into effect because the financial investment is to be sort outside government resources. By this Act, NEPA was translated into the newly incorporated Power Holding Company of Nigeria (PHCN) Plc, comprising of 18 separate successor companies that took over the assets, liabilities and employees of NEPA, and responsible for the generation (6 companies), transmission (a company) and distribution (11 companies).

The PHCN’s incorporated successors in the unbundling process are given in Table 1.

According to Alohan (2012), the problems which led to the reforms as highlighted by the Bureau of Public Enterprises (2011) are as follows:

Limited access to infrastructure.
Inadequate power generating
Inefficient usage
Lack of capital for
Ineffective
High technical losses and
Insufficient transmission and distribution
Inefficient use of electricity by
Inappropriate industries and market

CHAPTER FIVE

SUMMARY AND CONCLUSIONS

CONCLUSION

The research finds that there are indeed legal and contractual obligations in the sector for all stakeholders which are considered to be inadequate.

Due to constraints of space, resources and time, the legal framework and economic background of more countries with similar attributes would have been considered. It is therefore suggested that for the purpose of future research, attention should be placed on that area.

In the course of this research, there were difficulties in obtaining information from several institutions due to the issue of trust. This is attributed to the perceived notion that such information may cause them to either lose their job or earn queries for disclosing same. Notably, attempts to convince some of the personnel in this regard are usually rebuffed. In some instances, where positive attention was granted, there were restraints in providing the necessary information and where such are disclosed, it is usually based on mutual non-disclosure principles. In this regard, the key actors are not ready to have their names in print as the person who supplied the information. The above, coupled with the availability of support through funding are part of the limitations experienced in the course of this research. It is expected that research and development will be encouraged in the energy sector to limit some of the highlighted issues.

RECOMMENDATIONS

In the light of the above, there is therefore a need for a strong institutional framework and legal framework that will ensure that the legal obligations are not just observed in breach but are capable to actualize the objectives which it was primarily made to do in the electricity sector. The various stakeholders have considered that the law can be used to achieve more in the electricity sector. However, it is not in doubt that several factors served as a form of setback in actualizing the ideal objectives of the law in this regard.

It is therefore recommended that the current legal framework should be amended to incorporate:

That licences should be given to companies whose liquidity is not questionable and is This will no doubt be useful for the regulators in the granting of licences to bidders. It has been considered in the previous chapters that funding is an integral part of ensuring that the electricity sector is fully functional. An illustration in this regard is seen in the South Africa electricity regime that enhances the financial capacity of Eskom. The situation where bidders will rely heavily on the banks to fund their projects should be discouraged particularly at the initial stages. It is believed that this will encourage prospective bidders to pool resources together in order to make a bid.
That regular check must be made on all the facilities of the electricity These include facilities in the generation, transmission and distribution of electricity. This responsibility must be strict to the extent that severe sanctions such as withdrawal of licence must be attached to failure to carry out this maintenance. Thus, it is expected that in the course of this exercise, facilities which are obsolete must be replaced. Thus, as long as companies are aware of these obligations, issues related to power generation, its transmission and final distribution will not be of concern any longer. It has been highlighted in the previous chapters that one of the fundamental issue bedevilling the electricity sector is the presence of worn out infrastructure. This will no doubt be taken care of in the circumstances.

That energy mix should be properly identified and utilized in each state of the It has been identified in the previous chapters that the concept of covering the field is in existence and has crippled the state government from making laws to generate and supply electricity to consumers within its reach. This will inevitably cover the shortage of supply that may have hindered constant supply of electricity in Nigeria. Notably, it becomes necessary in this regard, to ensure that full competition in all stages of electricity be allowed to begin once the above step is put into consideration.

That consumer protection processes be simplified and further enhanced to allow faster access to justice. Resolution of conflicts has been identified in the previous chapters as a means to ensure that supply of electricity is not hindered in any Notably, the notion of threatening and eventual disconnection of customers from the pole is an embarrassing situation that has befallen many customers who mostly are not the cause of the conflict in the first place. This scenario as identified is usually caused by billing customers excessively in what has been referred to as “crazy billing by most Nigerians.” It is observed that the law is in place to check the above excesses of the agents of the distributors. However, the law is silent on the punitive measures to be awarded to errant agents in this circumstance. A sanction of immediate dismissal will therefore not be too heavy in the instance.
A statutory and contractual based liabilities and sanctions which will cover all the stages of electricity processes from the generation phase to the distribution phase. This has been recognised in the previous chapters as the basis of all transactions in the electricity sector. The foundation is therefore an important aspect that should be reviewed as it regards sanctions. It is conceived that the sanctions are not properly managed and awarded as there are loopholes in the regulatory body that needs to be covered. It is not just enough in the above circumstance to fine companies, rather other sanctions must follow which may involve possible suspension or refusal to renew It should therefore be important that the regulators must be checked by members of the public in this regard to ensure that cases of obvious disregard for statutory and contractual obligations are duly sanctioned.

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