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Introduction

The Constitution of the Federal Republic of Nigeria (Fifth Alteration) Bill No. 33, 2022 (the bill) was recently assented to by President Muhammadu Buhari. The bill alters paragraph 14 (b) of the Second Schedule to the 1999 Constitution (as amended) i.e., the Concurrent Legislative List, which is the legislative list of both federal and state governments.

The bill amends paragraph 14 (b) of the Concurrent Legislative List from “A House of Assembly may make laws for the State with respect to…the generation, transmission and distribution of electricity to areas not covered by a national grid system within that State” to “A House of Assembly may make laws for the State with respect to…the generation, transmission and distribution of electricity to areas within that State.”

Analysis of the constitutional amendment

By the constitutional amendment, states’ Houses of Assembly can pass laws with respect to electricity generation, transmission, and distribution. In determining the extent of these new legislative powers of States’ Houses of Assembly, it is important to note the effect of the doctrine of covering the field as embedded in the constitution. Section 4 (5) of the constitution provides that “if any Law enacted by the House of Assembly of a State is inconsistent with any law validly made by the National Assembly, the law made by the National Assembly shall prevail, and that other Law shall, to the extent of the inconsistency, be void”. This implies that although a State House of Assembly can legislate on the regulated power activities, where a state legislation conflicts with a federal legislation (such as the Electric Power Sector Reform Act 2005 (EPSRA)), the federal legislation would prevail and the relevant provision in the state legislation will become void to the extent of the inconsistency.

Furthermore, the legislative powers of each State House of Assembly are limited to its territory and people (Section 4 (7) of the constitution). Therefore, any state legislation in respect of the regulated activities must be limited to such activities within the relevant state and any regulated activity cutting across states such as electricity supply and transmission between states would still fall under the ambit of the National Assembly.  

The foregoing could be interpreted to the effect that a state House of Assembly can only legislate on regulated activities to the extent that the relevant law does not conflict with any Act of the National Assembly and it is in respect of regulated activities within the state.

Potential implications on the Nigerian Electricity Supply Industry (NESI)

Multiple Regulators

The NESI is regulated by the Nigerian Electricity Regulatory Commission (NERC) in accordance with the EPSRA. Since its establishment, NERC has been responsible for the issuance of rules and regulations guiding licensing of regulated activities, market structure, and other incidental matters in the NESI.

With the constitutional amendment, the NESI is likely to morph into a multiple regulatory regime over the next few years, consisting of federal and state government regulators. Given their new legislative powers, state governments will either commence the legislative process for new laws on the regulated activities in their states or amend any existing legislation on electricity.  

It is noteworthy that except there is a deliberate and collaborative effort between NERC and state regulators, there will be an overlap of the roles of these regulators. This overlap may be similar to the initial administrative tussle faced between the Federal Inland Revenue Service and States’ internal revenue service on taxation.

Notwithstanding, NERC will maintain its sole oversight over regulated power industry activities that are carried out in Federal Capital Territory, Abuja and free trade zones in the country, in addition to its concurrent oversight over such activities in states.

Multiple Licensing Regimes

The constitutional amendment may also potentially bring about a multi-licensing regime – first at the federal level, and at the state level. A potential licensee which intends to execute a state electricity project would require a NERC-issued licence and a licence from each state regulator (to the extent that the state has enacted a law to that effect) to execute its project.

Existing licensees, particularly the successor electricity generation companies (GenCos) and distribution companies (DisCos), following the unbundling of the state-owned power monopoly, may incur additional regulatory burden as states may require them to obtain licences and/or start filing returns with the state regulators. Similarly, potential licensees may be required to obtain licences from state regulators in addition to NERC licences. NERC, on the other hand, may also demand that all industry players obtain NERC licences irrespective of the issuance of state government licences to the same industry players. Either way, it is foreseen that investors and participants in the sector may face the burden of additional compliance requirements. Investors and participants will have to ensure they have the capacity to attend to compliance requirements whilst continuing their operations.

Multiple regulators and licensing regimes are likely to cause further investor apathy and impact tariffs as licensees will want to push the cost of multiple regulation to customers. This will ultimately result in dwindling ease of business ratings of the NESI. All of the above would be detrimental to a sector that requires a substantial amount of investment.

Market Competition

One of the expected outcomes of the constitutional amendment is an increase in market competition in the NESI, from both regulatory and retail perspectives. For existing licensees (especially successor companies), there is an implied exclusivity over franchise areas in practice. This may soon change to the extent that state governments can carve out regulated activities that diminish the exclusivity of existing licensees.

States with existing electricity-related laws or agencies

It is important to note that before the constitutional amendment was passed, some state governments already had in place enabling legal frameworks for the implementation of the new constitutional provision.

Asides from having a state commissioner responsible for electricity, energy, or power matters, a number of states have created separate entities (Boards and limited liability companies) by law that have been established to handle electricity matters, off-grid generation options, or renewable energy sources. They include:

(i)    Lagos State Electricity Board, established under the Lagos State Electric Power Sector Reform Law 2018 which repealed the Lagos State Electricity Board Law 2015;
(ii)    Kaduna Power Supply Company (KAPSCO) established under the Kaduna Power Supply Company Law 2015;
(iii)    Alternative Energy Fund Limited in Jigawa State;
(iv)    Cross River State Electrification Agency; and
(v)    Ekiti State Electricity Board, established under the Ekiti State Electricity Board Law 2012.

Under the referenced laws, the agencies/companies are generally tasked with establishing electricity power stations and improve access in their respective territories. Remarkably, in addition to the existence of an enabling law and a responsible state agency, Lagos State has an Electricity Policy and Off-Grid Electrification Strategy and Action Plan, which focus on the creation of a state electricity market and the use of solar solutions in the state, respectively. Also, KAPSCO has improved electricity access in communities, primary health centres, and other spheres in Kaduna State through various projects.

As much as there are states with an existing framework that may be adapted for implementation of the constitutional amendment, there are however other states which do not have any enabling framework and will need to start building requisite capacity.

Potential opportunities for states and other stakeholders

The enactment of the constitutional amendment also presents the NESI and all participants (including states) with an opportunity to improve the poor state of electricity access in Nigeria. The amendment has revealed the need for collaboration between the federal and state governments, the absence of an enabling legal framework in states to implement the new constitutional amendment, and the potential emergence of the NESI as a competitive market.

From a strategic perspective, this is an opportunity for state governments to partner with development institutions as well as private entities for the development of regulated power activities within their states. It is anticipated that states will also use the opportunity to identify the available energy sources, create their own electricity market, and foster economic development within their territories.

It is also anticipated that state governments could play a key role in ensuring energy access to the last mile customers. In this regard, state governments can partner with DisCos on the maintenance of distribution and metering infrastructure within their territories to support revenue collection by DisCos and reduce commercial and collection losses.

We also envisage that we will see collaborations between state governments, power developers of decentralised energy solutions, including mini grids and embedded generation projects as well as distribution companies, i.e., independent electricity distribution network operators.

Furthermore, states may utilise public-private partnerships to develop and build technical expertise within their agencies. This will consequently aid the development of the legal and institutional framework for electricity in states.  

States with access to reliable renewable sources may use green bonds to raise capital for power projects. There may also be impact investment and development institutions willing to invest in state government projects.

It is advised that private investors, development agencies, and non-governmental organisations engage and provide support to state governments on their plans for the implementation of the constitutional amendment. This is to ensure that such plans recognise the interests and concerns of the various stakeholders and create a forum for collaboration.

Conclusion

The constitutional amendment is a much-anticipated development in the NESI. However, its implications may not have been thoroughly considered. Market participants must be innovative and pragmatic to avoid creating challenges and the risk of investor fatigue in the course of implementing the amendment. There are also apparent gaps in the capacity of states to actualise the new constitutional provisions. For those who would implement, there could be a likelihood of regulatory overlaps in the NESI.

Therefore, except if there is a joint effort between NERC and state governments/electricity agencies (with NERC leading the way) and a deliberate attempt by state governments to develop pragmatic and viable legal and institutional frameworks to attract the much-needed investment in electricity within their territories, the constitutional amendment may cause more harm than the desired good.

Detail Commercial Solicitors is distinct as Nigeria’s first commercial solicitor firm to specialise exclusively in non-courtroom practice. Based in Lagos, Nigeria’s business capital, DETAIL is totally committed to its clients’ business objectives and reputed for dealing with the minutiae. Email: info@detailsolicitors.com.