LASG is on the right track with the proposed electricity policy and we applaud the State government for this pioneering effort to decentralise and democratise the supply of electricity to Lagosians. Other States should emulate the LASG electricity policy and start to fashion out their own electricity policies and state electricity laws. This is what we’ve termed “Energy Federalism”.
The Lagos State government recently released a consultation paper on the Lagos State Electricity Policy. The consultation paper, signed by Mr Olalere Odusote, the Commissioner of Energy and Mineral Resources, highlights the need for Lagos State to develop its own electricity policy to address the rapid urbanisation of Lagos State, leading to increasing demand for electricity, and the inherent electricity shortages that have hindered the socio-economic growth of the State. The electricity policy will also focus on reducing environmental pollution from diesel and petrol generators that residents and businesses in Lagos State (and Nigeria) have had to resort to as alternative sources of power to the epileptic and unreliable national grid.
The objective of the Lagos State electricity policy is to develop a holistic policy that will provide the “legal, engineering and commercial frameworks required by the State to create a viable sub-national electricity sector that is entirely off-the-national-grid but nevertheless caters fully to the needs of its citizens, while enabling significant socio-economic growth and development both for Lagos State and the country at large”.
The policy paper highlights eight factors for a viable electricity market in Lagos State. These are: (1.) an enabling constitutional and legal framework; (2.) an integrated resource plan; (3.) an autonomous, credible regulatory body; (4.) competitive and transparent procurement of generation resources; (5.) a bankable commercial framework; (6.) an Independent System Operator; (7.) well-funded, well-managed generation, transmission and distribution players; and (8.) collaborative Federal and State Government support for market growth/customer satisfaction.
Our analysis will focus in general on these eight factors as enumerated by the consultation paper, as well as provide our ideas on some of the policy intentions of Lagos State, as stated in the consultation paper.
An Enabling Constitutional/Legal Framework
The consultation paper rightly starts off with interpreting the constitutional provisions for electricity under the 1999 Constitution (as amended) and seeking a legal foundation and framework to situate the proposed Lagos electricity policy and the putative Lagos Electricity Market.
Many public commentators and even law makers at both the federal and state levels, erroneously believe that electricity is on the Exclusive Legislative List of the 1999 constitution. This is incorrect. In actual fact, electricity is on the Concurrent Legislative List and the State Houses of Assembly are vested with powers under the Constitution to make laws for electricity business in their states.
Unfortunately, the erroneous belief that electricity is on the Exclusive Legislative list, may have guided the enactment of the Electric Power Sector Reform Act (2005), which is the extant federal law on electricity in Nigeria. The EPRSA is a holistic national law for the regulation and operation of electricity business in Nigeria. It also creates the Nigerian Electricity Regulatory Commission (NERC), charged with the mandate to regulate the power sector within the provisions of the EPSRA.
The consultation paper raises the matter of who is constitutionally responsible for making laws for the electricity distribution business within states. The policy paper argues brilliantly that by virtue of Section 13(b) and Section 14(b) of the Concurrent Legislative list in the 1999 Constitution, the power to make law for electricity distribution is the responsibility of the state Houses of Assembly, not the Federal Government.
We concur with the argument put forth by the paper that Lagos State has the constitutional powers to enact laws and policies for the regulation, administration and management of electricity in the State. Given the provisions of sections 13(b), 14(b) and the definition of “Transmission” and electricity “Distribution” in section 15 of the Concurrent Legislative List in the 1999 Constitution, it is our view that the sections dealing with electricity distribution to end users in the EPRSA (2005) is a possible breach of the provisions of the 1999 Constitution.
And this is a fundamental constitutional matter. Many State governments – Lagos, Rivers, Akwa Ibom, and more recently, Edo, Delta, Anambra, Cross Rivers, Kano, and Kaduna, to name a few – have built or are building Independent Power Plants (IPP) with the intention to generate, transmit and distribute electricity to end users within their spheres of influence. While the establishment of state owned IPPs have gone without any regulatory hindrances from the Federal Government since the enactment of the EPSRA, no State government has been successful in participating in electricity distribution within its territory, due to the provisions of the EPSRA. At best, these state owned IPPs are operated as captive power generation plants.
The privatisation programme created private electricity distribution monopolies with geographical network areas covering multiple states. Some electricity distribution companies (DisCos) cover geographical areas larger than many countries! Interestingly, NERC has attempted to somewhat circumvent the monopoly of DisCos to distribute electricity to end-users within these geographical areas by introducing several regulations, such as the captive generation regulation, embedded generation regulation, eligible customer regulation, franchising regulation, Independent Electricity Distribution Network (IEDN) regulations and the mini-grid regulations. Unfortunately, either by design or chance, these regulations have not yielded their intended objectives to whittle down the monopoly of DisCos and provide more reliable electricity to Nigerians.
Those who concede that States Houses of Assembly can make laws for electricity regulation interpret Section 14 (b) to mean that States can only make laws on electricity for areas not covered by “a national grid system” within the State. However, the Constitution is silent on the definition of a “national grid system”. From an engineering perspective, Lagos State can be said to be largely covered by a national grid system operated by electricity generating companies (GenCos), the Transmission Company of Nigeria (TCN) and DisCos. Notwithstanding, it is our view that this position is not a constitutional ground to prevent state governments from enacting laws to regulate the generation, transmission, distribution and sale of electricity to end users within their territories, as well as the creation of viable electricity markets within the States.
According to the World Bank, Nigeria has the largest number of people without access to electricity in the world. The LASG electricity policy and proposed electricity law should be viewed as complementary to the electricity reform policies of the Buhari administration, which aims to provide affordable and reliable electricity to millions of Nigerians without access to electricity.
Besides, it is a known fact that the electricity transmission and distribution infrastructure in many towns and communities “covered by the national grid system” were actually provided by State and local governments. Perhaps State governments should seek to take back their electricity transmission and distribution infrastructure and cede their equity shareholding in DisCos back to the Federal Government, if their right to enact electricity laws within their territories is not acceptable to the Federal Government or the DisCos.
All DisCos, with the exception of Ikeja and Eko DisCos, cover up to four states. The immediate drawback of States developing their own electricity laws to cover distribution would mean that a DisCo covering more than one State would operate under multiple state regulatory jurisdictions. But we cannot blame the drafters of the Constitution for this problem. No one envisaged that the electricity distribution business of the defunct National Electric Power Authority (NEPA)/Power Holding Company of Nigeria (PHCN) would be privatised into the geographical areas that DisCos have today.
State Electricity Grids In Parallel With the National Grid
In our opinion, the LASG electricity policy, as envisaged, would drive competition at the last mile, as it would establish state licensed electricity transmission and distribution grid systems, in parallel with the existing national grid system operated by the DisCos and the TCN within Lagos State. The absence of competition at transmission and distribution levels is one of the structural challenges that continue to bedevil the Nigerian Electricity Supply Industry (NESI). Without competition from state licensed electricity service providers, the TCN and the DisCos will not deliver on all counts, to the peril of all Nigerians and the Nigerian economy.
The suggestion of having a national grid system operate in parallel with a private transmission and/or distribution network within a State or community is not a new model. As an example, Jos Electricity Distribution Company (Jos DisCo) operates an electricity distribution network in Jos, while the Nigeria Electricity Supply Company (NESCO), a privately owned generation, transmission and distribution company operates a parallel transmission and distribution network in the Bukuru area of Jos (under license from NERC). In Aba, Geometric Power, a private company founded by Professor Barth Nnaji, a former Minister for Power, has established a private transmission and distribution network within the Aba and Ariaria metropolis, in parallel to the national grid system operated by Enugu Electricity Distribution Company (EEDC) and the TCN. Many private residential estates within Lagos State are operating private distribution networks, in parallel with the Eko and Ikeja DisCo grid networks. Even the Lagos State government has its own generation, transmission and distribution networks, supplying electricity to government buildings and streetlights in Alausa and Lagos Island.
According to the World Bank, Nigeria has the largest number of people without access to electricity in the world. The LASG electricity policy and proposed electricity law should be viewed as complementary to the electricity reform policies of the Buhari administration, which aims to provide affordable and reliable electricity to millions of Nigerians without access to electricity. It is thus gladdening that the LASG electricity policy, as one of its eight key requirements, envisages a robust collaboration framework with the Federal Government and existing market structures and operators in the NESI, to implement the Lagos Electricity Market (LEM).
We support the view that LASG should create its own electricity regulatory body. We continue to remain advocates for the decentralisation of electricity regulation in Nigeria and the creation of state electricity regulatory commissions (SERC) to drive further investments across the power sector value chain.
Several power experts have suggested that Lagos State should include developing a regional electricity market with neighbouring states as part of its electricity policy. It is our considered opinion that any electricity law underpinning the Lagos State electricity policy should only apply within Lagos State alone. Pending when the Constitution is amended in this regard, Lagos State would be specifically breaching Section 14(b) of the Constitution and the provisions of the EPRSA, should it pass electricity laws that would create a regional electricity market with other states.
Proposal For a State Electricity Trader
The provision of electricity is as much a social service as it is a business to Lagos State. If LASG’s goal is to ensure that all Lagosians, rich and poor, have access to available, affordable and reliable electricity as a social service, it must realise that there are many unserved and underserved communities that will not be viable to both private sector investors and the DisCos. Hence, it would require some form of investment assurance and/or investment incentives from the LASG to ensure that the provision of electricity to these communities are bankable or commercially viable.
Our recommendation would be for LASG to establish a private sector led State Electricity Trader or agency that would also participate in the LEM by buying and selling power on a bilateral basis from the different stakeholders licensed under the LEM, and also from the national grid i.e. Eko DisCo, Ikeja DisCo, Egbin GenCo and the TCN. Setting up the LASG electricity trader provides the framework to provide electricity both as a social service to citizens and at same time operated as a viable business. The state electricity trader would also ensure that underserved and unserved communities are able to procure the least-cost power from private project developers licensed under the putative LEM. Establishing the Lagos State Electricity Trader does not require the State committing scarce public resources and guarantees thereto and assuming payment risks of electricity customers. The colossal failure of the Nigerian Bulk Electricity Trader (NBET) in this regard comes to mind. The Lagos State electricity trader can be structured as a Private-Public Partnership (PPP) framework arrangement where private sector investors, communities, corporate organisations, donor organisations and perhaps individuals, who want to either procure and guarantee the sale and purchase of reliable electricity within certain localities, are empowered under a commercial electricity trading framework with electricity service providers, which is facilitated and managed by the State (bulk) Trader.
Establishment of An Independent Systems Operator (ISO) and A TransCo
In our opinion, LASG would not require an ISO structure nor the establishment of a state owned transmission company (“TransCo”). Our view is that the LEM should be designed to facilitate and attract investments into the development of distributed power infrastructure, mini-grids, micro-grids, embedded generation, franchising arrangements with DisCos and establishment of IEDNs, as well as empower the creation of community based electricity co-operatives (CEC). This would allow LASG electricity policy leverage on existing NESI structures and also introduce new players in the LEM. LASG already has a private sector gas pipeline network, which it can leverage on to deliver power generation closer to communities and key target load points that are underserved or unserved, without requiring expensive transmission infrastructure build-outs and systems operations.
Another policy suggestion is for LASG electricity laws to legislate on new voltage levels for new transmission and distribution infrastructures within the state that are below and would not conflict with TCN’s voltage levels of 132kV and 330kV. For instance, LASG electricity law can introduce the 66kV or 110kV as voltage levels for state approved IPPs and even existing GenCos within Lagos State (e.g. Egbin GenCo) to utilise in wheeling power to end users in Lagos State.
We expect there would be legal challenges from existing stakeholders in the NESI, specifically the DisCos, GenCos, TCN and perhaps the Federal Government and the National Assembly. The legal challenges to the policy are imminent, particularly as several provisions of the proposed electricity policy are in conflict with the EPRSA.
There may be a need for LASG to have new voltage levels for its IPPs, but we do not support the assumption that LASG would require setting up its own TransCo to achieve this goal. Rather than create a State Transco, our view is that LASG should legislate right of ways (RoW) and license investors to establish parallel “off-grid” transmission and distribution infrastructure/corridors along these RoWs that are independent and not connected to the existing national grid network operated by Eko DisCo, Ikeja DisCo and TCN in Lagos State. In our opinion, Lagosians should have the option to connect to the existing DisCo network or connect to these independent state licensed private electricity “off-grid” networks on a willing-buyer, willing seller basis.
In other words, the key objective of LASG policy should be to create a competitive electricity market that would democratise electricity access within Lagos State, by providing end user customers with the commercial freedom and option to choose their last mile electricity service providers, regardless of the coverage of a national grid system. If end users in the telecommunication sector are able to choose their telecoms service provider with ease by “porting”, same reasoning and regulations should apply in the electricity sector. In other words, electricity customers should be able to “port” their electricity service providers. We expect that both the Lagos SERC and the NERC would agree on the framework modalities for end users to switch their electricity service providers. Of course, Lagosians and businesses would be looking at network availability and reliability offered by both the DisCo and the state licensed off-grid service providers to make their connection decisions.
Availability and reliability of electricity are not the only key drivers to the LEM. Competitive tariffs across the value chain are a big consideration to end-users as well. Thus the LASG electricity policy and the proposed electricity law should develop a putative LEM that would focus on competitive tariffs (NOT cost reflective, or service reflective tariffs) to end-users.
The licensing/approval process, existence of state backed monopolies in the LEM, absence of competitive and transparent procurement and contracting processes, multiplicity of taxes and fees, autonomy of the proposed LASG electricity regulator, investment incentives by LASG to investors and overregulation (rather than de-regulation), are key concerns and risks that investors and other stakeholders keenly eager to participate in the putative LEM, would look out for. Lagos State already has a reputation for multiple taxes and fees through its various agencies and tax authorities. The new electricity policy must thus ensure that the LASG electricity law will not create multiple licensing or approving agencies, requiring multiple taxes and fees for participants and end-user customers.
Legal Challenges Expected
We expect there would be legal challenges from existing stakeholders in the NESI, specifically the DisCos, GenCos, TCN and perhaps the Federal Government and the National Assembly. The legal challenges to the policy are imminent, particularly as several provisions of the proposed electricity policy are in conflict with the EPRSA. Thus, Lagos State and indeed other States pushing for their electricity laws should brace up for the legal challenges ahead. However, any successful legal challenge to States being able to make laws for electricity generation, transmission and distribution within their territories would only be a pyrrhic victory, as the times have shown that this is the trajectory the Nigerian power sector is headed. With the clamour for “true federalism”, devolution of (constitutional) power and on-going legislative processes to amend the 1999 Constitution, the decentralisation of electricity regulations and electricity supply to end-users is an inevitability that is already happening and cannot be stopped. It can either be allowed to happen lawfully by permitting state governments to make laws and regulations for electricity within their states, or it can continue to happen in a lawless manner where the provisions of the EPRSA and the regulatory powers of NERC are being disregarded.
Nonetheless, considering the present state of the NESI, it would be rather dumbfounding if the Federal Government and the NERC should oppose or challenge the constitutional powers of Lagos and other States to initiate their own electricity laws that would see sub-national governments take charge of the electricity sector within their states, particularly underserved and unserved areas not covered by the national grid system.
Regardless, existing DisCos and Gencos operating under the national grid, are and will remain key players in the putative LEM, thus all parties should collaborate in a constructive manner to achieve the objectives envisaged in Sections 13 and 14 of the Concurrent Legislative List in the1999 Constitution, as well as the overriding objectives of the power sector reforms of the Buhari administration.
The business of generation, transmission and distribution of electricity in our federation is not, and should not be solely vested in the Federal Government. Lagos State, being the undisputed economic hub and foremost centre of commerce in Nigeria, bears the brunt of the poor and parlous state of the power sector under the control and administration of the Federal Government.
In our opinion, the LASG is on the right track with the proposed electricity policy and we applaud the State government for this pioneering effort to decentralise and democratise the supply of electricity to Lagosians. Other States should emulate the LASG electricity policy and start to fashion out their own electricity policies and state electricity laws. This is what we’ve termed “Energy Federalism”.
In our view, the proposed LASG electricity policy is designed to be complementary, and not adversarial to existing legal and regulatory structures set up under the EPRSA. However, to reduce potential areas of conflict with the Federal Government, the LASG should avoid enacting an electricity law that may seek to also regulate a national grid operator such as the DisCos, GenCos and TCN, who are already regulated by NERC.
Our analysis of the Lagos State electricity policy is also applicable to the Edo State electricity policy document.
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