The Constitution of the Federal Republic of Nigeria (CFRN) is the principal legislation in the country. It represents the collective aspirations of Nigerians and its provisions transcend every other legislation. Amending its provisions is often a herculean task; the political and administrative requirements to amend constitutional provision is perhaps more difficult in a heterogenous society like Nigeria.
Recently, the President signed Sixteen (16) Constitution Amendment Bills into Law which altered the composition and powers under the Exclusive and Concurrent Legislative List. These amendments introduce landmark changes to the legal, economic and political landscape of Nigeria and potentially its’ most wholesome impact is on the Electricity market and operation.
States -component States like Lagos, Rivers, Kano, Ogun and not Nigeria as a State- can now generate, transmit and distribute electricity and legislate on them. This amendment introduces and significantly reshapes the economic and regulatory landscape of the Nigerian power sector by including these aspects of lawmaking in the Concurrent legislative list.
THE CURRENT ELECTRICITY MARKET REALITY
The lack of public power supply has been a mainstay challenge of successive administrations in Nigeria. Every solution so far proffered has failed from the unbundling of Power Holding Company of Nigeria (PHCN) to the subsequent privatization and delivery of distribution assets to core investors in 2013. Some of the most prominent challenges of the sector include; inadequate liquidity, energy theft, Aggregate Technical and Commercial losses (ATC&C), dearth in metering, estimated billing amongst others.
CONSTITUTIONAL AMENDMENT, STATE PARTICIPATION AND THE “TWO-HATS DEBACLE”
It is noteworthy that prior to the amendment, the capacity of States to take part in Nigeria’s electricity market was limited to being licensed market participant, while the power for States to make laws and regulate their electricity markets and players remained absent. Interestingly, there have been arguments that States were permitted to make laws with respect to generation, transmission and distribution in areas not covered by the National grid because the phrase “areas not covered by the National grid” was not expressly defined by the Constitution and gave room for multiple interpretations. While this phrase is still not defined in the current amendment, a logical deduction would be that States are empowered to make laws in areas not covered by the National grid simpliciter. The judgment of the Court in Enugu DisCo & Anor V. Ariaria Market Energy Solutions & Ors seems to give some credence to this position. The Court held inter alia that the DisCO is not granted the entire State as its Franchise area but only where it has distribution infrastructure.
Nevertheless, the implication of the constitutional amendment is that States now have some law-making powers in the generation, transmission and distribution market as well as being electricity market participants -like the Nigeria National Petroleum Corporation (NNPC). While this introduction is novel in the Nigerian electricity market, it is not in the oil and gas sector -where until recently the NNPC played the dual role as regulator and market participant. This raises multiple interesting questions. Unlike the Nigeria Electricity Regulatory Commission (NERC), do States wear the dual hat as both market regulator and market participant? Also, how does this resolve long-term challenges like energy theft or improve revenue collection thereby reducing ATC&C losses? does it reduce the market indiscipline that has become synonymous with Nigerian DisCos? The extent to which more State participation would resolve this remains to be seen.
In addition, the idea and practicability of two regulators at different tiers of government is cumbersome to consider in the Nigerian electricity sector, however countries like the USA –Federal Electricity Regulatory Commission (FERC) and State electricity regulatory bodies- where the FERC sets the minimum standards and requirements while States include additional requirements to suit their peculiar needs. FERC also covers cross-border electricity markets involving multiple States.
An area where State participation is likely to significantly improve the Nigeria Electricity Supply Industry (NESI) is the training and re-training of Judges and Judicial officers. A major challenge with prosecuting energy theft and related malfeasance is the dearth of practical knowledge and experience on the part of Judges and judicial officers of the NESI and in general the peculiarities of the Electricity market. State participation affords States (as regulator and perhaps market participant) opportunity to train and re-train its Judges and Magistrates through seminars, symposiums and so on. This invariably improves the overall electricity market in Nigeria
PROMOTION OF ENERGY FEDERALISM
An unintended consequence of the constitutional amendment is that, on the generation side of things States can -through policy, laws, incentives and other State instruments- elect for the energy source best suited to them. States would take resource, economic and environmental considerations before promoting an energy source. Coastal States like Kogi, Lagos and the Niger Delta could explore hydro options, while Kano, Niger and a host of States in the North with higher humidity could explore solar or Taraba and wind farms. Perhaps an ambitious Clean Coal Technology (CCT) could become a viable policy pursuit in Enugu. By promoting closely available primary energy resource and the least cost fuel to generate electricity within the State, we create a divesture in energy mix that ultimately benefits Nigeria and improves Nigeria’s energy security.
In essence what the amendment does is to seek increased State participation in the electricity market and extend State law-making and oversight powers. While the practicability of this amendment remains to be seen, the investment opportunities are unarguably vast. Embedded generation and the rural underserved areas are the greatest beneficiaries of this amendment. Regulation 35 Nigerian Electricity Regulatory Commission (Embedded Generation) Regulation 2012 (NERCER) made pursuant to EPSRA defines embedded generation as “the generation of electricity that is directly connected to and evacuated through a distribution system”. It is electricity generated by an independent generator and evacuated via the grid. Wheeling power within a State to underserved areas under State regulation presents an avenue to utilize embedded generation and its distribution on small scale basis, cutting out the technicalities and complexities of cross-border distribution.
Nonetheless, the judiciary would play a major role in resolving the conflicts that are likely to surface with this amendment, especially in areas of Federal and State law conflict. The constitutional law principle of covering the field comes to play here. This doctrine manifests specifically in a Federal System of government with particular respect to which legislative house possesses the constitutional power to legislate on laws in that State. It often arises in two distinct situations:
Firstly, where in the exercise of the legislative powers of the National Assembly or a State House of Assembly, a law is enacted which the constitution has already made provision for. The case of Attorney-General of Ogun State v Attorney-General of the Federation perfectly illustrates this first instance in Nigeria. The second way the doctrine manifests is where a State House of Assembly by the purported exercise of its legislative power enacts a law, which an Act of the National Assembly has already made provisions covering the subject matter of the law, the Federal law supersedes. The Constitutional law doctrine of covering the field, quenches any question of superiority between an Act and a Law. Nonetheless, while the Electric Power Sector Reform Act (EPSRA) makes provisions for salient technical considerations like Third Party Access (TPA), Eligible Customers – NERC has equally made Regulations for them in line with the powers granted under EPSRA- they remain mostly inadequate and insufficient. Since a Federal law exist however, States can arguably not make laws to remedy them. Notwithstanding, it is arguable that the EPSRA only partially covers these subjects and as such a State law will not run contrary to this doctrine. In Adetona v. Attorney General of Ogun State, the Court held that where the Federal law limits its application to the Federal level or does not make total provisions for the field, the States are free to exercise their legislative powers on the same subject matter on the Concurrent list.
In any case, the amendment creates investment opportunities in the NESI and the electricity market in general. While most have rightly approached this amendment cautiously, it just might be the internal destabilizing force required in the sector that drives the Nigerian electricity market to a more independent and self-sustaining level.