Examining the policy on eligible customers in power industry

Over six months ago, the Federal Government announced a policy for Nigeria’s ailing power sector which makes it possible for four categories of eligible customers to buy power directly from the generation companies (gencos). The policy was aimed at improving power supply to the masses. However, the policy has been met with stiff resistance from the distribution companies (discos). In this report, OLATUNDE DODONDAWA examines what the law says and how much the Discos can resist the government policy.

The policy which was announced by the Minister of Power, Works and Housing, Mr Babatunde Raji Fashola, in May, was approved by Commissioners at the Nigerian Electricity Regulatory Commission  (NERC) on November 1, 2017.

The policy is expected to provide options for Large Power Users (LPU) to either get power from DISCOs or GENCOs.

Since the declaration and subsequent roll out of the regulation, each of the four categories of eligible customers in the electricity market now has an option: either to contract supply directly from the GENCOs or to demand robust supply regime from their DISCOs.

The policy directive of the minister was in line with the provisions of Section 27 of the Electric Power Sector Reform Act 2005, which permits eligible customers to buy power from a licensee other than DISCOs.

The new regulation of NERC set out certain customers that can buy power directly from the GENCOs without passing through the DISCOs. These customers can exit from a DISCO after a three-month notice to it, and also reconnect following same procedure.

The DISCOs, however, kicked against its implementation and threatened to declare a force majeure in the entire electiricity distribution value chain.

It was however discovered that one of the reasons the DISCOs are kicking against implementation of such policy is that they may lose over N2 trillion in revenue.

The DISCOs, through the Association of Nigerian Electricity Distributors  (ANED), argued that the power sector is not ripe for such declaration. The Executive Secretary, ANED, Sunday Oduntan, said the electricity market was not competitive at this stage to trigger such declaration.

The NERC, however, supported the minister’s directive arguing that the commission expects that since some customers will be cut out from the DISCOs, they should have more power to give to the existing customers to raise their revenue.

Speaking on the sidelines of a consultative workshop on benchmarking a national content for the electricity industry, NERC’s Commissioner for Licensing, Legal and Compliance, Mr Dafe Akpeneye, said the commission considered the threat to declare a force majeure to be premature.

He explained that the basis for the force majeure by the DISCOs was unfounded and done in bad faith, noting that they participated in all the public consultations for the eligible customers’ regulation and did not kick against its final content.

“Under no circumstances would we sit down and allow an industry that is critical and affects all Nigerians to delve into uncertainty. The legal issues as they are now are mainly between the BPE and investors in the DISCOs, but the NERC is watching very closely and would not allow the market to go under because no matter what happens, the average Nigerian is already dissatisfied and we cannot allow the industry to lose confidence.

“The force majeure declaration arose on the ground of change of law and political issues on the new eligible customers’ regulation that was released a couple of weeks ago. The DISCOs believe that it is going to result in a significant carve out of a lot of their customers and have declared force majeure on that basis, but we need to bear in mind that there was a consultative process and the DISCOs participated in it.

“The regulations were issued to ensure that we optimise our generation capacity by ensuring that what the GENCOs generate can go to customers through direct contract with the GENCOs, and thereby bypassing the DISCOs, but this is not a total bypass because if the DISCOs’ assets would be used, they would be paid for, as well as the assets of the TCN.

“We do not think that this is the appropriate step to be taken at this point in time when we are seeking to build confidence and address the issues in the industry. We think it is rather premature and we don’t see this as the way to go.

“We align ourselves with the response of the BPE which rejected the notification. We think that the appropriate issues, if there is any, should be put on the table to be addressed,” he said.

On what will happen if the DISCOs refuse to backtrack, he stated that “it is a matter that is evolving and we need to see how it goes. The disputes are between the investors in the DISCOs and the BPE. The DISCOs as companies are our licencees, so, we need to look at how the decisions of their investors would impact on the operations of the licencees, and we would ensure that nothing happens to impact on the present supply to Nigerians.

“The DISCOs participated in the making of the regulations, and the concerns they raised were addressed, and at that point there were no objections to the regulation.

“I can only address the fact, and from the fact, it shows that what they told us was not what we have seen on ground. They have issued the force majeure and said there is a change of law. But we do not see that change because it is the same law we used for privatisation that is applied.

“There is a legal process to this, if somebody says he cannot do a business and there is a performance agreement with dispute resolution clauses, we are a country that is governed by the rule of law and we will abide by it.”

The Director-General of BPE, Mr Alex Okoh, in a letter to the DISCOs, challenged the assertion by the DISCOs that there has been a change in law and political force majeure event pursuant to certain clauses in the Performance Agreement the core investors of the Discos signed with the BPE.

The DISCOs had claimed that the policy directive on Eligible Customers and the Eligible Customer Regulations have resulted in a change of law which prevents them from fulfilling their obligations under the Performance Agreement.

Okoh countered that pursuant to the Electric Power Sector Reform Act 2005, it is obvious that the Minister of Power, Works and Housing is empowered to issue the policy directive specifying the class or classes of end-use customers that shall constitute Eligible Customers, while in the same vein, NERC is similarly empowered to issue Eligible Customer Regulations.

‘‘As you are aware, this is the same Act which midwifed the process whereby the power assets were privatised to the core investors.

Given that the declaration and the regulations were lawfully and validly issued by the minister and NERC, and that there has been no change in the law giving rise to a political force majeure event, we are unable to see the basis for the issuance of the notice” he said.

Okoh added that the BPE, as the contracting party on behalf of the Nigerian government to the agreements which governed the privatisation of the power assets to the core investors, rejects the notice to declare force majeure.

At the June edition of the monthly stakeholders meeting in Enugu State, Fashola said the introduction of the regime was in exercise of his powers under the Act to declare criteria for eligible customers. He told the management of the distribution companies to bring all their concerns about the implementation of the new regime to the appropriate authorities.