Revocation of distribution licenses

Nigeria’s electricity regulator, the National Electricity Regulatory Commission, has indicated an intention to revoke the licenses of some distribution companies (DisCos); Abuja Electricity Distribution Company Plc (AEDC), Benin Electricity Distribution Company Plc (BEDC), Enugu Electricity Distribution Company Plc (EEDC), Ikeja Electric Plc (IE), Kaduna Electricity Distribution Company Plc (KAEDCO), Kano Electricity Regulatory Distribution Company (KEDCO), Port Harcourt Electricity Distribution Company Plc (PHEDC) and Yola Electricity Distribution Company Plc (YEDC).

The notice which was issued on October 8, 2019 gave the affected distribution companies a period of 60 days to ‘show cause’ why their respective distribution licenses should not be cancelled. The regulator predicated its reasons for this action on the affected DisCos’ manifest and flagrant breaches of the EPSRA, terms and conditions of their respective distribution licences and the order.

The intention of the notice regardless has generated industry debate, concerns, insinuations, permutations and expression of investment concerns, most of which centre around the powers of the regulator to revoke the licences of the DisCos, the yardsticks for the determination of the DisCos selected for the sanctions,whether the yardstick for the revocation took into consideration the peculiar challenges of the DisCos’ operational areas, the determination of the collateral effect of the revocation on ongoing projects of the DisCos (incidentally coordinated by the NERC), and the post-revocation transfer of the services of the DisCos, whether to the government or  to other companies.

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I will focus on the powers of the regulator to issue the October 8, 2019 notice to show cause and the legality or otherwise of it A cursory look at the notice issued by NERC, especially under the “Particulars of Non-Compliance”, establishes the two major grounds upon which the proposed revocation is predicated; the failure of the DisCos to comply with expected remittance threshold to Nigerian Bulk Electricity Trading Company (NBET) for the billing cycle. Essentially, the failure of the affected DisCos to meet their debt obligation to the generation companies (GENCOs); thereby creating a cyclic debt within the electricity distribution value chain.

And the alleged failure “to provide the minimum financial securitization of their payment obligation to NBET i.e., “an adequate and unencumbered letter of credit covering three months based on their minimum payment obligation to NBET and MO” that would have addressed the compliance failure.

The matter of revocation of a licence is an issue of law, for which the electricity regulator is expected to be staunchly guided by its enabling statute; the Electricity Power Sector Reform Act 2005 and subsidiary legislations made thereto. Section 69 of the EPSRA 2005 provides that for a licence to be revoked under the following condition-precedents; issue a notice to the licencee of its intention to revoke; offer the licencee 60 days from the date of the licencee’s receipt of the notice to show cause why the licence should not be revoked; communicate its decision to the licencee after the expiration of the notice period. From all indications and contrary to the news of revocation making the rounds, the NERC is still in the first stage of the process.

Tolu Aderemi,

Lagos

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