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Beyond Power Sector Reforms: The Need for Decentralised Energy Options (‘DEOPs’) for Electricity Governance in Nigeria
Yemi Oke
Introduction
The provision of low-cost, affordable and regular electricity is critical to industrial
development, employment generation and poverty alleviation in Nigeria and other
countries in Sub-Saharan Africa. Though Nigeria is energy surplus in theory given the
range of energy options in the country; it has been unable to translate its energy
abundance into socio-economic development due largely to the policy environment and
the nature of institutions put in place to drive activities in the energy sector. To this
extent, socio-economic development of Nigeria is still enmeshed in the nightmare of
“darkness” occasioned by epileptic electricity generation and distribution. The low
performance of the electric power sector of Nigeria and other West African countries
created the inevitable need for collaboration under the West African Power Pool Project
(WAPPP).1 However, like typical initiative of the developing countries, the WAPPP is
faced with a number of logistical challenges.
Nigeria is a big player in the WAPPP initiative given its size and strategic
position.2 The aim of the country is that the WAPPP scheme among others would
complement or accelerate its power sector reforms, which began in March 2005 with the
enactment of the Electric Power Sector Reform Act 2005 (the Act).3 But the realities on
ground shows that the pace of the reforms has been slow and seemingly unattractive to
the private investors who still perceive the Nigerian electricity sector as significantly
risky. Also contributory to the apparent inactive private sector involvement in the new
Dr. Yemi Oke had his LL.M and PhD degrees from Osgoode Hall Law School, York University, Canada; LL.B from University of Ilorin, Nigeria; B.L. from the Nigerian Law School, Abuja. Yemi Oke is a lecturer in the Department of Jurisprudence and International Law of the Faculty of Law, University of Lagos where he teaches in the undergraduate and graduate programmes. Contact: yoke@unilag.edu.ng
1 See E. Gnansonuou, “Boosting the Electricity Sector in West Africa: An Integrative Vision” (2008) International Association of Energy Economies, Third Quarter, at 23.
2 ibid.
3 See Electric Power Sector Reform Act 2005.
electricity regime in Nigeria are a whole lot of issues raging from regulatory and
operational overlaps, funding constraints, over-centralization of the electricity sector
among others. This paper takes a critical look at the reforms in the power sector in
Nigeria and suggests a decentralized electricity governance model, which in this paper is
referred to as “Decentralized Energy Options [DEOPs]” as best suited operational and
regulatory model for the reformed electricity sector in Nigeria.
The Power Sector Reforms in Nigeria
The Nigerian state is characterized by a confluence of factors. On the one hand
economic interests, political forces, capitalists’ entities and other bureaucratic institutions
determine the political, economic, social and other laws or policies suitable or adoptable
for the Nigerian state per time. The same situation manifests vividly in the electricity
sector of Nigeria, which led to the current reform in the sector. The nature of the
electricity industry has led to the wave of new regulatory regimes across the globe. A
good number of developed countries have unbundled their electricity industries by
separating generation from transmission. The private sector now dominates generation as
in the case of England and Wales.4 These models have also been implemented in a
number of countries across the globe like Chile, Argentina, Bolivia, Ecuador, Thailand,
China and lately Senegal, Uganda and Nigeria.
In Nigeria, electricity supply relies significantly on hydropower. This is also the
case in Ghana, Benin, Togo, Guinea and Mali. Electricity supplies have been less than
satisfactory in these countries due to frequent outages. The situation is same in Senegal
where electricity generation is mainly based on oil, as the country have experienced
frequent power plant outages due to low reliability and difficulty of fuel procurement.
One would expect that Nigeria, being a major oil producer and exporter coupled with its
gas potentials, would enjoy relatively stable electricity generation and distribution for its
huge population and sizable industry compared to other West African countries
highlighted above. As a matter of fact, the story in Nigeria is gloomier than the other
4 See Gnansonuou, supra note 1 at p. 23.
countries mentioned leading to the reforms embarked upon by the Nigerian government
in the electricity sector.
Under the new regime, the Nigerian Electricity Regulatory Commission (NERC)
is to serve as the main regulatory body of the reformed electric power sector. The
responsibilities of NERC include licensing of successor power companies, establishment
of electricity tariffs, enforcement of performance standards, and the protection of
consumer rights. The existence of NERC is brought about by the Electric Power Sector
Reform Act.5 The Act repeals and replaces the NEPA and Electricity Act.6 It also removes
the operational and regulatory responsibilities of the electric power sector from the
Federal Government of Nigeria and provides the legal bases for restructuring NEPA and
establishing of new regulatory structures. The Act establishes three regulatory
institutions, namely the National Electricity Regulatory Commission (NERC) which
serves as the main regulatory body; the Rural Electrification Fund (REF), and the
Consumer Assistance Funds all which are further examined below.
By these reforms, the monopoly hitherto enjoyed by erstwhile National Electric
Power Authority (NEPA) for several decades has been abrogated, as the new regime aims
to liberalize the sector. However, despite nomenclature shift from NEPA to Power
Holding Company of Nigeria (PHCN), the problem of declining electricity generation
from domestic power plants still persists due to dilapidated structures, obsolete
equipment among others. While the Nigerian electricity sector is agreeably liberalized,
the sector has witnessed series of disinvestment from the private sector and collapsed of
deal talks with potential private electricity services provider. The masses, as end users of
the current wobbly electricity have remained tirelessly hopeful for a new dawn, even in
the midst of unfulfilled promise of declaration of national emergency in the power sector,
which the current administration promised at its inception.7
5 See Electric Power Sector Reform (EPSR) Act 2005, s. 31.
6 See National Electric Power Authority (NEPA) Act, Cap N 33, Laws of the Federation (LFN) 2004.
7 The current Yar A’dua/Jonathan administration in Nigeria was emphatic on the readiness to declare emergency in the power sector. The inauguration speech of the President upon being sworn on 29 May 2007 is very clear on the intention of the administration to declare emergency in the power sector within few weeks of assumption of office. Half way through into the four-year tenure, the stage appears not yet set for the much publicised national emergency in the power sector.
Energy as a prerequisite for economic growth and development is widely
acknowledged by energy experts and scholars.8 In terms of theory, energy has been
shown to be equally as important as other factors of production such as land, labour and
capital because of its significance to economic growth. The availability of viable energy
options like low-cost electricity, renewable and alternative energies and others are
indispensable to socio-economic development in Nigeria.9 The demand for better
electricity and its centrality to national growth and economic development created the
ineluctable need for the reforms in Nigeria’s electricity sector. However, the rate of
growth and development of the sector have been less than impressive despite these
reforms. This underscores the need for rethinking the current law and policy frameworks
in the Nigerian electricity sector with a view to determining the reason for the seemingly
intractable nature of the problems of the electricity sector.
Overview of the Electric Power Sector Reform Act
The aims of the Act are multi-faceted. It seeks to provide legal frameworks for the
formation of several legal entities (corporations) to take over the assets and liabilities of
the old electricity regulatory body and to establish the NERC as the new regulatory
agency for generation, transmission and distribution of electricity in Nigeria. The
multiplicity of objectives might have blurred the focus of the Act, which appears to
assume too much in a single document in a crucial sector like electricity. The Act:
“seeks to provide for the formation of companies to take over the functions, assets, liabilities, and staff of the National Electric Power Authority; develop competitive electricity markets; establish the Nigerian Electricity Regulatory Commission; provide for the licensing and regulation of the generation, transmission, distribution and supply of electricity; enforce such matters as
8 See F. T. Sparrow; William A. Masters and Brian H. Bowen, “Electricity Trade and Capacity Expansion Options in West Africa” Purdue University Institute for Interdisciplinary Engineering, on-line at: <http://www.ecn.purdue.edu/IIES/SUFG> 1999. According to the trio, shortages of electricity are a severe constraint on economic growth and poverty alleviation in West Africa. The lack of electricity is often exacerbated by shortages of imported fuel, wood/charcoal and other forms of energy. The high cost and unreliability of energy supplies is a handicap for industrial development and employment generation, and also for poverty alleviation and public health, ibid at 5.
9 ibid at 3.
performance standards, consumer rights and obligation; and to provide for the determination of tariffs; and to provide for matters connected with or incidental to the foregoing”. 10
The Act brought about the existence of a regulatory agency known as the
Nigerian Electricity Regulatory Commission (NERC) as a body corporate with perpetual
succession and power to sue or be sued in its corporate name and to as well perform all
acts that bodies corporate may by law perform.11 The objective of NERC includes:
(a) to create, promote, and preserve efficient industry and market
structures, and to ensure the optimal utilization of resources for the
provision of electricity services; (b) to maximize access to electricity
services, by promoting and facilitating consumer connections to
distribution systems in both rural and urban areas; (c) to ensure that
an adequate supply of electricity is available to consumers; (d) to
ensure that the prices charged by licensees are fair to consumers and
are sufficient to allow the licensees to finance their activities and to
allow for reasonable earnings for efficient operation; (e) to ensure the
safety, security, reliability, and quality of service in the production and
delivery of electricity to consumers; (f) to ensure that regulation is fair
and balanced for licensees, consumers; investors, and other
stakeholders; and (g) to present quarterly reports to the President and
National Assembly on its activities.12
In carrying out its objectives, the NERC also performs the
following statutory functions: (a) promote competition and private
sector participation, when and where feasible; (b) establish or, as the
case may be, approve appropriate operating codes and safety,
security, reliability, and quality standards; (c) establish appropriate
consumer rights and obligations regarding the provision and use of
10 See the “Explanatory Memorandum” to the EPSR Act, ibid.
11 ibid s. 13.
12 ibid s. 32(1).
electric services; (d) license and regulate persons engaged in the
generation, transmission, system operation, distribution, and trading of
electricity; (e) approve amendments to the market rules; (f) monitor
the operation of the electricity market; and (g) undertake such other
activities which are necessary to carry out or give effect to the objects
of the NERC.13
A critical look at the above provisions shows that the legal framework of the
reformed electricity sector retains the existing top-down paradigm of the power sector in
Nigeria. The power of the Minister to issue peremptory directives and administrative
guidelines to the NERC and other agencies would appear to defeat the objective of a truly
autonomous and independent regulator. Though the NERC as a sector regulator is
expected to act with independence, in practice, once ministerial directives are issued, they
must be complied with by the regulatory agency.14
To further amplify the top-down structure of the reformed power
sector, the Act provides that the NERC Chairman and members shall be
appointed by the President.15 Though appointment and dismissal is
subject to confirmation by the Senate of the Federal Republic of
Nigeria, the reverse is the case in practice as the Presidency recently
fired the Chairman and all members of the NERC due to allegation of
corruption by the Economic and Financial Crimes Commission of
Nigeria (EFCC).16 The directive issued by the Senate to reverse the
order sacking the chairman and members of the NERC due to
13 ibid s. 32(2).
14 By virtue of s. 33. (1): “The Minister may issue general policy directions to the Commission on matters concerning electricity, including directions on overall system planning and co-ordination, which the Commission shall take into consideration in discharging its functions under section 32(2), provided that such directions are not in conflict with this Act or the Constitution of the Federal Republic of Nigeria.”
15 ibid s. 34 (1).16 See Y. Alli, “EFCC Uncovers Fresh N2b Contracts Scam at NERC” The Nation, March 4, 2009 on-line at: http://www.nigeriannewsservice.com/news/147/ARTICLE/6409/2009-03-04.html> accessed 22 January, 2009. The operatives of the Economic and Financial Crimes Commission (EFCC) raided the office of the Nigerian Electricity Regulatory Commission (NERC) and uncovered fresh contracts scam of N2billion, mainly for contracts that were awarded without due process in January 2009 and backdated to June 2008 and most of which contracts were for consultancy.
procedural breach remains mere declaration yet to be complied with
till date.17
Aside from the NERC, the Act established an agency, to be known as the Rural
Electrification Agency (REA), which is a body corporate capable of suing and being sued
in its corporate name.18 The REA administers the Rural Electrification Fund (REF), a
designated fund to promote, support and provide rural electrification programmes
through public and private sector participation in order to: (a) achieve more equitable
regional access to electricity; (b) maximize the economic, social and environmental
benefits of rural electrification subsidies; (c) promote expansion of the grid and
development of off grid electrification; and (d) stimulate innovative approaches to rural
electrification; provided that no part of the Rural Electrification Fund shall be used as
subsidies for consumption.19 Like the NERC, the REA is also enmeshed in criminal
litigation due to high-profile corruption perpetrated by its officials and some members of
the two chambers of the National Assembly of Nigeria in which the agency is allegedly
used as the funnel-pipe to divert funds meant for rural electrification projects.20
Though the development of the grid and off-grid electrification is one of the
objectives of the REF, the legal framework of REF also retained centralized governance
arrangement like the NERC. This constitutes potential hindrance to effective
management of the designated fund. As presently constituted, the nature of administrative
structures created under the Act for the REF and NERC appear to make room for the
perpetration of corruption and mal-administration as recently witnessed in the two bodies.
17 C. Agbo “Nigeria: Yar'Adua Breached Rule of Law - President's Lawyers” Leadership Newspaper, 6 March 2009 where there senior lawyers in Nigeria petitioned the President and copied to Vice President and the Senate President of Nigeria alleging that the president violated the rule of law and due process in suspending the Chairman of Nigerian Electricity Regulatory Commission and other commissioners.
18 EPSR Act, s. 88 (1).
19 ibid at s. 88 (13).20 The recent arrest of some principal officers of the National Assembly over the Rural Electricity Project by the Economic and Financial Crimes Commission (EFCC) has further reinforced the argument or assumption that the current structure of the governance systems in the electricity and other energy sectors of Nigeria make for the perpetration of corruption. See the “The Raging Scandal over Government’s Rural Power Projects” Guardian online at: http://www.ngrguardiannews.com/weekend/article01//indexn2_html?pdate=150509&ptitle=The%20raging%20scandal%20over%20govt's%20rural%20power%20projects accessed June 17, 2009.
The idea of Rural Electrification Project (REP) is in tandem with the
decentralized electricity governance model being proposed in this paper. However, the
effectiveness of REP would have been optimized if vested directly in the state
governments for coordination and administration by the local government councils in
their domain. Efficiency of monitoring and evaluation is in doubt where the government
at the center attempts direct involvement in rural-based, community electricity projects.
This is one of the reasons why the REP appears more like another policy coinage.
The existing structure creates regulatory surplusage and policy coinages as if the
name, without more, would perform the magic wand of stable, affordable and sustainable
electricity in Nigeria. Like the REP, the “Integrated Resource Planning (IRP)” is one of
the new policy ‘coinages’ and management strategies declared by the then Chairman of
the NERC to manage both the demand and supply sides of electricity in Nigeria21 The
idea of IRP would ordinarily appear sound, but its implementation might be undermined
by the existing bureaucratic hiccups of over-centralized electricity regime like the so-
called “National Grid” debacles. There are vital power projects spread across the length
and breadth of Nigeria with the aim of boosting electricity supply in the country. Even
though some of the power plants have been inaugurated and are generating power,
connecting them to the “National grid” has been problematic due to over-centralized
energy management structure in Nigeria. A number of state governments in the country
investing in power generation are also faced with the challenges of distribution due to the
nationalized structure of the grid.
In some cases, the above problem is due to decayed or non-existing distribution
infrastructure while others are due to unresolved logistical and administrative issues. Like
in the case of Lagos State, this is due to issues of Power Purchase Agreement (PPA),
Federal Government Support Agreement (FGSA) and other guarantees as well as
engineering procurement and construction contracts associated with the design and
evacuation of power from the plants.22 The parties have been unable to come to terms on
21 See the interview granted by Dr. Ransome Owan captioned “Government will Institute Consumer Power Acceptance Fund to Address Subsidy on Electricity Consumption”, The Guardian January 21, 2009 at 55.
22 C. Nwachukwu, “Ibom Power Plant as a Wasting Project”, The Punch, January 22, 2009, at p. 17.
these issues resulting in protracted, needless legal tussles sending wrong signals to the
would-be investors in the power sector of Nigeria.23
The “National Grid” policy in the electricity sector manifests more like ‘national
greed’. Liberalization of the grid through the creation of off-grid, sub-grid and other
mechanisms is the only way to ensure stable electricity in Nigeria. Centralizing the grid
frustrates competitiveness of the energy sector, and runs contrary to the objective of the
reforms in the sector. Grid decentralization is one of the components of decentralized
energy options advocated in this paper given the nature of the Nigerian electricity sector.
Decentralized Energy Options:
The concept of “Decentralized Energy Options [DEOPs]” centers on holistic approach to
sustainable energy policy for the developing countries. It advocates decentralization of
the governance structure, multiplication of the means of production, availability of
affordable options and devolution of governance, control and management
responsibilities. One major problem with the regulatory and governance frameworks of
electricity in Nigeria and other countries in Sub-Saharan Africa is over-centralization of
management responsibilities and administrative structures. Adoption of decentralized
governance models have helped in repositioning the energy and natural resources sectors
of several countries world over. The driving force varies from one country to another. In
countries such as Kenya, the United Kingdom, and in Latin America, privatization of
electricity has provided a means of attracting funds from the private sector to relieve the
burden of inadequate government funding or subsidy in the electricity sector.
23 Lagos State Government in 1999 conceived the idea of Independent Power Project to supply power to the territory of Lagos State and invited Enron Corporation of United States to undertake the project. Thereafter, a power purchase agreement was entered between Enron Corporation, Lagos State Government, the defunct National Electricity Power Authority, which then had a near monopoly on electricity generation, transmission and distribution activities in Nigeria and the Federal Government. The state government recently filed a petition against the partners in the project— Power Holding Company of Nigeria (PHCN), Ikeja Electricity Distribution Company, Eko Electricity Distribution Company and the Transmission Company of Nigeria Plc. Holden in Lagos before the Nigerian Electricity Regulatory Commission (NERC), the panel hearing No.NERC/033/00004/2008, tagged, Wrongful Invoicing of the Government of Lagos State and Breach of the Barge Power Purchase Agreement For Electricity Generating Facilities in Lagos, Nigeria, witnessed series of accusations and counter accusations from the parties. See “Lagos battles PHCN Over Alleged Breach of Power Agreement”, on-line at: Vanguard Newspaper, Nigeria <http://www.vanguardngr.com/content/view/23649/49/> accessed 22 January, 2009.
Prior to the reforms, funding of the power sector has been centralized through a
top-down funnel structure from the Federal Government like in Kenya and Nigeria. The
reform process in Kenya brought about a policy shift that aligns with the general trend of
privatization and decentralization in the energy and other sectors to attract foreign capital
and increase competition. However, in the case of Nigeria, while emphasis is placed on
the need to liberalize the sector to stimulate private sector involvement; the governance
structures and institutions put in place to manage the process would appear inadequate or
improperly positioned to achieve desired objectives compared with Kenya.
In Kenya for example, the widespread introduction and adoption of renewable
energy technologies is made national priority on virtually every national development
policy agenda.24 No similar policy exists in Nigeria because the electricity regime in the
country seems to place strong emphasis on revamping the old order under the defunct
NEPA under the new PHCN and the regulatory frameworks provided by the NERC. The
benefits of renewable energy and decentralized energy options have neither been
articulated nor maximized in the current electricity regime in Nigeria unlike in Kenya.
The availability of renewable energies or alternatives is vital to the provision of
low-cost, affordable and regular electricity for industrial development, employment
generation and poverty alleviation in Nigeria and other the developing countries in Sub-
Saharan African. Renewable energies are a means of decentralizing the available energy
sources or options in the country. If vigorously embarked upon, it would help Nigeria
create the much-desired national energy sufficiency as well promote positive
environmental consciousness and values.25
Renewable and decentralized energy options are not without challenges, but their
positive effects outweigh attendant difficulties of adopting these options. For example,
Kenya’s effort in renewable and decentralized energy options have been very mixed; a
story of a few successes amidst many failures. Kenya did also tread the path Nigeria is
currently journeying in electricity. It had focused on urban electrification by relegating
rural electrification to secondary importance. This is due to the notion that the rural
24 R. H. Acker, “The Quiet (Energy) Revolution: Analysing the Dissemination of Photovoltaic Power Systems in Kenya” (1996) 24:1 Energy Policy, pp. 81-111 at 81.
25 ibid.
people consume less electricity compared to urban dwellers which makes rural
electrification even less profitable to investors.26 It also has its initial set-backs typical of
developing countries as electrification was frequently used as reward for constituent
support at electioneering. In some cases, projects often reflect haphazard and inefficient
patterns that bear no relationship to local needs or ability to profit from grid connection.27
The licensing processes were also made cumbersome due to needless hurdles of
bureaucracy and politics.28
Despite a few challenges, the paradigm shift in Kenya in favour of integrated
energy plans and bottom-up models serves useful lessons as to the roles of non-state local
and international actors in achieving decentralized and sustainable electricity governance
and management on participatory and all-inclusive basis.29 Aside from Kenya, other
countries have also devolved energy and other natural resources management
responsibilities in the other tiers of government such as Local Governments in reflection
of bottom-up decentralized electricity governance systems. In Papua New Guinea for
example, a combination of socio-political and economic factors have encouraged
transformations leading to devolution of powers and duties to the local people to manage
marine environment.30 The Talasea Local Government Marine Environment Law is one
of the series of legal initiatives in this direction. The law builds on the constitutional
framework of Papua New Guinea, which creates three governance structures: national,
provincial and local. This is similar to the Nigerian three-tier model. The local
governments in Papua New Guinea are, by virtue of the constitution, empowered to enact
local government laws for the protection and management resources. 31
26 ibid at 81.
27 See D. Walubengo, and A. Onyango, A Energy Systems in Kenya: Focus on Rural Electrification (Kengo: Nairobi, 1992) at 43.
28 ibid.
29 Acker, supra note 24.
30 See E. Kwa, “Traditional and Modern Law: A Marriage in Progress-The Draft Talasea Local Government Marine Environment Law (Papua New Guinea)” in SPC Traditional Marine Resource Management and Traditional Knowledge Information Bulletin, # 17-December 2004, at 27.31 See Part VI, s. 187c (5-6) Constitution of Papua New Guinea 1979. See also the provisions of the Preamble of the Papua New Guinea Constitution on natural resource and environment.
Aside from Talasea, the 1995 constitution of Uganda also creates a legal
framework for local government-based natural resource management. It specifically
provides that State, including local governments, shall create and develop parks, reserves,
and recreation areas and ensure conservation of natural resources. It also compels the
State and local governments to promote the rational use of natural resources of Uganda.32
One interesting observation is that the Kenyan, Ugandan and Talasea models of
energy and natural resources governance are possible in Nigeria given its three-tier
governance structure (federal, states and local governments). The existing structure in the
country implicitly allows the Local Government Councils to serve as mechanisms or
catalysts for interlinking the local communities for maximum efficiency in sustainable
energy and/or electricity governance. However, while the electricity policy allows states
in Nigeria to embark on electricity projects either directly or through partnership with the
private sector, it is silent on what roles for the local councils and rural communities.
The 1999 Constitution of the Federal Republic of Nigeria places electricity
generation, transmission and distribution on the Concurrent Legislative List to enable all
tiers of government to be involved in vital aspects of the electricity industry.33 The reality
32 Constitution of Uganda 1995, art. Xxvii (iii).
33 See Second Schedule Part II, Concurrent Legislative List, Constitution of the Federal Republic of Nigeria (CFRN) 1999. It provides:
13. The National Assembly may make laws for the Federation or any part thereof with respect to-(a) electricity and the establishment of electric power stations; (b) the generation and transmission of electricity in or to any part of the Federation and from one State to another State;(c) the regulation of the right of any person or authority to dam up or otherwise interfere with the flow of water from sources in any part of the Federation; (d) the participation of the Federation in any arrangement with another country for the generation, transmission and distribution of electricity for any area partly within and partly outside the Federation; (f) the regulation of the right of any person or authority to use, work or operate any plant, apparatus, equipment or work designed for the supply or use of electrical energy.
14. A House of Assembly may make laws for the State with respect to – (a) electricity and the establishment in that State of electric power stations; (b) the generation, transmission and distribution of electricity to areas not covered by a national grid system within that State; and (c) the establishment within that State of any authority for the promotion and management of electric power stations established by the State.
of electricity regulation in Nigeria clearly depicts the opposite. The Renewable Electricity
Policy of the Federal Government of Nigeria (Renewable Energy Policy) 200634 merely
acknowledges that “renewable electricity offers cost effective, modular and decentralized
options for extending electricity and stimulating sustainable development in rural areas”.
The Federal Government of Nigeria hopes to “… develop innovative, cost-effective and
practical measures to accelerate access to electricity services in rural areas through
renewable sources...”35 The strategy of the Federal Government in this regard does not
involve direct engagement with the local people through their respective Local
Governments Councils. For the renewable policy to be effective, the imperative of
decentralized, participatory energy strategy like DEOPs cannot be overemphasized.
The rural electricity initiative though laudable, is alienating and remote from the
local end users. The intention of the Government is to promote the role of the private
sector in the delivery of rural electrification vide renewable sources through the support
of entrepreneurship, training, marketing, feasibility studies, business planning,
management, financing, and connection to banks and relevant institutions. This approach
also includes integrating renewable electricity provision with other services, including
water, telecommunication, fertilizers, pumps, generators, batteries, kerosene, LPG,
electronics.36 However, the institutional framework to bring these into fruition is lacking
or improperly positioned to achieve stated policy objectives. For example, the sources of
15. In the foregoing provisions of this item, unless the context otherwise requires, the following expressions have the meanings respectively assigned to them – "distribution" means the supply of electricity from a sub-station to the ultimate consumer; "management" includes maintenance, repairs or replacement; "power station" means an assembly of plant or equipment for the creation or generation of electrical energy; and "transmission" means the supply of electricity from a power station to a sub-station or from one sub-station to another sub-station, and the reference to a "sub-station" herein is a reference to an assembly of plant, machinery or equipment for distribution of electricity.
34 Renewable Electricity Policy of the Federal Government of Nigeria, 2006.
35 ibid. at para 5.4.4.
36 ibid at para. 5.4.1:
funds for the renewable energy policy is also top-down. The designated fund, Renewable
Electricity Trust Fund, is a proportion of the federally-controlled Rural Electrification
Fund as may be determined by the Minister in addition to other donations, gifts and loans
dedicated to renewable electricity from local and international sources.37 Access to the
designated fund is also frustrated by bureaucratic and other needless administrative
bottlenecks that make it difficult for timely release of funds for intended purposes.
The greatest undoing of this policy direction might be its disengagement with the
local people and their respective Local Government Councils. The Local Government-
based systems of natural resources and energy governance have proved remarkably
successful in some countries. This is because state-centric, (over)centralized models
create apathy at the level of the local end users. Decentralized approach to energy
resource management is suggested for Nigeria being a practical and functional approach
to energy sustainability. It involves the transfer of responsibility for planning,
management and allocation of resources from the central government and its agencies to
units and agencies at the state or local government levels.38 Functional approach to
decentralization of electricity management responsibilities will also help in mitigating the
negative impacts of remoteness of the central government of Nigeria from the local
communities. Against this backdrop, the electricity governance regimes in Nigeria would
need to reflect the three-tier planning model in line with the political structure of the
country.39 This necessarily makes it expedient to enhance the roles being played by the
774 local government councils of the Nigerian federation.40 The Local Government 37 ibid at para 6.1.2.
38 M. Carley & I. Christie Managing Sustainable Development (London: Earthscan Publications, 2000) at 126. See also D.A. Rondinelli & J.R. Nelli “Assessing Decentralization Policies in Developing Countries” (1986) 4 Development Policy Review, at 3-23, cited by Carley and Christie.
39 A.A. Olojede “Nigeria: Country Paper on National Sustainable Development Planning” Paper Presented at the International Forum on National Sustainable Development Strategies, Accra, Ghana, 7-9 November, 2001, at 20.40 The local government is the third tier of the administrative structure in Nigeria. There are 774 local government areas (LGAs) in the country. The functions of Local Governments are spelt out in s. 7 of the Constitution of the Federal Republic of Nigeria (CFRN) 1999. Each local government area is administered by a Local Government Council. The Council comprises of Chairman who is the Chief Executive of the LGA, and other elected members who are referred to as Councilors. The Chairman is normally elected, but can, under special circumstances, also be appointed. He/she supervises the activities of the local government and presides over all meetings of the Council. See “Local governments in Nigeria”, online: at Online Nigerian.com < http://www.onlinenigeria.com/links/adv.asp?blurb=143> accessed January 13,
structure is crucial to the implementation of decentralized electricity governance systems
in Nigeria being closest to the local or indigenous communities.41
Decentralized Electricity Financing
Sustainable energy might be difficult to attain if the funding mechanism of the new
electricity regime in Nigeria is not wholly liberalized and diversified. This is because
energy projects generally have high initial costs. Without adequate financial incentives,
investing in the electricity sector in Nigeria might be difficult. The lack of capacity of
Nigeria in the area of manufacturing components of renewable energy technologies also
adds to the incremental cost of electricity generation and distribution in the country.
Some electricity projects are better located in the remote areas thus posing significant
challenges in terms of attracting competent and qualified manpower for operations.42
Adoption of decentralized electricity governance model would make for participatory,
all-inclusive regime that makes it possible to integrate and engage the services or labour
of trained local people closest to the projects.
Financing is crucial to realizing the Federal Government’s electricity policy. In
funding electricity, the Nigerian government has put in place a number of mechanisms
including the Renewable Electricity Trust Fund, which aims to promote, support and
provide renewable electricity through private and public sector participation.43 Other
sources of financing include equity, debt financing, grants and micro finance in addition
to private funding by way of Independent Power Project (IPP) investment in the
2009.
41 A Local Government Council is the pivot of socio-economic planning and development in its area of authority. Being also the tier of government closest to the people, it is considered the most important facilitator of economic and social development at the grassroots. The research thus argues the need to give higher and specific responsibilities to Local Government Councils as to natural resource management, especially those bordering around customary norms and indigenous peoples engagement with natural resources to enhance the overall objective of effective management of natural resources and intergenerational sustainability.
42 ibid at 6 para 1.4 (b).
43 ibid at 17 para. 6.1
electricity sector in Nigeria. The funding mechanisms of the new regime appear
decentralized, representing a good mix for maximizing financing alternatives due to cost
intensiveness and dynamism of the electricity sector.
Availability of investing funds is central to the objective of the reformed energy
sector in Nigeria. The global demand for infrastructure has dragged project financing
from its hitherto restrictive arenas of mining and rail development in the medieval ages to
new sectors like electricity generation and transmission, oil and gas, pipelines,
telecommunications, transportation and even more in the emerging markets of Nigeria
and elsewhere.44 However, commercial realities dictate that in making energy and natural
resources investment project bankability will remain a major consideration.45 This is
because, according to a scholar, the process of making investment decisions is as much
idiosyncratic as it is scientific. There are no absolute or universal standards of legal
adequacy for foreign investment in the energy sector, as it is always a question of what
will satisfy a particular investor and whether the project will satisfy the requirement of
“bankability”.46 Financing for the repacked power sector of Nigeria is best attained
through “project finance or limited recourse financing model because in case of default,
recourse is had to the project or the project vehicle to recoup funds. This recourse
mechanism of project financing is decentralized, that is, no direct recourse to the
borrowers. This model attunes with the DEOPs principle making it attractive as a suitable
funding model for the reformed electricity sector in Nigeria.
44 According to scholars, “the global demand for infrastructure has pulled the techniques of project financing from the annals of mid-century mining and rail development. Having been tested for a decade in the United States’ independent power industry in the 1980s, refined in Europe, the Middle East, Latin America and Asia through the 1990s, these techniques are now being applied in a wide range of industries including power generation and transmission, petrochemicals and oil and gas, pipelines, mining and materials, telecommunications, transportation, and in ever more ‘emerging’ regions. See M.T. McCloy, “A Legal Guide to Project Finance” ” in Legal Aspects of Finance in Emerging Markets (Durban, South Africa: LexisNexis Butterworths, 2005) at 1.
45 Y. Oke “Financing Solid Minerals Business in Nigeria: An Appraisal of the Socio-Political Aspects of the Requirements of Bankability” in Legal Aspects of Finance in Emerging Markets (Durban, South Africa: LexisNexis Butterworths, 2005) at 107-118.
46 R. Pritchard, “Safeguards for Foreign Investment in Mining” in Bastiba, E.; Walde, T., and Warden-Fernandez, J., (Eds.) International and Comparative Mineral Law and Policy: Trends and Prospects (The Hague: Kluwer Law International, 2005) at 73.
Electricity is a capital intensive adventure and to attract investment financing in a
country like Nigeria entails certain idiosyncratic and factual issues given Nigeria’s
background and standing in the energy sector. In the quest for improved electricity
generation and distribution, it must be well understood by the Nigerian government,
potential investors and other stakeholders that a number of socio-political considerations
would likewise determine the suitability or otherwise of making investment commitments
in electricity sector. Generally, the investment atmosphere must be such as is able to
instill unflinching confidence in the investors that recouping the invested capital with
competitive yields would not in any way be clogged. The several issues involved are
generally referred to as bankability – a technical term denoting commercial expectations
and assurances that an investor will recoup investment capital with freely transferable,
attractive gains.
Regardless of theoretical assumptions in principles like “pollution haven”,
“regulatory chill”, the “race-to-the-bottom” theory,47 and other phenomena associated
with competition48, attracting foreign direct investment (FDI) in Nigeria is one of the
focal aims of the power sector reforms in Nigeria.49 Towards investment drive, countries
often embark on promotional activities like Internet advertisement and country-to-
country tour to attract investors.50 In all these, an impression seems to have been created
47 See for example T. Johnston, “The Role of Intergenerational Equity in a Sustainable Future: The Continuing Problem of Third World Debt and Development” (1998) 6 Buffalo Environmental Law Journal, pp 36-80, at 58; and Madeline Cohen, “A Menu for the Hard-Rock Café: International Mining Ventures and Environmental Cooperation in Developing Countries” (1996) 15 Stanford Environmental Law Journal, 130 at 154. But see and compare David Wheeler, “Racing to the Bottom? Foreign Investment and Air Pollution in Developing Countries”, (Paper Written for Development Research Group, World Bank, 2001) at 5.
48 For detailed discussion and overview of literature on the issue of investment theories, see “Environmental Issues in Policy-based Competition for Investment: A Literature Review”, ENV/EPOC/GSP (2001), 11; A Report of the Organization for Economic Co-operation (OECD), 4 April 2001, online: OECD < www.oecd.org/findDocument/0,2350,en_2649_34313_1_119666_1_1_37465,00.html>, last visited on 20 July 2004.
49 See “Environmental Benefits of Foreign Direct Investment: A Literature Review ENV/EPOC/GSP (2001), 10; A Report of the Organization for Economic Co-operation (OECD), 5 April 2001, online: OECD < www.oecd.org/findDocument/0,2350,en_2649_34313_1_119666_1_1_37465,00.html>, last visited on 20 July 2004 for detailed discourse and review of literature on the environmental and other benefits of FDI which seems to justify foreign investment in natural resources including mining, at 10-24.
50 The Nigerian government has embarked on rigorous investment promotion in several countries to attract foreign investment since the emergence of the present democratic dispensation in 1999. Also, the South
that successful attraction of investors depends on how attractive the sector is in terms of
incentives as against the general political and social atmospheres or other considerations.
In allaying investment-related fears, unhindered transferability of investment
yields or funds is guaranteed to investors under the Nigerian law.51 The general
observation is that in electricity or other natural resources endeavors, investors are wary
of the booby trap incentives provided in the legislation to attract them in making
investment. An average investor knows that investment is easier made than unmade. This
leads to piercing through the sometime deceptive incentives for a careful consideration of
the political, social and other factors that would make investing in a country a reasonable
business decision. It makes good business sense to invest in a politically stable and
socially reliable country with little or no incentives than embark on irrational and
expensive decision of investing in the electricity sector under a turbulent and politically
volatile atmosphere on the guise of distorted, wooly “incentives”.
In the energy resources sector, the host community hostility also constitutes sector
reality that needs to be borne in mind in sector reforms. Host community hostility has
been described as a new generation of risk to natural resource financing.52 The
relationship between the host State and the foreign investor had hitherto been silent on
matters affecting the host populations.53 Most legislative and contractual documents in
the energy sector also tend to be silent on the protection of the host populations against
sometimes inevitable devastating impacts of energy investment.54
Africa’s minister for Minerals and Energy Affairs recently took the case for investment in the country’s mineral sector to Singaporean investors. See Yvonne Gomez, “Mining Opportunities for Singaporeans in South Africa” Radio Singapore International, MediaCorp Radio, 14 July 2003.
51 See the Nigerian Investment Promotion Act, Cap N117 on incentive for foreign investment in Nigeria. For example, s. 22 provides for unconditional transfer of funds through authorised agent while ss. 22 and 25 respectively provides for incentives for special investments and guarantees against any expropriation.
52 G. S. Akpan, “Host Community Hostility to Mining Projects: A New Generation of Risk?” in Bastiba, E.; Walde, T., and Warden-Fernandez, J., (Eds.) International and Comparative Mineral Law and Policy: Trends and Prospects (The Hague: Kluwer Law International, 2005) at 311. According to Akpan: “… [T]he inability of members of the host communities to have recourse to effective remedies in both the host and the home State and in international law, against activities of players in the mining (and other resource sectors) that have deleterious effects on them has potential of creating a new sources of risk to foreign investment in the sector”. ibid.
53 ibid. at 312.
54 ibid.
Political risks also constitute potential challenge to attain the objective of
increased investment in the electricity sector in Nigeria. However, the risk of political
uncertainties appears diminishing in Nigeria. Nonetheless, at the international arena,
political risks might be obviated by an investor by making recourse to Political Risk
Insurance (PRI). The premiums payable on such insurance policy would be contingent on
the extent of risks to be underwritten. It needs to be pointed out that such insurance
coverage might be solace for investing in a ‘hazy’ atmosphere in Nigeria given host
community and sundry issues discussed above. To augment domestic inadequacies in
terms of comprehensive insurance cover, (foreign) and local investors making definitive
investment for mega electricity project in Nigeria might be able to explore the
Multilateral Investment Guarantee Agency (MIGA) to provide political risk insurance
cover, as Nigeria is both a signatory and subscriber to the MIGA Convention.55
The overarching issues involved in funding energy projects have made it
imperative for countries to widen the scope or avenues for attracting funding for their
energy sectors aside from traditional state funding, subventions or direct or indirect
subsidies. Increasingly, the private sector funds now drive energy projects in most
countries. The regulatory environment must inevitably respond to this trend by becoming
liberalized and decentralized for seeking approvals and other bureaucratic requirements
of inflow and out-flow of local and foreign capitals through devolution of administrative
powers in appropriate agencies, state and local institutions.
Since assets are acceptable collaterals for funding purposes, the procedure for
seeking the consent of Governor or other administrative approvals for assignment of titles
or assets should likewise be decentralized. This is to avoid stifling the availability or
perfection of titles or assets intended to be pledged in case of collateralized local or
syndicated lending or borrowings for the purpose of financing electricity projects in the
reformed energy sector in Nigeria.
55 See Schedule A of to the Convention establishing the Multilateral Investment Guarantee Agency Act 1985, online at: MIGA http://www.gwb.com.au/gwb/news/mai/miga.html >, accessed 13 July 2010.
Energy Reform and Transparency
Effective monitoring and supervision of the power sector has been made
needlessly difficult and shrouded in secrecy through over-centralization of administration
of the sector. As pointed above, the top-down model of electricity governance in Nigeria
encourages corruption and other illegal dealings. Despite the reforms, the electricity
sector of Nigeria has continued to wallow in endemic corruption. The on-going trial of
the Chairman and other commissioners of the NERC56 and that of the officials of the REF
and some of the members of the National Assembly57 have shown that beyond reforming
the governing laws and rules in the sector, there is need for institutional reform and the
purging of current corrupt attitudinal dispositions of officials if the reforms will have any
impact. It goes without saying that if Nigeria scales the hurdle of creating a vibrant
electricity regime under the new legal framework, the social obstacles and challenges of
managing and sustaining it will remain due to debased social orientation of infectious,
systemic corruption.58 Available literature shows that this problem is not easily
surmountable in Nigeria and other African countries due to unending communities’
agitations over the distribution of benefits from energy resources.59 Both the regional60
and national instruments61 also acknowledge the difficulties of not only effective
56 See EFCC and NERC officers supra note 16.
57 See “The Raging Scandal Over Government’s Rural Power Projects” supra note 20.
58 R. G. Eggert, “Mining and Economic Sustainability: National Economies and Local Communities” (Report of the Mining, Minerals and Sustainable Development Project, Vol. 19, October 2001) at 60.
59 See for example A. K. Dias, “International Standard-Setting on The Rights of Indigenous Peoples: Implications For Mineral Development In Africa” (1999) 6 South African Journal of Environmental Law and Policy, 67 at 94.
60 For example the preamble to the New Partnership for Africa’s Development (NEPAD) October 2001, recognizes the fact that the continent is impoverished by slavery, corruption and economic mismanagement and that only judicious use of enormous natural and human resources of the region could lead to equitable and sustainable growth.
61 See for example the Corrupt Practices and Other Related Offences Act of Nigeria, 2000. This Act intends to put an end to corruption and related offences in Nigeria, which vices, according to the Act, are already threatening the basis of the country’s unity and development. See the long title of the Act and the address of the Nigerian President, Olusegun Obasanjo at the signing into law where he said: “With corruption, there can be no sustainable development, nor political stability”.
distribution but also of the utilization of benefits from energy resources in a sustainable
way. It has also been empirically established that resources and civil conflicts are
inseparable in developing countries.62 The structural arrangement under the current
electricity regime makes for the perpetration of institutionalized corruption due to (over)
centralized governance arrangement. This further justifies the augments for decentralized
electricity governance systems.
The power sector of Nigeria arguably stands in closer proximity for corruption
like the oil and gas sectors. Not only because of the seeming overwhelming evidence of
institutional improprieties in the energy sectors generally; but more for the fact that
electricity sector is the most versatile and widely used form of energy in Nigeria.63 The
nature of the electricity sector and inherent danger of the current centralized regulatory
framework in Nigeria made it possible for the ‘larger-than-life’ image and influence of
the defunct NEPA. According to a commentator:
The infrastructure sectors are seen as being particularly vulnerable to corrupt practices given inter alia the large and lumpy expenditures involved (therefore easier to hide bribes), the reality that there are often relatively few qualified contractors (which can, in turn, lead to collusion) the presence of natural monopolies and the limits to competition (even with reform), the prevalence of ‘regulatory capture,’ and the numerous opportunities for discretionary decisions and ‘rent taking’ by public and private officials. The problem is compounded by the long tradition of corrupt practices in infrastructure in many countries and its embodiment in the political and social infrastructure.64
62 See M. L. Ross, “Oil Drugs, and Diamonds: How Do Natural Resources Vary in Their Impact on Civil War” (Los Angeles: UCLA University Press, 2002) Working Paper, at 1-5.. See also Noah Novogrodsky “Redressing Human Rights Violations in Sierra Leone” Nexus, University of Toronto, Spring/Summer 2003, at 27.
63 G. Mohinder and M.Y. Rao, “Corruption in the Electricity Sector: A Pervasive Scourge” in J. Edgardo Campos and Sanjay Pradhan Eds., The Many Faces of Corruption- Tracking Vulnerabilities at the Sector Level, (The World Bank: Washington, D.C., 2007) at 115.
64 ibid.
The extent of corruption in the electricity sector as well as its
manifestations varies from country to country depending on local
peculiarities. In developing countries like Nigeria and its African
counterparts, areas like government policies, investment and financing
decisions, customer-interfacing activities, and commercial operations
of the utilities, procurement, and human resource management are
potential avenues for corruption and operational ineptitude. Nigeria
would also need to avoid or direct its institutional strategies in the
energy sector by attuning to the crucial need to tighten the loose ends
on the above areas and those to be subsequently identified.
In the case of Nigeria, the combined effect of State monopoly
despite a semblance of liberalization portrayed under the new regime
provides fertile ground for inefficiency and corruption in the electricity
sector of the country. A strictly state-controlled electricity governance
model should ordinarily be unacceptable in a sector questing for active
private sector funds. Not only does it encourage corrupt tendencies,
state control also cripples genuine growth and competitiveness of the
sector as it creates disincentives to genuine and innovation-driven
competitions. Rather than centralized state domination or governance,
a model like DEOPs that stimulates active participation of the
stakeholders in the electricity sector should be embraced to bring
about economically rewarding, viable and sustainable electricity
regime in Nigeria.
Conclusion:
This paper argues that decentralization of electricity governance is critical to
achieving the aim of the electricity sector reform in Nigeria. The paper observes that
despite attempts at repositioning the power sector in the country, certain operational and
regulatory challenges would appear to have rendered the reforms nugatory. In specific
terms, the paper argued that beyond reforms, and due to the contextual underpinnings of
the Nigerian electricity sector; a number of non-core legal factors would need to be taken
into consideration in electricity governance and management of the country.
The paper concludes by suggesting the need for mainstreaming decentralized
electricity governance model referred to in this paper as “Decentralized Energy Options
[DEOPs]” into the existing framework of energy regulation in Nigeria given the peculiar
nature of the country. This is because the DEOPs model advocates the decentralization of
governance structure to involve of the local communities, multiplication of the means of
energy production, availability of affordable energy options as well as devolution of
governance, control and management responsibilities in the other tiers of government to
maximize the benefit of the reformed electricity sector in Nigeria.
Yemi Oke