Electricity distribution in the Nigerian power industry is based on a monopolistic structure. Electricity consumers cannot choose their electricity distributors as they only receive electricity from the distribution company (DISCO) which has the exclusive responsibility of distributing electricity in the consumer’s geographical location. However, the Nigerian power sector’s regulator, the Nigerian Electricity Regulatory Commission (NERC) has commenced a process that could ultimately liberalize the electricity supply market in Nigeria by recently issuing its Eligible Customer Regulations 2017 (The Regulations).
Part of the objectives of the Regulations include the provision of standard rules to facilitate competition in the quality and supply of electricity, and promote rapid expansion of generation capacity. By the Regulations, NERC also aims to encourage third party access to transmission and distribution infrastructure as a precursor to allowing full retail competition in that segment of the Nigerian electricity market. By the Regulations, NERC also seeks to improve the overall financial liquidity of the electricity industry by allowing generation companies (GENCOS) with uncontracted capacity to access unserved and underserved consumers.
Under the Regulations, electricity consumers who fall within any of the four categories of eligibility (Eligible Customers) are permitted, subject to requirements, to purchase power directly from ‘Suppliers’, who are defined by the Regulations as licensees authorized by NERC to supply electricity to an Eligible Customer, i.e GENCOS and trading licensees. Under the Regulations an Eligible Customer has two principal rights: right of access and right to supplier choice. Consequently, an Eligible Customer now has the right of access to transmission and distribution networks for the purpose of delivery of electricity and the right to freely choose a supplier or suppliers, and contract the pricing, quantity, and time of supply. In addition, and in order to facilitate the exercise of an Eligible Customer’s rights, under the Regulations, Suppliers shall be granted access to the Transmission and Distribution Network for the purpose of delivery of electricity pursuant to the Contract for use of network.
However, the concern widely expressed by the DISCOs, is that the Regulations could bring about a significant loss of revenue to them. Shortly after the issuance of the Regulations, the DISCOs issued a notice of force majeure to the Bureau of Public Enterprise (BPE), arguing that the Regulations have resulted in a change of law, which affects their capacity to fulfill their obligations under their Performance Agreements with the BPE. The reason for the DISCOs concern is that, as a result of the Regulations, the consumers who will invariably qualify to be Eligible Customers are the DISCOs high value customers, who the DISCOs heavily rely on. In this respect, the NERC may have anticipated the DISCOs’ concerns in making the Regulations because the Regulations provide for the DISCOs to perform the role of a Supplier of last resort to an Eligible Customer in the event of a failure by its contracted supplier.
Ultimately, it remains to be seen how the Nigerian electricity market will react and adjust to the implementation of the Regulations, particularly in light of the opposition by the DISCOs. However, there is no doubt that the innovations introduced into Nigerian electricity sector by the Regulations have the potential to liberalize the electricity distribution segment of the market. The resultant competition such liberalization brings is likely to stimulate greater efficiency and the much needed investments in Nigeria’s illiquid electricity industry.