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