Electric Power Sector Reform (Amendment) Bill 2021:  Amending An Act To Make It Worse (2)

In the first part, we highlighted our concerns and opinion with some of the proposed amendments in the EPSRA amendment bill. This second part is focused on Part IX of the bill, which in our opinion is the most controversial section of the amendment bill.

Part IX of the EPSRA (thePrincipal Act) deals with rural electrification. The Principal Act sets up the Rural Electrification Agency (REA), an agency of the Federal Government which in summary, is tasked with implementation and execution of rural electrification plans of the Federal Government. Part IX establishes the Rural Electrification Fund.

The amendment bill expands the scope of the REA to drive renewable energy projects in Nigeria. To this effect, the amendment bill proposes that the REA should now be known as the Rural Electrification and Renewable Energy Agency (REREA). We do not understand the rationale behind the renaming of the REA to REREA as REA’s core projects continue to be renewable energyfocused. But our concern is not the cosmetic renaming of the REA to REREA.

In our opinion, the objectives and functions (and powers thereof) of the proposed REREA are quite broad. The bill will give theREREA (effectively the federal ministry of power) a monopoly over the implementation of rural electrification and renewable energy projects in Nigeria. The bill, if passed, will create further bureaucracy in rural electrification and renewable energy project development and implementation in Nigeria.

Lastly, if the objective of the bill is to create the legal and institutional framework for the REREA, we opine that the bill should also create the legal and institutional framework for the Niger Delta Power Holding Company (NDPHC) as the NDPHC remains a very strategic agency in the power sector. NDPHC is an entity owned by the federal, state and local governments.

The Renewable Energy Fund – Another Slush Fund in the Making

Perhaps the real intention of the billcan be deciphered in the proposed amendment of the Rural Electrification Fund in the Principal Act. Section 16 of the bill proposes the establishment of the Rural Electrification and Renewable Energy (RERE) Fund, while section 16 (1) of the bill creates the following additional funding sources for the RERE Fund:

  • Funds appropriated by the National Assembly;
  • 2% charged on assessable profit of all renewable energy service companies in Nigeria;
  • 5% charged on every kWh of energy sold within the NESI and National Grid by Licensees and Eligible Customers;
  • Carbon tax of 5% on pump price of PMS, AGO, Kero, LPG) sold by every marketer across Nigeria;
  • 5% of the cost of electricity procured from gas based gencos by Eligible Customers and licensees;
  • 5% of oil royalties earned by the Federal Government (effectively reducing the statutory allocation of states from the Federation Account)

Not done, section 22 of the bill imposes a penalty interest of 10% per annum plus theprevailing commercial interest rates, if those affected by the imposition of a mandatory contribution to the RERE Fund fail to pay their contribution to the Fund.

In our opinion, the above provisions of the bill relating to the REREfundingaredistasteful, repugnant and unacceptable to the millions of suffering Nigerians who continue to bear the adverse effectsand impact of poor electricity since the EPSRA was enacted in 2005.Hasthe legislative objective of the National Assemblybecome to inflict more pain and economic hardships on Nigerians and businesses operating in Nigeria in the name of law making?One wonders why elected members of the National Assembly would seek to make or amend laws that further emasculate the constitutional responsibilities of sub-national governments.

In our candid view, the proposed RERE Fund is akin to a slush fund, similar to the Petroleum EqualizationFund, the Niger Delta Development Commission (NDDC) fund and other Funds established by the National Assembly, whose administration and utilization by their respective Agencies and Commissions are shrouded in opaqueness.

The implication of the proposed additional funding sources for the REREA go beyond increasing the wholesale and retail price of electricity. The cost of energy (electricity, petroleum fuels and renewable energy) would go up, affecting and worsening core inflation. Renewable energy (RE) companies struggling with high import tariffs and development costs, would be hard hit, further driving up tariffs for RE based off-grid and rural electrification projects.In our opinion, the provisionsof the REREA in the bill will create another white elephant legislation if it passes. The REREAas construed in the bill, is doomed to not to succeed as the agency which would be domiciled in Abuja, cannot effectively implement rural electrification projects for state and local governments.

Underserved and Unserved Areas – Framework for Market Competition

The bill defines “Underserved Area” as “any area in Nigeria with intermittent power supply which may qualify for the installation of an interconnected mini-grid” while it defines “Unserved Area” as “an area within a Distribution Licensee’s Network without an existing distribution system”. The amendment bill defines a Rural Area as “any area of the country not existing within 10km from the boundaries of an urban area or city and which has less than 20,000 inhabitants or a population density of 200 per square km and which is at least 20km from the nearest existing 11kV line”.

 We do not understand the intent and rationale for the above definitions. Nevertheless, the definition of these threeservice areas in the bill create the opportunity under an amended EPRSRA for states to make their own electricity laws,and the introduction of new entrants into the electricity distribution segment. In our view, the bill should empower States to license new operators to serve customers within these service areas under a framework that permits interconnections with the distribution company licensed by the NERC to operate within the franchise area or with the Transmission Services Provider (or Transmission Company of Nigeria).

Conclusions

In general, the provisions of the EPSRA amendment bill 2021 fall short of our expectations. To reiterate, our expectations are that any amendment to the EPSRAmustat the minimum include provisions for (i) state houses of assemblies to pass their own electricity laws and regulations in compliance with the 1999 Constitution, and (ii) enable market competition in the electricity distribution by removing the monopoly status of DisCos and licensing new entrants to operate within existing DisCo franchise areas.Lastly, any amendment should look at redesigning the Eligible Customer policy to accelerate industrialization in Nigeria by designating industrial customers as eligible customers, and prioritizing electric power supply from the national grid to industrial customers as a national policy. Ghana has similar electricity policy where electricity supply to industrial customers are prioritized.

Way forward

We propose the following recommendations as the bill goes through the legislative process:

  1. Civil society, Labour unions, Consumer rights groups, Manufacturers Association of Nigeria (MAN) and other concerned stakeholders must rise against the proposed amendments of the EPSRA, specifically the RERE funding sources highlighted;
  2. Progressive state governments seeking to enact their electricity laws for the betterment of their citizens, must immediately engage with their Representatives and Senators in the National Assembly on the need for the bill to empower states to enact their own electricity laws, in line with the provisions of the 1999 constitution;
  3. The bill should look at creating market competition at the last mile and creating multiple (interconnected) electricity markets at state and national level. The single national electricity market structure under the EPSRA has not worked and is incapable of meeting the electricity aspirations of Nigerians;
  4. The EPSRA amendment bill should designate industries and manufacturers as eligible customers and prioritize access to electricity for such customers under the eligible customer policy.
  5. The functions of the REREA should be more specific. The bill must ensure that the proposed REREA does not become another bureaucracy in implementing renewable energy and rural electrification projects.

Odion Omonfoman is an energy consultant and the Founder/CEO of New Hampshire Capital Ltd. He can be reached on orionomon@outlook.com

 

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