Monday, 25th September 2023

Constitutional Amendments 2023: Implications of expanded state powers in electricity sector

By Ngozi Chinwa Ole and Lynda Ugo Ezike
30 May 2023   |   1:36 am
Like some developing countries, Nigeria aims to provide access to adequate and reliable electricity at fair, competitive prices. Nigeria’s electricity sector plays a critical role in its economic development as it permits the advancement and growth...

Nigeria electricity

Like some developing countries, Nigeria aims to provide access to adequate and reliable electricity at fair, competitive prices. Nigeria’s electricity sector plays a critical role in its economic development as it permits the advancement and growth of industries as a myriad of industrial procedures is contingent on the availability of electricity. In addition, the electrification of services and infrastructures is the very substratum upon which economic growth is predicated. Simply put, it is the wheel on which significant aspects of the economy run including the transportation, communication, agricultural, education and healthcare sectors. It is for this reason that the government of Nigeria is seriously clamouring for an expansion in its electricity facilities to precipitate its economy to a greater height.

It is apt to mention that a country’s regulations, laws and policies are the precursors for the provision of universal access to reliable electricity. The latter is the reality in Nigeria given that there are laws that have underpinned the development in the electricity sector. It is expected that the legal architecture will continue to evolve to accommodate sufficient infrastructures in the light of attaining universal access to electricity in Nigeria. Thus, the 2022 Constitutional Amendment which was assented to by the President in 2023 has been hyped as good development by electricity enthusiasts. The hallmark of the 2023 Constitutional Amendments is the expansion of the state’s power in the electricity sector to include the power to generate, distribute and transmit electricity with respect to areas already covered by the national grid (The 1999 Constitution, paragraph 14(b), part II, Second Schedule). The latter stands in distinction to the previous position which limits state powers to the off-grid electricity sector within the concerned State.

The 2023 above-mentioned amendments to the Constitution have attracted some commentaries. Protagonists argue that it will be the needed catalyst that will precipitate the development of the sector. Currently, there is a dearth of electricity in Nigeria given that most of the population does not have access to it. It has been argued that expanded state power will garner more laws and measures for the advancement of the electricity sector. It is apt to mention that little has been said about the possible negative reverberations of this amendment. Given, this write-up discusses the positive and negative ramifications of the expanded state powers in the electricity sector.

The initial position of the Constitution is that Federal Government is bestowed with the exclusive power to regulate on-grid electricity and establish powerhouses. Although states were authorised to undertake off-grid electricity projects and, by extension regulate it; they were, however, prohibited from doing so in areas that are covered by the national grid. Implicit in the latter is that the Constitution confined the powers of state governments to the regulation of off-grid electricity. Thus, even in instances, where states could lend their voice towards promoting on-grid electricity, they were hamstrung by this constitutional provision.

On March 17, 2023, President Muhammadu Buhari signed the constitutional amendment bills into law [Constitution of the Federal Republic of Nigeria 1999 (Fifth Alteration Bill), No. 33, 2022 (National Grid System]. By the amendment, states were permitted to generate, transmit and distribute electricity in regions covered by the national grid. Implicit in this provision, is the right to regulate such electricity projects undertaken by it or permitted by a state entity. The provision to the Constitution, as detailed in paragraph 14(b) of the Concurrent Legislative List, stated in Part II of the Second Schedule to the Constitution was amended such that the older stipulated phrase “not covered by a national grid system” was expunged. It is apt to mention that despite the constitutional amendments, the implication of ‘electricity-related matters’ falling under the Concurrent Legislative List (which is for both the Federal and State Governments) is that the federal government still has overriding powers concerning on-grid electricity. To that effect, any law made by them will be deemed to have covered the field, thereby excluding any contradictions introduced by any state law.

The first benefit of the expansion of the state powers to regulate electricity is that it opens the gateway for the influx of private investments including from enthused local government areas. A major bulwark to electricity development is that investors are unable to meet up with the huge capital requirements of projects. Regrettably, the capital market in Nigeria is still not robust enough to meet up with the humongous needs of the sector. Thus, the provision expanding state powers in the electricity sector provide the legal underpinning for states to promote the influx of private investments through various forms of incentives. For example, the influx of investments in China’s electricity sector which has catapulted them to the premier position in the global renewable energy industry has been attributed to the participation of the lower tiers of government as enabled by China’s Renewable Energy Law 2005 (as amended in 2009). As a result of this law, certain states in China employed beneficial policies, such as the exemption of some electricity projects from urban land taxes, thereby reducing the costs of electricity projects. Also, some local governments in China are directly involved in the financing of some electricity technology manufacturing companies. With the Constitutional amendments, it is rightly anticipated that the lower tiers of government (the states and local governments) will invest in the on-grid sector in Nigeria.

In addition, the wider scope of the state powers in the electricity sector will have positive consequences for job creation. It is anticipated that as states increase their participation in the industry, there will be an expansion of existing companies. New companies will likely emerge especially in the face of support measures including from lower tiers of government. The new companies may also birth smaller ventures like hospitality businesses and service enterprises. In all, more jobs will be available, as people will be needed to drive the businesses arising therefrom.

While the amendment may have opened doors of opportunity for greater state and local government participation; whether or not such will improve the access to electricity situation in Nigeria is contingent on the political will of the actors involved. As reiterated, the state governments were initially vested with the powers to regulate and invest in off-grid electricity. The latter was before the expansion of the scope to include on-grid electricity. Even at that, the off-grid electricity sector in Nigeria has seen very limited investments from the states. Some of the states, that have invested in the off-grid sector (especially renewable energy) are Lagos, Delta, Edo, Osun, Ekiti etc. It is apt to mention that such investments are minuscule regard having to the electricity deficit in the Country and, the opportunities for states to benefit from investing in the sector. While the states are not incapacitated by the problem of inability to afford the initial capital needed in the sector, there is a general lack of interest and political will to participate in the development of the sector. As such, it is not certain that the powers of the state to regulate and, invest in the on-grid sector will necessarily translate to a noticeable improvement in the access to electricity in Nigeria.

To garner the relevant political will from state actors, efforts should be made by the relevant federal government bodies like the Nigerian Electricity Regulatory Commission (NERC), Energy Commission of Nigeria (ECN) and, Federal Ministry of Power (FMP) to launch sensitization awareness and initiate relevant political measures. The development of a roadmap for a unified power sector development target that will contain the aspirations of states and the federal government will be helpful in this context. The roadmap should be a bottom-up strategy informed by various states submitting their plans for the development of the electricity sector to the federal government.

Another issue that may arise as a result of the expansion of State powers in the electricity sector is the Duplicity of the Licensing System. Nigeria currently runs a single electricity licensing regime administered by NERC. The licensing system is nuanced to accommodate the varieties of electricity projects. The commonality of all the various forms of licenses is the payment of application and processing fees. For instance, the minimal licensing fee for an electricity project that is above 1 MWH is $5000 under the NERC Licensing and Operating Fees Regulation 2010. With the expanded power of the state to participate and, by extension regulate on-grid and, off-grid sectors, some states may come up with their licensing system. The latter implies that developers and, investors would need to pay for the license at both the state and federal levels. This would add to the already established complex regulatory burden that investors are battling within the sector.

The existence of multiple network systems and facilities may pose a major risk to health, safety and, the environment. States may have to adapt their network system and facilities for on-grid and mini-grid electricity. The existence of multiple network systems, if not properly regulated may pose significant hazards to the environment. It may also undermine the health and safety of anyone coming in proximity to it. Such multiple networks may also undermine town and rural planning. It is recommended that the federal government through NERC must take pre-emptive steps to ensure synergy with state actors to reduce the risks of multiple network facilities.

The constitutional amendment expanding state powers in the electricity sector in Nigeria is an applaudable feat regards having to the goal of attaining universal access to electricity in Nigeria. However, the federal government through its agencies like NERC, ECN, FMP etc. needs to coordinate the state actions to achieve optimal results for the improvement of the sector. Adequate regulations have to be developed to weed off the negative side effects of the amendment. In all, the expanded powers vested in states in the electricity sector is a change in the right direction and, to the extent utilized, will improve access to electricity in Nigeria.

Ngozi Chinwa Ole, LL.B. (First Class); LL.M. (UniAberdeen); Ph.D. (UniAberdeen)
Senior Lecturer, Faculty of Law, Federal University Oye-Ekiti, Ekiti State. Consultant- Managing Associate, Alliance Law Firm, Lagos State.
And Lynda Ugo Ezike, B.A Economics (Memorial University of Newfoundland); LL.B (University of Southampton); LL.M. (Distinction) (UniAberdeen), Executive Associate Alliance Law Firm, Lagos, Nigeria

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