Fireworks over Discos’ Threat to Dump Power Assets

Babatunde Raji Fashola, SAN
Babatunde Raji Fashola, SAN

Fireworks over Discos’ Threat to Dump Power Assets

When the Minister of Power Works and Housing, Mr. Babatunde Fashola, SAN, declared in May the Federal Government’s intention in a major policy directive, four (4) categories of eligible customers in the Nigerian Electricity Supply Industry (NESI), that can buy power directly from the generating companies (Gencos) many wished it off as an impossible task.

Babatunde Raji Fashola, SAN
Minister of Power, Works and Housing, Mr. Babatunde Fashola, SAN

The regulation which was approved by commissioners at the Nigerian Electricity Regulatory Commission (NERC) on November 1 and subsequently presented to Fashola, is expected to enable Large Power Users (LPU) have options to get electricity from power Generation Companies (Gencos),  other than the 11 Distribution Companies (Discos).

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Since the declaration and subsequent roll out of the regulation, each of the four categories of eligible customers in the electricity market now has an option: either to contract supply directly from the Generation Companies (Gencos) or to demand robust supply regime from their Discos.

Fashola’s directive was in line with the provisions of Section 27 of the Electric Power Sector Reform Act 2005 whereby eligible customers are permitted to buy power from a licensee other than Discos.

The new regulation of NERC set out certain customers that can buy power directly from the Gencos without passing through the 11 Discos as has been the case. These customers can exit from a Disco after a three-month notice to it, and also reconnect following same procedure.

But, investigations show that the implementation of the eligible customers’ regime may not have gone down well with the Discos who risk losing about $5 billion investment in the 11 privatised Discos.

And to display its opposition against the regime of eligible customers, the 11 distribution companies have written to the Bureau of Public Enterprises (BPE) threatening to declare a force majeure should the regulator- Nigerian Electricity Regulatory Commission ( NERC) go ahead with the policy.

The DISCOs through the Association of Nigerian Electricity Distributors (ANED), said the sector was not ripe for the declaration.

ANED’s Executive Director, Research and Advocacy, Mr. Sunday Oduntan, said the electricity market is not competitive at this stage to trigger the declaration.

But NERC, however feels the decision can stand, saying the Commission expects that since some customers will cut out from the Discos, they should have more power to give to the existing customers to raise their revenue.

The controversy comes as the Federal Government is encouraging states to join even as other big companies have indicated their interests due to the poor performance of the Discos.

The development, according to some analysts may further compound the problem of Discos whose performances in the last five years of privatisation  is adjudged worst in the history of privatisation in the country.

At the June edition of the monthly stakeholders meeting in Enugu State, Fashola said the introduction of the regime was in exercise of his powers under the Act to declare criteria for eligible customers.

He told the management of the distribution companies to bring all their concerns about the implementation of the new regime to the appropriate authorities.

The Association of Power Generating Companies (APGC) backed the declaration. The group, which represents the GenCos, said the declaration will ensure that issues of over 2,000mw stranded electricity generation and poor market liquidity will be resolved as the Discos are not remitting enough to the market to boost further investments in the Executive Secretary, Dr. Joy Ogaji, said in an earlier statement.

She also noted that issues of load rejection by Discos will be over as such excess power will be channeled to the eligible customers and no longer to the Discos.

President, Nigeria Consumer Protection Network, Mr. Kunle Olubiyo, said declaring eligible customers became important to drive competition in the post privatisation era.

But, the Director General of BPE, Mr. Alex Okoh, in response to the letters sent by the distribution companies, notifying the agency of its intention to declare a force majeure, said that there was no basis for the issuance of notice to declare force majeure by the Discos following the policy directive on Eligible Customers and the Eligible Customer Regulations by NERC.

In a letter to the Discos, he challenged the assertion by the Discos that there has been a change in law and political force majeure event pursuant to certain clauses in the Performance Agreement the core investors of the Discos signed with the BPE. As such, he rejected the notice to declare force majeure by the Discos.

‘‘The Discos had claimed that the policy directive on Eligible Customers and the Eligible Customer Regulations have resulted in a change of law which prevents them from fulfilling their obligations under the Performance Agreement,’’.

But, Okoh countered that pursuant to the Electric Power Sector Reform Act 2005, it is obvious that the Minister of Power, Works and Housing is empowered to issue the policy directive specifying the class or classes of end-use customers that shall constitute Eligible Customers, while in the same vein, NERC is similarly empowered to issue Eligible Customer Regulations.

‘‘As you are aware, this is the same Act which midwifed the process whereby the power assets were privatised to the core investors. Given that the Declaration and the Regulations were lawfully and validly issued by the Minister and NERC, and that there has been no change in the law giving rise to a political force majeure event, we are unable to see the basis for the issuance of the notice,” he said.

Okoh added that the BPE, as the contracting party on behalf of the Nigerian government to the agreements which governed the privatisation of the power assets to the core investors, rejects the notice to declare force majeure.

Aligning with the position of BPE, Partner, Bloomfield Law Practice, Mr. Ayodele Oni, disclosed that, it would appear that some of the DisCos, or indeed, their investors, relying on Clause 7 of the Performance Agreements, have begun to declare Force Majeure pursuant to the Performance Agreements.

This, he said, is in reaction to the Minister of Power’s declaration of the criteria for customer eligibility and the subsequent issuance of Regulations in that respect, adding that the only force majeure head under the Performance Agreement that the declaration of eligibility and the issuance of the Regulations can potentially fall under, is Political Force Majeure under Clause 7.4.4 of the Performance Agreements.

Specifically,  he said, Clause 7.4.4 stipulates that Political Force Majeure includes any Change in Law or Change in Tax (as defined in the Performance Agreement) that renders any material obligation of BPE under the Performance Agreement unenforceable, invalid or void; makes it unlawful for the DisCos or Investors to make or receive any material payment, to perform any material obligation or to enjoy or enforce any material right under any consents or the Performance Agreement; materially restricts or limits on the ability of the DisCos or Investors to repatriate any dividends or return of capital, which remain in place for more than 180 days; or causes the DisCo to incur any taxes materially in excess of those the Company would have incurred under the laws in effect on the date of the Performance Agreement.

‘‘The declaration of eligibility and the subsequent issuance of the Regulations neither constitute Change in Law nor Change in Tax as specified in the Performance Agreements.  Based on the express provisions of the Electric Power Sector Reform Act (EPSRA), the declaration of the criteria for eligibility and the issuance of the relevant Regulations, eligible customers are allowed in the current market to purchase power directly from generation companies and same does not constitute a Change in Law.  Same also do not result in any of the outcomes listed in Clause 7.4.4 of the Performance Agreements. Consequently, the declaration of customer eligibility and the issuance of the Regulations cannot validly be relied upon by the DisCos to justify a claim of Political Force Majeure under Clause 7.4.4 or any other form of Force Majeure.”

Oni, however, said that there are opportunities for the DisCos to make money under the Distribution Use of System Agreement and there is also provision for generation companies/eligible customers to enter arrangements with DisCos before constructing distribution facilities, adding that the DisCos will always be carried along on the condition that, they make themselves available and they upgrade their facilities.

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