LexisNexis

Judicial interpretation of Section 71(6) of the Nigerian Electric Power Sector Reform Act 2005

Tuesday 8 June 2021

Odiaka Vincent Iweze

Pentagon Partners, Lagoa

vincent@pentagonpartnerslp.com

For several decades, the provision of electricity in Nigeria has been haphazard. On 11 March 2005, in an attempt to improve the provision of electricity and liberalise the power sector, the then President of Nigeria, Chief Olusegun Obasanjo, assented to the Electric Power Sector Reform Act 2005 (EPSR). The Act was to:

‘[…] provide for the formation of companies to take over the functions assets, liabilities and staff of the National Electric Power Authority, to develop competitive electricity markets, to establish the Nigeria Electricity Commission, to provide for the licensing and regulation of the generation, transmission, distribution and supply of electricity, to enforce such matters as performance standards, consumer rights and obligations, to provide for the determination of tariffs, and to provide for related matters’.

The EPSR therefore brought to an end the state monopoly in the generation, transmission and distribution of electricity through the government-owned National Electric Power Authority (NEPA), allowing private investors to participate in the generation, transmission and distribution of power through licensed successor companies.

The Nigerian Electricity Regulatory Commission (NERC) and the Rural Electrification Agency (REA) were established as a result of sections 31 and 88 of the EPSR, respectively. Part of the principal objects for NERC are to ‘create, promote and preserve efficient industry and market structures and to ensure the optimal utilisation of resources for the provision of electricity services’, and ‘licence and regulate persons engaged in the generation, transmission, system operation, distribution and trading of electricity’.

Section 62 of the EPSR, mandates that no person in Nigeria can distribute power except in accordance with a licence issued by NERC. On the other hand, the REA is the implementing agency of the Federal Government of Nigeria (FGN) responsible for the electrification of rural and unserved communities.

In fulfilling the mandate of the EPSR, the NERC issued licences to 11 Distribution Successor Companies (DSC) for the distribution of power over certain geographical areas. One such DSC is the Enugu Electricity Distribution Plc (EEDC) which has the licence to distribute electricity only to Abia State, Anambra State, Ebonyi State, Enugu State, and Imo State, all states in South-Eastern Nigeria. Since the issuing of distribution licences to the DSCs by NERC, the DSCs have treated their licences as an exclusive right to distribute power in their respective geographical areas and have vigorously resisted attempts by NERC to issue any other distribution licence within their licensed geographical area.

Regrettably, the provision of electricity in Nigeria has not improved at the pace expected following the enactment of the EPSR. In a bid to improving the situation, in 2017, the FGN came up with the Energising Economies Initiative (EEI). This is a FGN initiative implemented by the REA. It aims to support the rapid deployment of off-grid electricity solutions to micro, small and medium enterprises (MSMEs) in economic clusters (such as markets, shopping complexes and agricultural/industrial clusters), through private sector developers. In other words, the REA identifies economic hubs within the six geo-political zones in Nigeria and facilitates the deployment of dedicated and efficient electricity supply through private investors to the identified economic hub. One of such economic clusters identified under the EEI is the Ariaria International Market (AIM) in Aba, Abia State. AIM, in South-Eastern Nigeria, is one of the largest markets in West Africa.

Under the EEI, Ariaria Independent Energy Distribution Network Ltd (AIEDN) applied for a licence to distribute electricity in AIM and same was granted one by NERC. EEDC has a licence over the geographical area which includes Abia State where AIM is located. EEDC was of the opinion that its licence was exclusive, and it was an infringement by NERC to issue a licence to AIEDN to distribute electricity within its geographical area.

EEDC therefore challenged NERC’s issuing of AIEDN’s distribution licence by instituting a law suit before the Federal High Court at the Umuahia Judicial Division on 17 May 2018.[1] The main contention before the Court was whether the licence issued to EEDC was exclusive, and as such, NERC was estopped from issuing a licence to AIEDN. The Court resolved this issue through the interpretation of Section 71(6) of the EPSR which provides:

‘Unless expressly indicated in the licence, the grant of a licence shall not hinder or restrict the grant of a licence to another person for a like purpose and in the absence of such an express indication, the licensee shall not claim any exclusivity provided that the commission may allow a licensed activity to be exclusive for all or part of the period of the licence, for a specific purpose for a geographical area or for some combination of the foregoing.’

AIEDN argued before the Court that there was no evidence before the Court to show that the EEDC Distribution licence, which was tendered before the Court as Exhibits S1 and S2, specifically indicated that it was ‘exclusive’. AIEDN further argued that the words in Section 71(6) of the EPSR were plain, simple, clear, and unambiguous and that the Court was duty bound to interpret same by giving to it its plain and literal meaning. That in the absence of it being explicitly stated that the EEDC licence was exclusive, NERC was not hindered from granting a licence to AIEDN and EEDC could not restrict the issuing of a licence to AIEDN by NERC. Moreover, where there was no exclusive licence, EEDC was prevented by law from claiming exclusivity. The Court delivered its judgment on 10 November 2020 and in agreeing that the EEDC licence was not exclusive, held:

‘The raison d’être for including this non-exclusive provision in the EPSR is to accelerate adequate supply of power to the citizenry by the aggressive licensing of other willing operators to reach as many as are not adequately catered for even within the existing licensed framework. Section 32(1)(c) of the EPSR 2005 recognises this necessity. Thus, the grant of Exhibits S1 and S2 to the Plaintiffs (which is EEDC), found to be regular subsisting is a non-exclusive denominated license. I so hold.’

This judgment is indeed a welcome development as it provides clarity with respect to the issuing of distribution licences. It also sets a precedent as this is the first judgment on this issue. For too long, there has been the uninformed assumption that the distribution licences issued to DSCs by NERC were exclusive merely due to the fact that they covered certain geographical areas. Consequently, investors have been wary of making any investments in these geographical areas for fear that they will be seen as infringing on licences already given to DSCs. This judgment gives the much-needed clarity on the implication of Section 71(6) of the EPSR and provides NERC with the judicial backing to now issue licences (in line with the requirements of the law) in geographical areas already covered by DSCs. ​​​​​​​

 

Note

[1] Suit No FHC/UM/CS/51/1: Enugu Electricity Distribution Plc & Anor v Ariaria Market Energy Solutions Ltd, Ariaria Independent Energy Distribution Network, Nigerian Electricity Regulatory Commission & 2 Ors.