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The NERC declared that the Nigerian Electricity Supply Industry (NESI) has met all requirements for the Transition Electricity Market (TEM) to commence. This ushers in a new dawn in the NESI whereby participants in the market are largely in control of their contractual arrangements. It is a harbinger of a competitive electricity market where market forces will determine key issues and players.

The NERC realized in declaring the TEM that contracts cannot fully prevail in all circumstances regarding the market and gave exceptions to the Federal Government of Nigeria (FGN) NIPP assets, whose privatization is not complete and areas where the participants are yet to enter into contracts. In all other arrangements in the NESI, contracts of the participants will determine their relationships as long as such contracts and participants are in line with the Market Rules, the Grid Code and relevant laws. Is this real progress that we should welcome in the electricity sector or is the NERC simply “checking" boxes?

The declaration of TEM should take us closer to having better electricity in Nigeria. This is because the NESI participants should be free to agree beneficial terms without much regulatory interference. The Market Rules simply require the participants to register their entities and contracts with the Market Operator. Although the Electric Sector Reform Act requires all licensees to adhere to MYTO tariffs fixed for their licensed activities, the MYTO permits licenses to open their books where the MYTO tariffs do not completely cover their costs. Also the NERC’s recent permit to Distribution Companies “Discos” to arrive at prices after consultation with consumers and approval from the NERC, seems to encourage the TEM’s freedom to contract principle.

Where however the foundational issues of gas availability and electricity evacuation are not simultaneously dealt with as the market deepens, the benefits of TEM will be lost. This is because most licensed Generating Companies (Gencos) look to develop gas power plants and with gas being largely unavailable, huge gas pipeline construction costs, and transmission losses, inactivity in the market will remain regardless of “the reign of contracts”. The benefits of TEM declaration nevertheless should be felt in some measures. For example more indigenous participation in the sector, as we can see in the responses to bids requested by the Discos for embedded electricity supply. The NERC’s aggressive approach to ensuring market activity was most welcome when it encouraged consumers to question the operators. The Discos should start getting used to operating transparently in giving consumers electricity, even in these “scarcity of electricity” times.

                                                                       

Tonbofa Ashimi

Edward Ekiyor and Co. is a Nigerian law firm that has developed expertise in the Energy and Natural Resources Sectors, Finance, Corporate and Commercial matters and in resolving disputes.

 

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