Regulatory improvements in Nigerian electricity market are aimed at improving the performance of the electricity supply industry

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The Nigerian Electricity Regulatory Commission (NERC) will grant new electricity tariffs to electricity distribution companies, provided they submit Performance Improvement Plans (PIPs). Such plans will be approved by this commission, which subsequently will strictly monitor their implementation. Through these plans, all stakeholders in the sector will be responsible for service level efficiency.
It is assumed that PIP submitted by electricity distribution companies will be based on the concept of the Electric Power Sector Reform Act, existing NERC rules and regulations and the Nigerian Power Sector Recovery Program (PSRP).
These plans are planned for the 2020-2024 tariff period. taking into account the executive contracts, concluded between the main investors and the Bureau of State Enterprises of Nigeria regarding reserves for capital and operating expenses in the remaining period of validity.
These plans, after they are approved by the regulatory commission, will form the basis for determining priorities and monitoring initiatives for capital investments by electricity distribution companies with revenue adjustments for unrealized projects. In the future revision of tariffs, priority will be to the costs of electricity distribution companies and will also reflect changes in the operating environment that have occurred since the last revision of tariffs. Thus, these plans will be the basis for determining performance standards for the next five-year tariff period, with emphasis on improving throughput and electricity delivery by electricity distribution companies, reducing total technical and business losses and an overall improvement in providing services to customers.
The requirements of the Nigerian Electricity Regulatory Commission are developed in accordance with the Nigerian Energy Sector Recovery Program, initiated by the World Bank. One of the overarching objectives of this program is the elimination of tariff shortfalls and the enforcement of market obligations. Therefore, the requirement of the regulatory commission is that revenues cover the investment and operating costs of providing electrical services to consumers, which should ensure an increase in the efficiency of the industry.
Under this program, the Commission will implement a more robust tariff review process aimed at increasing the productivity of the electricity industry in Nigeria. This process will include consideration of payout opportunities for capital expenditures in the Multi-Year Tariff Order (MYTO) to implement productivity plans.
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The need to solve this problem is extremely important for the development of the industry and the economy of Nigeria as a whole. Every day, this sector is losing 3.8 million euros. To overcome this problem, Nigeria helps the WB, as mentioned above, and also the EU.
In June 2019, a second workshop was held in Abuja on the preparation of Performance Improvement Plans of Nigerian electricity distribution companies. At this seminar, the Head of Trade and Economic Section of the EU delegation, Filippo Amato, said that in recent years, the EU had scaled up its financial support for Nigeria’s power sector, allocating more than 156.3 million euros committed indifferent financing instruments from traditional grants to blended funding (156.3 million euros = 53.9 billion naira - the national currency of Nigeria, 1 euro = 344.88 naira).
As a result, various technical assistance and infrastructure development projects were funded cutting across several areas both on and off the grid in Nigeria
This seminar was prepared by the French Development Agency, funded by the EU in the amount of 2.3 million euros, implemented by the Association of Nigerian Electricity Distributors with technical support from AF Mercados (a consulting company operating in the energy sector).
The first workshop on the Performance Improvement Plans for Energy Distribution Companies in Nigeria was held in March 2018. F. Amato stressed that the first workshop could not help completely overcome the problems, and the efficiency of the Nigerian electricity supply industry is still deteriorating, and the liquidity crisis is keeping the system under stress.
The EU is concerned that despite efforts to overcome the key obstacles to the development of the sector, industry losses are still growing, this sector is losing 3.8 million euros per day. Currently, the average operating capacity of the grid hovers ranges from approximately 4,500 MW to 5,500 MW and cannot meet the needs of a growing population and industrial usere.
F. Amato said that Nigeria still relies too much on off-grid diesel generators. They are not expensive, but unstable from a climate change point of view. According to him, under the contract, electricity distributors should play a key role in ensuring the efficient operation of the distribution network. They can achieve this by reducing cumulative technical and commercial losses. Thus, they will be able to effectively use the available electricity to serve consumers. This is the only right step that Nigeria’s electricity distribution companies should take to get out of the liquidity crisis that this sector is suffering from.
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The need for high-capacity electricity supply in Nigeria is confirmed by increasing production volumes. According to UNCTAD, in the production of industry (including mining, manufacturing, utilities, construction), its value in Nigeria from 2000 to 2017 increased more than 4 times from 21 to 84 billion US dollars, the maximum figure was in 2014 - $ 141 billion.
Also unsatisfactory for Nigeria is the indicator “Getting electricity”, which is included in the aggregated WB index Ease of Doing Business: by this indicator in 2019 Nigeria ranks 171 in the rating of 190 countries.