Position of MAN on Electricity Act 2023 - By Segun Ajayikadir

INTRODUCTION

Over the past decades, the Nigerian power sector has encountered much turbulence in its electricity value chain due to poor policy enforcement, over-regulation, instability of gas supply and bottlenecks in its transmission network.

These problems have culminated into erratic electricity supply, frequent power outages and persistent collapses of national grid. For many years, the situation has stunted the growth of the economy.

Consequently, access to electricity has remained a hurdle for millions of Nigerians. According to the 2021 report by the International Energy Agency, Nigeria’s 86 million is the largest number of people in the world without access to electricity.

In light of the huge energy deficit occasioned by the age-long challenges in the power sector, newly inaugurated President Bola Ahmed Tinubu has set the ball rolling by signing the Electricity Act 2023 which is meant to be a game changer to address the numerous constraints within the sector.

The assent of the Electricity Act 2023 on the 9th of June is a more crucial milestone for the operations in the power sector…

Sequel to the constitutional amendment signed during the last days of the Buhari-led administration which allows states to generate, transmit and distribute their own electricity.

Highlight of the Electricity Act 2023
In replacement of the Electricity and Power Sector Reforms Act 2005,

The Electricity Act 2023 is aimed at providing an all-inclusive framework which will serve as a guide to the decentralization of the power sector in order to encourage private investment and build a competitive electricity market.

Major high points from the Electricity Act are as outlined:

States, private companies and individuals are now legally permitted to generate, transmit and distribute electricity.

Power generation licensees are obligated to meet renewable energy generation as prescribed by the NERC.

NERC will only surrender regulatory responsibilities to states with established electricity market laws.

Without a license but an undertaking, the Act empowers any private individual or company to generate not more than 1MW in aggregate at a location.

Subject to the determination of the NERC, private individuals or companies can sign an undertaking to distribute electricity of not more than 100 Kilowatts in aggregate at a location.

The Act prohibits interstate or transnational electricity distribution.
Generating companies are mandated to either generate or purchase electricity from renewable sources or procure instruments for generating renewable energy.

The Act empowers legislative committees to carry out an oversight function over the NESI Except for Lagos, Kaduna and Edo with established electricity market laws, electricity in other states will still be regulated by NERC.

IMPLICATION FOR THE MANUFACTURING SECTOR

No doubt, the current power supply is apparently inadequate to satisfy the energy requirements of the manufacturing sector and the entire population.

As the largest energy access deficit in the world, Nigeria’s shortage of electricity supply has been identified as a hindrance to the profitability of manufacturers with an annual economic loss valued at about N10.1 trillion or 2 percent share of the country’s GDP.

The unfavourable situation has positioned the country among the worst countries to do business with a rank of 171 out of 190.

Notwithstanding, the Electricity Act 2023, if well implemented, promises to be a major game changer for the manufacturing sector through some of the following favourable implications:

Reduced Cost of Alternative Energy
Last year, total amount spent by our members on alternative energy surged from N77.21 billion in 2021 to N144.47 billion.

If fully implemented to the letter, the new Electricity Act will see to the drastic fall in the cost of alternative energy incurred by our members and we expect this to boost our profit margin.

Competitive and Lower Electricity Tariff
As an advocacy Association, MAN has always pushed for the need to charge cost-reflective electricity tariff to avoid extortion of our members.

Fortunately, it is of great delight that this new Act fits like a glove as it will help actualize a cost –reflective tariff considering the healthy price competition it will bring between the states and private investors.

Improvement in inflow of Foreign Direct Investment (FDI) and Manufacturing Performance

The country’s epileptic power supply is one of the prominent reasons for the relocation of some of our members.

Provided the new Act adequately addresses the challenges in the power sector, we are quite optimistic that such development will encourage the inflow of manufacturing FDI, boost the performance of the sector and increase the sectoral contribution to the economy.

Increase in IGR, Improved Infrastructure and Less Tax Burden on Manufacturers
Nigeria’s electricity market is one of the biggest in the world because of its massive population and growing demand for energy by households and businesses.

Therefore, the amount of Internally Generated Revenue that each state stands to accrue from the decentralization of the power sector is delightful.

If properly utilized, such huge revenue can bridge the infrastructure deficits in many states without imposing further tax burden on manufacturers.

More Investment in Renewables
The new Act seeks to open greater investment opportunities in renewable energy.

For manufacturers, investment in renewables like solar will not only promote cleaner climatic environment but ensure that energy consumption is cost efficient. The cost savings will directly improve profit margin and promote further manufacturing investments.

Backward Integration and Energy Security
Energy is the most vital input of manufacturers.

The empowerment of private manufacturing companies to generate their own electricity will unleash massive investment in backward integration activities which will no doubt be a major enabler of energy security within the sector.

Stable Power Supply and Proper Planning
According to Dwight Eisenhower, “plans are nothing planning is everything”.

The country’s epileptic power supply often destabilizes daily business plans of many of our small and medium members that cannot afford or maintain alternative sources of energy.

A distorted business plan can be highly detrimental for manufacturing operations. Apart from causing sub-optimal capacity utilization, the amount of wastage can be highly unbearable.

The new Act if fully implemented can re-write the story by stabilizing the supply of electricity to infant manufactures and aid their planning for optimal delivery.

CONCLUSION AND RECOMMENDATION

Indeed, the signing of the Electricity Act 2023 is a major step towards the right direction.

Following the removal of subsidy, this is another reflection of the boldness and commitment of the new administration towards the diversification and decentralization of the power sector.

The empowerment of the State Governments and private investors, the adoption of renewable energy and the reformation of the governance structure of the power sector are capable of driving investment…

Improving electricity access and fostering economic growth. However, the following recommendations must be considered to avoid truncating the potential benefits of the Electricity Act:

Tighten the security infrastructure as no investor wants to do business in a terrorized economy.
Render legal, financial and technical supports to state governments yet to establish electricity market laws.

State governments should partner with existing agencies and operators in the power sector as the costs of building new power distribution networks can render the investment less lucrative.

Streamline NERC and states’ regulations to avoid bottlenecks for multistate investors.
Address the uneven distribution of gas to avoid delay in states’ execution of mega-power projects.

While states concentrate on small confined democratized power supply systems, there is need to have in the pipeline a long-term plan of ensuring operational efficiency of the national grid.

The success of the Act largely rests on its effective implementation. Therefore, new President should appoint a committed and incorruptible Minister of Power that has broad experience of the operations and politicking within the power sector.

The power sector is highly capital-intensive. Therefore, there is need to reduce the lending rate to encourage private investments in min-grids and renewable energy.

Quickly and adequately address the hitches surrounding the fuel subsidy removal by providing transparent palliative measures and socio-economic infrastructure that directly and immediately mitigate its untold hardship on businesses and the masses.