In a move that will undoubtedly shock the Nigerian power sector, the Nigerian Electricity Regulatory Commission (“NERC”) in a notice dated 8 October 2019 (the “Notice”) expressed its intention to cancel licenses issued to the following electricity distribution companies (“Discos”):
1. Abuja Electricity Distribution Company Plc;
2. Benin Electricity Distribution Company Plc;
3. Enugu Electricity Distribution Company Plc;
4. Ikeja Electric Plc;
5. Kaduna Electricity Distribution Company Plc;
6. Kano Electricity Distribution Company Plc;
7. Port Harcourt Electricity Distribution Company Plc; and
8. Yola Electricity Distribution Company Plc.
In the Notice, NERC noted that it had reasonable cause to believe that the listed Discos have breached the provisions of the Electric Power Sector Reform Act 2005 (“EPSRA”), the terms and conditions of their respective distribution licenses and the 2016-2018 Minor Review of Multi Year Tariff Order and the Minimum Remittance Order for the Year 2019.
In the particulars of non-compliance detailed in the Notice, NERC stated that the Discos failed to meet the expected minimum remittance thresholds for the July 2019 billing cycle thereby exposing the Nigerian Electricity Supply Industry to systemic risk that threatens the sustainability of other parts of the value chain and the ability to improve service delivery to customers. NERC also stated that the Discos failed to provide the minimum financial securitisation of their payment obligation to the Nigerian Bulk Electricity Trading Company that would have addressed the compliance failure.
NERC therefore required each identified Discos to show cause in writing within 60 (sixty) days from the date of receipt of the Notice as to why their licenses should not be cancelled by NERC in accordance with Section 74 of the EPSRA.
Section 74 of the EPSRA confers on NERC the statutory power to cancel licences issued by it if, in its opinion, the licensee, among others, has willfully or unreasonably contravened any provision of the EPSRA that is applicable to the licensee; the licensee has failed to comply with any term or condition of the licence, the breach of which is expressly declared to render the licence liable to cancellation; or the financial position of the licensee is such that it is unable to fully and efficiently discharge the duties and obligations imposed by the licence. In cancelling any licence, NERC must ensure compliance with the statutory procedures set out in the EPSRA.
As an alternative to the cancellation of a licence, Section 74 of the EPSRA gives NERC the power to allow the licence to remain in force but subject to such further terms and conditions that it may deem necessary to impose.
Where NERC decides to proceed with the cancellation of a licence, NERC is required to serve a notice of cancellation on the licensee, fixing the date on which the cancellation shall take effect. In addition, NERC may make orders in relation to the undertaking of the licensee. In this regard, NERC may make an order for the sale of the undertaking of the licensee, if the same is necessary for maintaining continuity in the provision of electricity service.
While the move by NERC will be lauded as an example of effective regulation; as noted above, the Notice will undoubtedly shock the Nigerian power sector and may adversely impact any funding arrangements that have been put in place by the affected Discos, including the possibility of the financiers calling an event of default under the relevant financing agreement.
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