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Quest For Corporate Governance Standard In Nigeria’s Electricity Sector

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Stakeholders in the Nigerian electricity supply industry (NESI) have submitted that for the power sector to thrive, there must be structures of governance consisting of observed rules and agreements for optimum performance, writes FESTUS OKOROMADU

The concept of corporate governance structure in Nigeria’s Electricity Supply Industry (NESI) is not new as experts believe that it has somewhat evolved over the years. The argument however is that it is currently in a state where there is a lack of transparency, accountability and coordination among key stakeholders as opposed to the envisaged cohesive structure during the privatisation era.

It is further argued that such a cohesive structure would ensure fairness and compensation for all players (including the electricity consumers in the sector. Advocates of this view said this objective can only be achieved from proper performance evaluation and governance, through better enforcement of the grid code and market rules.

They stressed that despite the constitution of the Grid Code and the Market Rules, which provide a guide to ensure coordination in the market, some players continually default without any penalties.

The Independent Regulator

Industry stakeholders who converged at the Nextier Power Dialogue, a monthly power sector discussion forum, recently noted that Nigerian Electricity Regulatory Commission (NERC), the agency saddled with the responsibility of enforcing compliance in the sector since its privatisation is perceived to be performing below expectations.

They observed that such perception is supported by delays in reviews of performance reports of value chain operators, including the transmission company expansion plan, and performance reports of the generation and distribution companies.

In addition, they expressed worries over the role of the Federal Ministry of Power stressing that the ministry seemed satisfied in their commitment with the policy roadmap objective of achieving incremental power through the approval of new generation plants, despite the apparent evacuation and distribution bottlenecks in the value chain.

According to the forum organisers, these issues necessitated a pertinent dialogue on the roles of the governing bodies in the entire sector, and the efficiency of the market rules and operating codes.

To address these concerns, the forum with support from the John D. and Catherine T. MacArthur Foundation, convened a dialogue session with the theme : “Nigeria’s Power Sector: Coordination and Sector Governance II,” to discuss existing corporate governance structure and who is responsible for fostering relationships and compliance in the sector among others.

 

The Corporate Governance Structure

Pre-privatisation Era

According to Engr. Simeon Atakulu, Energy Consultant, World Bank Group, a panelist at the forum, establishing a system of transparency and accountability across key stakeholders forms the very fiber of proper governance, especially in a corporate industry comprising various players.

He noted that in the pre-privatisation era, the power sector existed as an entity which was run solely by the federal government, stressing that the structure then allowed for easier operational governance.

“During this time, the Electricity Corporation of Nigeria (ECN) was responsible for the creation of the national energy policies on which the sector was run. The ministry of power on the other hand was endowed with the responsibility of crystalising and implementing these policies,” he explained.

Privatisation and Current Era

Participants agreed that the unbundling of the Power Holding Company of Nigeria (PHCN) into 18 successor companies was a signal of the sector’s willingness to evolve into a commercial market. They also noted that the privatisation birthed other third-party stakeholders including the Bureau of Public Enterprise (BPE), and the Nigeria Bulk Electricity Trader, inter alia, which each have specific roles in the Nigerian electricity supply industry.

They further noted that the new structure necessitated the introduction of NERC to act as an umpire in the newly-commercialised industry, stressing that the pre-arranged set-up may have had a negative influence on its current performance as a commission.

Stakeholders submitted that the current structure of NERC which has seven commissioners, responsible for the direction of different aspects of its regulations tends to water down transparency and accountability within the sector, as the commission seem to govern the sector discreetly, rather than holistically.

Regarding appointment of its commissioners, participants emphasised that the regulatory body needs to reconsider the recruitment process to ensure that experienced personnel are engaged in these positions. This, according to them would eliminate the preliminary process of understudying the market in the Nigerian context, before actual engagement with issues and deliverables of the job.

Experts also stated that transiting from government – driven sector to a privately-run market, it is expected that the government allows for a private regulatory structure to prevail, instead of the current structure where the sector appears to be suffering from multiplicity of governors with interfering roles.

 

Corporate Governance Outlook

Panelists at the forum agreed that the goal of governance is to ensure that the customer has the best quality of service at affordable rates. Therefore, the primary role of the regulator is to balance all the constituent areas of interest, across the value chain, in the delivery of electricity to the customer. This objective can only be achieved through proper benchmarking and governance.

However, it was generally observed that the sector has failed to define the kind of market it wants to run. Having transformed from a government driven sector to a privately-run market, it is expected that the government allows the private regulatory structure to prevail, stakeholders emphasised.

 

Market Compliance and Performance Evaluation

Moderator Desmond Ogba, Partner, Finance & Projects Practice Groups, Templars, explained that running a regulated market implies the introduction of rules which the participating entities must adhere to. While stressing that the Grid Code and the Market Rules were structures that set the direction of the market and its participants. He stated that the regulator was responsible for the licensing of these expectations, the regulator can evaluate the performance of these licensed market participants.

However participants noted that the challenge arises when the regulator is inefficient in its mandate to effectively monitor the activities and performances of the market operators, as is the case of the Nigerian Electricity Regulatory Commission (NERC).

It was observed that though NERC has a regulation on reporting obligations of licensees which allows it to obtain market intelligence (in real time), to enable proper performance benchmarking. But to be truly an independent regulator, it should not rely on licensees for data on the market which it governs.

 

Power Sector Governance in ECOWAS Member Counties

The ECOWAS Regional Electricity Regulatory Authority (ERERA), has a mechanism that allows for regular stakeholder consultations. To achieve this, ERERA established intermediary committees for regulators and operators of member states. It gives the stakeholders a sense of ownership and stimulates compliance, and confidence in the regulator among participating parties.

Ifeyinwa Ikeonu, Principal Consultant, Emtech Energy Services Ltd. / Ag. chairperson of the  ECOWAS Regional Electricity Regulatory Authority (ERERA) (2015 – 2016), who spoke on the issue adviced NERC adopt this methodology to proliferate adherence to rules by market players across the sector.

To deploy this strategy, a steering committee consisting industry experts, which is immune to any changes in political/government administration was advocated. Its role would be to assist the facilitation of the major goals of the sector. This strategy has proved to be highly- efficient both within and beyond the boundaries of the Nigerian power sector. For instance, the Ghana Integrated Power Sector Master Plan, an initiative of the Energy Commission, created a steering committee to facilitate the three-year program. The same approach was used in the Nigerian power sector in the administration of President Jonathan, when the presidential task force on power, empowered by the presidency, helped with the facilitation of the power sector reform. Considering that the Nigerian electricity market is still transitioning, such interventions may be necessary to achieve proper coordination and governance, as well as the appraisal of the bodies/agencies responsible for sector governance, the forum suggested.

Conclusion

Experts who convened at the forum emphasised that for any economy-driving market to thrive, there must be systems of governance consisting of adhered rules and agreements for optimum performance; the Nigerian electricity supply industry value chain is no exception. These systems are operational in similar industries in Nigeria, including the telecommunications and banking sectors, therefore, the need for a vibrant umpire in the power sector cannot be over-emphasized.

They noted that the Nigerian electricity market is still very much in its early stages, and it would transform at several occasions before it stabilises. They added that was in accordance with the government’s policy roadmap objective to achieve incremental, stable, and finally, uninterrupted power supply. Thus, it is required that the governing body should be dynamic and in coordination with the strategic plan, in order to adjust its regulations accordingly.

Recommendations

Some of the key recommendations and action points were aimed at translating what was discussed in the dialogue into policies, strategies and programmes. These included that the sector is at a critical state that requires the introduction of an executive council made up of seasoned industry experts, to strategically drive the market through proper monitoring and evaluation. Such a council can only exist through strong political will to allow the enforcement of proper governance throughout the entire sector.

Again, a committee consisting of key stakeholder representatives should be established as an effort to elicit dialogue among all the parties, around the issues affecting the market, and how to improve coordination.

It also recommended that the Nigerian Electricity Regulatory Commission (NERC) should ensure transparency in the recruitment of its commissioners; perhaps inviting qualified and experienced candidates to apply for the roles, rather than geo-political appointments.

Accordingly, it advised that the regulator needs to perform regulation impact assessments periodically to review and evaluate the efficiency of preset policies.

While it was stated that the ministry of power needs to understand its role in the industry, to avoid interfering with the regulatory commission, it added that consumers must come together through organised advocacy groups and be more involved in the workings of the market and the sector at large.

 

 

 

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