New Third-Party Collection Rules Demand Upfront Payment To Boost Electricity Sector Liquidity

The Nigerian Electricity Regulatory Commission (NERC) has introduced new third-party collection regulations requiring upfront payment by collection service providers to boost liquidity in the electricity sector.

The new regulation, titled “Guidelines on Registration and Engagement of Third-Party Collection Service Providers by DisCos, 2025, was signed by Vice Chairman Musiliu O. Oseni.

It took effect on November 1, 2025, with all existing contracts required to comply fully by December 31, 2025.

Under the guidelines all collection contracts must be prefunded, meaning that providers must remit revenue upfront before collecting customer payments. This shift is designed to ensure prompt availability of funds, enhancing cash flow and financial transparency across electricity distribution companies (DisCos).

The regulations also stipulate that only Central Bank of Nigeria (CBN)-licensed collection providers are permitted to operate, and all contracts must be approved and registered with the NERC. Payments from high-revenue Maximum Demand (MD) customers must be made directly to DisCos’ dedicated accounts with no commissions paid to third parties, further securing revenue streams. Additionally, NERC mandates migration to efficient digital and automated payment channels to reduce leakages and improve collection efficiency. Failure to comply attracts sanctions, including fines and contract suspensions, signalling a strong regulatory stance to strengthen sector liquidity and accountability

According to NERC, the new regulation aims to tighten revenue assurance, eliminate leakages, and enhance financial transparency across the sector.

Under the new regime, DisCos are barred from engaging any Collection Service Provider (CSP) that does not possess the appropriate licence or permit from the CBN.

Additionally, NERC has mandated that every third-party collection contract must be submitted to the Commission for approval and registration before a provider can commence operations.

NERC directed all DisCos to migrate to more efficient and cost-effective collection methods, hinting at digital channels, automated collections, and standardised financial switching methods as preferred alternatives.

It also introduced a major shift in contract structuring, which requires that all collection contracts must be prefunded.

This means that CSPs must remit revenue up-front before collecting payments, except in the case of providers offering banking and switching services, who will instead operate on a T+1 settlement cycle.

NERC also mandated that all funds arising from prefunded collection services shall be remitted through dedicated accounts maintained solely for each DisCo.

It maintained that every contract must also clearly state the transaction account details, with any additions or revisions to be immediately filed with the Commission.

It directed that engagement agreements must contain clear and measurable performance indicators, which DisCos are required to evaluate regularly to ensure compliance and efficiency.

One of the most sweeping clauses is the prohibition of third-party involvement in collections from Maximum Demand (MD) customers, who contribute some of the highest revenue across the electricity market.

NERC, however, ordered that collections from MD customers must not be contracted to agents.

“Payments must be made directly to DisCo-dedicated bank accounts. No commission shall be paid to any CSP for MD customer collections,’’ the regulation stated.

The commission stated that DisCos and CSPs that fail to comply risk sanctions under NERC’s enforcement powers, including suspension of contracts and financial penalties.