A Review of the Nigerian Energy Industry

Oil & People: Why Nigeria needs antitrust law in electricity

Afren Ebok platform workers20 August 2013, Lagos – Why should there be any opposition to the enactment of a law with strong powers of enforcement to protect consumers from exploitation by electricity companies, and other purveyors of the Nigerian consumer?

With the fixed charge – tariff that makes it mandatory for power consumers to pay between N700 – N800 monthly regardless of whether the consumer makes use of electricity for the period or not, calls for a holistic examination of what liberalisation of the power sector have done to consumers’ fairness.

This article is not about increased tariff, since I am not oblivious to the underlying reasons behind the increases. It was a known fact that before the tariff increase, electricity was sold to consumers below the short-run and long-run marginal cost of production; and even the most rudimentary understanding of basic economics and common sense dictates that it was not a sustainable business model. But the rationale behind the “fixed charge” levied against the consumers under the name of pre-paid meters is a different issue altogether.

There is a potential for market manipulation and other abuses, when power regulation is devoid of antitrust regulation. Leaving full economic regulatory power to the Nigeria Electricity Regulatory Commission, NERC, will not serve this country well, particularly at this stage of the reform process. Traditionally, economic regulation of energy industries can be done from two basic sources, (a) direct regulation through administrative agencies – NERC, and (b) indirect regulation under antitrust laws. These two forms of regulation are geared toward protecting the public interest by achieving the most efficient allocation of resources possible.

Administrative or sector specific regulation is believed to be successful in dealing with general competition issue. However, experiences have shown that sector-specific regulations cannot meet all the challenges inherent in a liberalized industry. When sectoral regulators have to apply wider standards than competition standards, they may contemplate that some of the interests they must safeguard require that competition be assuaged.

For example, the public interest standard may clash with the efficiency standard and lead a sectoral regulator to protect non efficient competitors to favor creating an investment friendly environment. However, it is not necessarily true that overbearing standards will clash with competition standards. The promotion of competition and efficiency is a worthwhile goal in itself and an important part of a broader public interest standard.

There may be other circumstances in which the lack of a proper regulatory framework may limit the effectiveness of competition law enforcement. Take for example, where consumers have very little information about their demand or the quality of the products or services offered them. In such cases sectoral regulation without competition law enforcement may lead to artificially increasing market power and to consumers being offered less than optimal quality service or products.

Antitrust laws have played a small role in the evolution of the energy industry. The basic purpose of the antitrust laws is to protect competition from predatory business practices by ensuring that fair competition exists in an open market economy.   Thereby increase the welfare of, and ensure fairness to consumers. Antitrust laws are applied to a wide range of questionable business activities, including but not limited to price related issues. There appear to be growing convergence that antitrust rules also remain essential in dealing with a range of issues of economic regulation not addressed by the sector-specific rules and to fill any gaps in sector-specific regulatory regimes.

Suffice it to state that sectoral regulations and competition law enforcement may be complementary even if they have different goals and they may sometimes contradict one another even when they share the same goal. Consequently, we need a law that would give the government greater power to enforce consumer welfare and anti-competition violation. Also, because of the importance of electricity to all segments of the economy, there is a strong need to ensure that this sector’s service is reliable and just.

– Felix Ayanruoh, Vanguard

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