A Review of the Nigerian Energy Industry

How court orders threaten power reforms

18 August 2015, Abuja – In a recent letter to the Chief Judge of the Federal High Court, Justice Ibrahim Auta, the Nigerian Electricity Regulatory Commission posited that increasing court orders against electricity regulations could hurt Nigeria’s electricity reforms. Chineme Okafor reports


A Federal High Court in Lagos earlier this year, stopped the Nigerian Electricity Regulatory Commission (NERC) from implementing the new electricity tariff it had primed to roll out from June 1, 2015 as part of the terminal review of its Multi Year Tariff Order (MYTO).

The trial judge, Justice Mohammed Idris, while ruling on an ex-parte application filed by a Lagos lawyer, Toluwani Adebiyi, restrained NERC and the 11 electricity distribution companies (Discos) in the country’s electricity market from going ahead with the tariff rollout and possible increment in electricity tariff pending the hearing and determination of the substantive suit.

At the resumed hearing in July, the court subsequently reaffirmed its earlier ruling to stop the hike in electricity tariff by either NERC or the Discos.

Idris struck out NERC’s preliminary objection on the ground that it did not comply with Order 29, Rule 4 of the Federal High Court Civil Procedure Rules.

The Order 29, Rule 4 provides that objection must be filed within 21 days after the suit was served. The judge said: “By my records, the NERC’s objection was filed outside the 21 days prescribed by the rules.”
“In the circumstances, I hold that the preliminary objection was filed in breach of the rules of court. “The objection filed is, therefore, in my view incompetent and is hereby struck out,” the judge ruled.

The plaintiff lawyer had in the suit sought among others, a perpetual injunction restraining NERC from implementing any upward review of electricity tariff without significant improvement in power supply.
The Lagos lawyer also prayed the court for an order restraining the NERC from foisting compulsory service charge on pre-paid meters. He noted that consumers should not be made to pay a flat rate for service not rendered or energy not consumed by them.

He further prayed the court to order that the service charge levied on pre-paid meters by Discos should not to be enforced until there is ‘visible, efficient and reliable power supply’ as applicable in foreign countries where he said the idea of service charge was borrowed by Nigeria.

Adebiyi, had also asked the court to mandate NERC to generate more electricity to meet the country’s power needs, and to develop a multiple long-term financing approach sourced from financial institutions to finance the power sector.
He also sought an order of the court to mandate NERC to make available to all Nigerians within two years, prepaid meters as a way of stopping estimated electricity billing to consumers.

But NERC filed an objection to the suit and argued that the motion ex-parte was incompetent and that the court lacked jurisdiction to grant it.

The commission’s counsel, George Uwechue urged the court to discharge the restraining order, contending that the motion ex-parte on which basis the restraining order was made, was an abuse of court process.

Uwechue, who argued that the plaintiff’s failure to file the ex-parte application along with a motion on notice was fatal to the case, added that Adebiyi lacked the locus standi to file the suit.

His application challenging the motion ex-parte was however overruled by Justice Idris on the ground that it failed to comply with Order 26, Rule 11 of the court.

Accordingly, this rule states that where a court makes an order based on a motion ex-parte, any person affected by it may apply to vary or discharge it within seven days.
Idris in his ruling noted that the order was made on May 28 and served on NERC on June 3. According to the judge, the application to discharge the order was only filed on July 6 outside the seven days period prescribed by the rules.”

“It is clear that this second application was also filed in breach of the rules of court and is also incompetent. Both applications-the preliminary objection and motion to set aside are all hereby declared incompetent and are hereby struck out.
“The order of court maintaining status quo remains until further order is made,” the judge ruled, even as he adjourned the case till September 23 for hearing on the substantive suit.
In making the declaration, the court thus restrained NERC from implementing the new tariff, which was scheduled to take effect from June 1, as well as, the Discos from collecting from the sector, revenues as approved by the NERC in the reviewed MYTO framework until the substantive suit is heard and determined.

Contrary view of NERC

Not minding the level of euphoria the court ruling had elicited amongst electricity consumers in the country, NERC has viewed the court’s decision on its regulatory role, a dangerous challenge.
The court by law was set up as an independent regulator to impartially manage the operations of the country’s electricity sector, vis-à-vis, balancing of varied interests.

The commission has in this regard written to the Chief Judge of the federal high court, Justice Ibrahim Auta, asking for his immediate intervention in the development.

The commission, in the letter, has alerted Auta of the imminent threat that such court injunctions against its regulations pose to Nigeria’s power sector reforms programme.

NERC Chairman, Dr. Sam Amadi warned that such court injunctions that were sort and obtained by some electricity consumers in the country to restrain the Discos from charging validly approved tariffs could derail the progress of the power sector.

Amadi explained amongst others that, “the present instances where distribution companies are damned by interim injunctions restraining them from charging validly approved tariffs from consumers without a valid case being laid before the courts and without NERC being asked to explain its exercise of regulatory powers could destroy investors’ confidence and reverse the gains we have made through the creation of a private sector-led electricity market.”

He also told Auta that the increasing spate of interim court injunctions against NERC in some cases and the Discos constitute a subtle threat that can undermine the success of the power sector reform, adding that the injunctions are reckless, inconsiderate and do not merit such interventions from the court.

Amadi described such actions as stopping the Discos from doing their jobs. He said thus: “Some of these interim injunctions have restrained these companies from fulfilling their statutory responsibility of providing electricity to customers or collecting duly approved tariffs from some categories of customers until the determination of the suit.”
He cited several of such court injunctions and explained that while the commission is not challenging the powers and competence of the court to grant such injunctive reliefs, it would however appear that their issuance was not well considered.

Seeking a way out
As a way out of the mix-up and to protect the interests of stakeholders in the market; consumers, operators and government, Amadi requested Auta to consider a possible judicial policy of restraint and deference to protect the right of electricity consumers to justice without undermining the viability of the nascent electricity market.

Stating that such restraint will however be without prejudice to the jurisdiction of the federal high court to entertain complaints from all classes of citizens and provide effective remedies for proven cases of violation of rights, entitlements and liberties of citizen as regards electricity usage, the commission’s chair posited that the practice and legality of utility regulation should be embraced as Nigeria seeks to grow a market based economy.

“We have been working hard to transit the electricity market from a public subsidised monopoly which was inefficient to a market driven one in which competition will eventually improve quality and quantity of electricity supplied as well as reduce price in the long term.”

“However, for the desired policy objective to be realised, the legal framework for a competitive market must be firmly established. The tariff structure and the other regulation from NERC, an independent regulator established as part of the process, are aimed at the realisation of those policy objectives,” he stated.

He noted thus that simple administrative law requires deference by courts to regulators with specialised knowledge, adding that NERC was set up through a legislative statue to help the government achieve such specific policy objective.

Shedding some light on the regulatory process of setting tariffs, Amadi said that the tenure of investment in electricity projects underlines the principle of good tariff, which provides certainty and stable cost recovery for investors.

“It is in this wise that the MYTO, which is issued pursuant to the methodology, lays out a clear tariff path for five years and clearly provides for biannual review of macroeconomic variables like inflation, exchange rates, cost of gas and changes in generation capacity,” he explained,” he explained.

While asking for Auta’s support to protect the integrity of the quasi-legislative and quasi-judicial power of the regulator as provided by the law, he said that such court cases against the regulator and Discos may trigger a rash of disruptive and distracting actions against the market based sector.
He also requested Auta to consider assigning specified judges for the determination of all cases relating to electricity tariff as a way of building a clear and consistent Nigerian jurisprudence on the power sector.

According to him, “We clearly understand that utility regulation, especially electricity regulation, is new to Nigeria. Therefore, we have not developed a robust judicial opinion and corpus of legal theory about the extent of judicial review of regulatory actions and the degree of due deference that courts should accord regulatory agencies.

“Electricity consumers have gone to court to collect injunctions restraining distribution companies in Nigeria from carrying on their regulated legitimate businesses.”

“This is a dangerous development because it violates the principle of deference and could unwittingly undermine the success of the power sector reform. There is no more unstable investment environment for electricity supply than one where consumers can sneak behind operators to obtain injunctions that protect them from paying duly approved rates.”

– This Day

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