21 February 2016, Lagos- On Monday, February 15, 2018, the Senate of the Federal Republic of Nigeria reportedly directed the Federal Ministry of Power, Works and Housing, the National Electricity Regulatory Commission and the Distribution Companies to suspend the implementation of the new electric power tariff.
It would be recalled that in December 2015, NERC introduced the Multi-Year Tariff Order to come into effect on 1 February, 2016. The tariffs are intended to be cost-reflective over a 10-year period. The new regime also removed fixed charges for all classes of electricity consumers in the country.
Since the news broke on Monday, the fundamental question that industry watchers has been asking is whether the parliament has the constitutional or statutory power to direct the suspension of implementation of an order made by a statutory agency.
It is not in doubt that the legislative power of the Federal Republic of Nigeria is vested in the National Assembly. This is by virtue of the provision of section 4(1) of the Constitution. The Constitution goes further to provide that the National Assembly has “power to make laws for the peace, order and good government of the Federation or any part thereof…”
It is in furtherance of this legislative powers that the National Assembly in 2005 enacted the Electric Power Sector Reform Act (the Act). The Act makes provisions for the formation of companies to take over the functions, assets, liabilities and staff of the defunct National Electric Power Authority. The Act also provides the legal framework for development of competitive electricity markets as well as procedure for determination of tariffs.
In order to ensure that the market is properly deregulated without imposing hardship on consumers, the Act empowers the NERC to regulate tariff for transmission, generation, distribution and system operation. In regulating tariff, the National Assembly empowers the NERC to “ensure that the prices charged by licensees are fair to consumers and are sufficient to allow the licensees to finance their activities and to allow for reasonable earnings for efficient operation.”
It was in the exercise of this statutory power that the NERC developed the MYTO 2015 which is now the subject of the Senate’s directives.
Having enacted the law which created the Commission and which empowered the Commission to act in a particular manner, does the National Assembly have the constitutional power to direct such an agency established by law not to exercise its statutory powers?
It is not in dispute that the National Assembly, as custodians of people’s mandate, has oversight responsibilities for the Executive. It is also not in dispute that the National Assembly has the power to direct or cause to be directed an investigation into any matter or thing with respect to which it has power to make laws and the conduct of affairs of any person charged with the responsibility for executing or administering laws enacted by the National Assembly.
However, this power of investigation is not at large. According to section 88(2) of the Constitution, the powers are “exercisable only” for the purpose of enabling the National Assembly to make laws with respect to any matter within its legislative competence and correct any defects in existing laws; and to expose corruption, inefficiency or waste.
This raises the question why the Senate ordered, directed, or advised the NERC to stop the implementation of the new tariff. According to media reports, the Senate mandated its Committee on Employment, Labour and Productivity to hold a public hearing of stakeholders, Ministry of Power, NERC, distribution companies (discos) and others with “the aim of re-examining the matter and be able to arrive at a logical conclusion such that Nigeria workers and the entire Nigeria masses would not be short-changed.”
Assuming that the media report is accurate, does it mean that the Senate, at the end of the public hearing, would assume responsibility for determining the electricity tariff? Or that the Senate would direct the NERC to abdicate its responsibility for adopting methodologies for regulating electricity prices to a Committee of the National Assembly?
It needs to be pointed out that price regime in the electricity sector is not only an issue of law. It is also backed by contractual covenants to which the Government of Nigeria subscribes. Section 76(4) of the Act is very unequivocal in this regard when it provides that: “Notwithstanding subsection (2) of this section, the Commission shall have authority to establish tariff methodologies that reflect the terms and conditions of a contract between licensees or between a licensee and one or more eligible customers.”
Under the agreements signed between Discos and the Government as represented by the Public Bureau of Enterprises, market priced tariffs are fundamental covenants. It would therefore appear that in directing the suspension of electricity tariff, the existence of Government’s contractual obligation was not brought to the attention of the Senate. The order of suspension, therefore, has implication for investors who thrive on certainty of Government’s commitments and sanctity of contracts.
The arguments being canvassed on behalf of electricity consumers with regard to the need to improve power supply is not only plausible, it is also justifiable. However, for there to be improvement in power generation, transmission and distribution, there is a corresponding need to ensure that the product is appropriately priced. Market-priced tariffs will ensure that the resources to invest in power sector are made available to the operators.
It is being argued in some quarters that there ought to be appreciable improvement in power generation before the new tariff is implemented. This appears to be a cyclical postulation. Where is the investment required to overhaul the power sector expected to come from? In effect, supply cannot be improved if the companies do not have the necessary revenues.
In this regard, the Act empowers the NERC to ensure that the applicable tariff provides “…incentives for the continued improvement of the technical and economic efficiency with which the services are provided.” This provision is critical in developing a cost-reflective tariff for the market.
At this juncture, it is pertinent to clarify what is meant by “cost-reflective tariff”. It does not mean that costs are covered, whatever they happen to be. A task of the regulator is to determine what the costs of a reasonably efficient company should be, going forward. The estimates should take account not only of the starting point but also, in Nigeria, the commitments made by the disco investors in the privatisation transactions, most notably on loss reductions. This is what the NERC has done with MYTO 2.
It also needs to be pointed out the fixed charge that was one of the main concerns of Nigerians as it relates to the old tariff (MYTO 2.1) was removed in the MYTO 2015. This gesture shows clearly the thinking of government towards alleviating the burden on paying customer.
In the event that the exercise of statutory power by an agency of Government is considered arbitrary by the parliament, what then are the options open to the parliament? It is the humble opinion of this writer that ordering the agency to suspend the implementation of its order, which has not been found to be procedurally defective by the Judiciary, ought not to be one of the options.
The settled position of law is that if the parliament believes that an agency of government is in default of its statutory mandate, the parliament could pass a law to overrule such agency or to narrow the agency’s jurisdiction. Legislative power of appropriation could also be used to restrict the agency’s funding. In the same way, the Senate could also narrow the agency’s regulatory authority. However, ordering the agency to stop the exercise of its legitimate statutory powers appears to be usurpation of the functions of the judicial arm of government.
Rather than directing the suspension of the implementation of MYTO 2.2, the Senate is respectfully enjoined to direct the Discos to fulfill their contractual covenants under their agreements with the BPE as well as their obligations under the applicable legislative instruments. These include investment in metering to ensure that customers are billed for the electricity they consume. Nigerian consumers will not accept anything less.