Precious Anga
Lagos — Electricity Distribution Companies (DisCos) have criticised a new directive issued by the Nigerian Electricity Regulatory Commission (NERC), warning that it gives the regulator excessive control over the finances of privately owned utilities and could discourage investment in Nigeria’s power sector.
The opposition follows the implementation of Order No. NERC/2026/062, which took effect on July 1, 2026. The directive requires DisCos to establish dedicated Capital Expenditure (CapEx) Provision Accounts into which a significant share of their residual revenues must be paid after settling upstream market obligations and administrative operating expenses.
NERC said the policy is intended to improve financial discipline, strengthen investment in electricity distribution infrastructure and enhance service delivery. However, the distribution companies argued that the order effectively places the commission in charge of how they utilise their earnings.
Under the directive, DisCos without outstanding market debts must transfer 70 per cent of their earned non-administrative operating expenditure into the CapEx Provision Account while retaining only 30 per cent. Operators with outstanding debts are required to remit 25 per cent of their residual revenue to the Nigerian Bulk Electricity Trading Plc (NBET), another 25 per cent to the Market Operator, 35 per cent into the CapEx account, leaving only 15 per cent for their own operations.
One distribution company described the arrangement as an unprecedented intervention in the financial management of private businesses.
“NERC is, in effect, taking control of how DisCos spend their surplus revenue. The order leaves a DisCo with market debts of only 15 per cent of residual revenue for its own operations, and even a DisCo without debts retains only 30 per cent. Everything else is either owed to market participants or locked in a NERC-controlled account,” the utility said.
The companies further objected to the requirement that funds in the CapEx account can only be spent on projects approved under NERC’s Performance Improvement Plan, with regulatory clearance required before contract awards and at every payment stage.
Another utility argued that the directive extends beyond regulation into direct management of privately owned companies.
“This order does not regulate; it manages. By determining where our revenues must be kept and requiring regulatory approval before they can be spent, NERC has moved from oversight into the role of a financial controller. These are decisions that belong to the boards and management of privately owned companies,” the company stated.
The operators also alleged that the directive could discourage fresh investment and create opportunities for undue influence in contract approvals.
“Not only will this order deter investors, it also opens the door for rent-seeking because contractors will naturally seek regulatory approval for projects. This appears more like a power grab than a regulatory intervention,” another DisCo said.
In addition to the new funding arrangement, NERC directed indebted DisCos to conclude reconciliation of outstanding obligations with NBET and the Market Operator within 180 days and submit debt repayment plans for regulatory approval.
The commission defended the order, saying its review of the 2025 electricity market showed that while some distribution companies struggled to meet upstream payment obligations, several generated enough revenue to cover operating costs and recover approved tariff components.
According to NERC, the directive is intended to ensure that available resources are channelled towards network rehabilitation, expansion and improved electricity supply, adding that the order derives its authority from Sections 34(1) and 116(2) of the Electricity Act, 2023.
Despite the commission’s position, industry stakeholders maintained that while regulators have the power to enforce investment obligations and performance standards, dictating how private companies warehouse and spend their revenues exceeds the traditional boundaries of regulation.
They warned that locking away between 70 and 85 per cent of residual revenues could reduce operational flexibility, weaken emergency response capabilities, limit access to commercial financing and ultimately undermine efforts to improve electricity distribution across the country.
