The Electric Power Sector Reform Act 2005 established the Nigerian Electricity Regulatory Commission (NERC) with regulatory powers in the electricity industry. The powers of the NERC are tariff setting and regulation, supervision of the market rules, performance monitoring and generally overseeing the orderly transformation of the power sector to a more competitive market.
Nigerian Electrical Regulation Commission (NERC) regulates activities in the Nigerian Electricity Supply Industry (NESI) in Nigeria, as stipulated by the Electric Power Sector Reform Act (EPSRA) 2005. Prospective licence applicants must carefully study the provisions of the EPSRA or consult a power lawyer before making an application to NERC.
For a company to generate, transmit or distribute power for sale in Nigeria, it must apply for a Licence. The Act prohibits the generation, transmission, system operation, distribution and trading in electricity without a licence and it is an offence to do so.
The licence for generation of power in Nigeria is governed by Nigerian Electricity Regulatory Commission (NERC) Regulation for Procurement of Generation Capacity 2014.
The NERC application for Licences details the manner and form in which application for licences are made, the procedures, information and documentation required to support the licences applications, the process of modification, amendment, renewal, withdrawal, cancellation and extension of the term of licences which will be discussed as we proceed.
The regulatory authorities in the electrical sector are:
- The Federal Ministry of Power
- The Nigerian Electrical Regulatory Commission
- Nigerian Bulk Energy Trading Company Plc
- Nigerian Electricity Liability Management company
The businesses or activities of electricity (power) in the Nigerian electricity sector include the following:
- Electricity Generation
- Electricity Transmission
- Electricity System Operation
- Electricity Distribution and
- Trading in Electricity
Types of Licences in the Electricity Sector
- Generation Licence: this type of licence grants the holder the right to generate electricity and connect to the national grid for dispatch. The holder enters into a connection agreement with the Transmission Company of Nigeria (TCN), for connection, evacuation and sending of power to the national grid. It is granted for a period of 10 years for grid-connected operations and 1 year period for off-grid connections. Example of a power generation company in Nigeria is Transcorp Power Limited
- Embedded Generation: this licence grants the licensee the right means of generating of electricity and evacuation that is directly connected through an existing distribution facility system or through an independent distribution licensee. The embedded generator licensee engages and negotiates relevant power purchase agreements with an electricity distribution licensee (DisCo), or with an independent distribution company.
- Transmission Licence: This Licence granted by the Nigerian Electricity Regulatory Commission (NERC) is required for the construction, ownership and operation of transmission facilities. The only entity that qualifies for this licence is the Transmission Company of Nigeria (TCN), which is also responsible for obtaining the systems operator licence. It is the only entity licensed to transmit electricity in Nigeria. The licence granted is valid for 10 years subject to renewal by the commission.
- Distribution Licence: this distribution licence authorises the holder to distribute electricity from grid supply points to the point of delivery to consumers or eligible consumers. The licence granted to the holder is valid for a period of 10 years, which can also be renewed for a further term of five (5) years. The Health and Safety Code 2014 also imposes legal obligations on the distribution companies and employers to ensure that a safe work environment is provided. Example of a power distribution company is Eko Electrical Distribution Company at Marina Lagos.
- Trading Licence: this licence grants to the holder the authority to engage in the purchase, resale of electrical power and ancillary services from independent power producers and generation companies. All contracts for the purchase of electrical power and ancillary services by the holder of the trading licence must be concluded in an open, transparent and competitive manner and in accordance with the procedure established by the NERC. This licence is granted for a period of 10 years subject to renewal.
Prospective applicants should carry out a feasibility study to check the industry and market conditions, and ensure they can meet the licences conditions and statutory obligations if granted a licence.
Application processes for NERC Licences are as follows:
- The prospective applicant that requires a licence to carry on business in the electricity sector must make an application in writing by filling out the Application form for the issuance of a licence by the commission under the EPSR Act 2005. Note that the forms are available at the commission.
- The completed form should be delivered with the fees to the commission at its headquarters in Abuja. The form should be signed and dated by the authorised representative of the applicant company.
- The application form is submitted in two paper copies alongside an electronic copy in Microsoft Software Format contained in a CD-Rom
- The applicant upon submission of the application form must pay a non-refundable fee as fixed by the commission for the processing of the application.
- The applicant who owns or acquires more than ten (10) per cent of the shares of a body corporate which has applied for another licence issued by the commission must disclose such interest to the commission
- An applicant must provide all the information on the application form, as an application will not be reviewed until all the relevant documents are provided.
- The commission on receipt of the application notes the date of the application and sends to the applicant an acknowledgement stating the date of receipt.
- The commission upon reviewing the application may require the applicant to furnish any additional information, where the commission has notified the applicant within 30 days of the inadequacy of the documents and information.
- Within 30 days of receiving the commission’s acknowledgement that the application has been duly made, the applicant can cause a notice of the application to be published on a newspaper circulating in the proposed area of operation and a separate newspaper with national circulation. The newspaper publication is to be provided to the commission, the notice on the newspaper shall stipulate that any objections in connection to the application shall be made to the commission 21 days from the date of publication.
- These documents are to be submitted with the application form
- The identity of the applicant
- Nature and scope of the operation for the licence applied for
- Sufficient information to enable the commission to make a full assessment of the suitability of the applicant to hold the licence
- Information to satisfy the commission that the applicant can meet the relevant licence conditions and has the technical and financial capability to comply with the terms and condition of the licence.
How does NERC consider an application?
- When the application is published in the newspaper, an interested party can lodge an objection with the commission within 21 days from the publication of the mandatory public notice of application.
- No licence shall be issued until all objections received by the commission have been considered.
- Any petition in respect to an application will be made available to the applicant by the commission for a reply.
- The commission may proceed to place the application for hearing on the basis of an objection raised on the application.
- Hearing notice/ inquiry will be given to the applicant, the person who raised the objection and other authority as the commission deems. The conduct of the hearing will be concluded within 30 days.
- The commission has the right to refuse hearing/ inquiry if it is of the opinion that the objection raised is frivolous.
- The findings of the commission on the hearing/inquiry will be in writing.
When can it be said that the commission has approved the application? The commission grants the appropriate licence to the applicant if satisfied that:
- The applicant’s documents are in order
- Due consideration has been taken on all objections raised
- The applicant is likely to comply with the provisions of the ESPR Act
- Where the commission is satisfied that the applicant is likely to comply with the code of conduct, standards, regulations and licence terms
- And lastly, the commission is satisfied that the grant of licence is in the public interest.
- When all these are met, the commission processes an application and notifies the applicant of its decision within six (6) months of due acknowledgement.
- Finally, the commission grants licence upon payment of the licence fee by the applicant
Refusal of NERC Licence Application
The application to the commission for Licence can be refused on these conditions:
- Where the applicant failed to meet the required criteria
- The information supplied by the applicant does not meet one or more objective criteria
- Where the commission finds the report submitted by the applicant to be false and misleading, and
- Where the applicant also failed to provide additional information when requested within the required time.
It should be noted that where the commission seeks to refuse the application, it shall notify the applicant in writing giving its reasons for the refusal and give the applicant an opportunity to make representation on the matter within 21 days as to why it opposed the commission’s refusal, and provide further information if required.
The applicant may also appeal to the commission for a review or reconsideration of the application that has been refused.
Renewal of Licence
Where the commission has issued a licence, it is possible for the licence to be renewed. The application for renewal is made at least 9 months before the expiration of the licence. It must be accompanied by the prescribed fees and shall be in line with the procedure for a grant of licence.
Amendment and suspension of a licence
The licensee may amend the licence granted by the commission on an application, or where the commission receives any complaint from customers. The application shall be accompanied by the prescribed fees and is in line with the grant of a licence.
Additionally, a licence can be suspended or cancelled by the commission where the commission has good grounds that warrant such action.
All applicants to the commission for a licence are required to pay licence fees approved by the commission from time to time as provided below:
Generation Application/Licence Fees
For Generation Fees, the prescribed fees paid are dependent on the megawatts to be generated.
- Generation of power above 1 – 10 megawatts(MW) attracts the application fee of N50,000.00 and a licence fee of $2,500.00
- For generation above 10-100 megawatts attracts the application fee of N100,000.00 and Licence fee of $25,000.00
- For generation above 101-250 MW attracts the application fee of N200,000.00 and Licence fee of $50,000.00
- For generation above 251-500 MW attracts the application fee of N300,000.00 and Licence fee of $75,000.00
- For generation above 501-1000 MW attracts the application fee of N400,000.00 and Licence fee of $100,000.00
- Above 1000MW, the application fee is N1,000,000.00 and a Licence fee of $200,000.00
Transmission Application/Licence Fees
Transmission Licence attracts the application fee of N1, 000,000.00 and a Licence fee as prescribed by the commission to be $250,000.00
System Operations Application/Licence Fees
This Licence attracts the application fee of N1, 000,000.00 and a Licence fee as prescribed by the commission to be $250,000.00
Distribution Application/Licence Fees
Distribution Licence attracts the application fee of N1, 000,000.00 and a Licence fee as prescribed by the commission to be $50,000.00
Trading Application/Licence Fees
The trading licence attracts the application fee of N1, 000,000.00 and a Licence fee as prescribed by the commission to be $50,000.00
The fees payable are paid by means of bank draft or cheque drawn in favour of the commission, and the fees received by the commission will be acknowledged by the issuance of the commission’s official receipt.
Finally, it is worthy of note that there are no restrictions to foreign ownership of electrical companies in Nigeria.
Written by Winifred Idiaru and Olusola Jegede of the Resolution Law Firm, Lagos Nigeria