The Nigerian Electricity Regulatory Commission (NERC) has ignited a fresh storm in the power sector with a new Capital Expenditure (CapEx) Order mandating electricity distribution companies (DisCos) to set aside surplus revenues exclusively for infrastructure investment. The order, aimed at accelerating grid upgrades and reducing system losses, has been met with fierce opposition from DisCos, state regulators, and industry analysts, who argue it oversteps regulatory boundaries and threatens the financial viability of distributors. The dispute underscores the unresolved tensions between federal and state authorities under the recently enacted Electricity Act 2023.
The CapEx Order and Its Rationale
Issued on July 5, 2024, the NERC CapEx Order requires DisCos to allocate any revenue exceeding approved tariff projections to a dedicated capital expenditure fund. This fund must be used solely for network reinforcement, transformer replacements, and metering projects. For example, if a DisCo collects N10 billion more than its allowed revenue in a given year, the entire surplus must go into the CapEx account, with quarterly reporting to NERC. NERC argues that the order is necessary to break the cycle of underinvestment that has plagued Nigeria's power grid for decades. According to NERC data, the country's transmission and distribution infrastructure requires an estimated $20 billion in investment over the next decade to achieve reliable supply. The Commission believes that forcing DisCos to reinvest windfall revenues will accelerate progress without burdening consumers with higher tariffs. A NERC official, speaking on condition of anonymity, said: "The status quo of DisCos pocketing efficiency gains while customers suffer blackouts is unacceptable. This order ensures that every extra naira goes back into the grid."
DisCos Cry Foul Over Financial Strain
Distribution companies have reacted sharply, calling the order an unlawful seizure of their legitimate earnings. In a joint statement on July 8, the Association of Nigerian Electricity Distributors (ANED) warned that the directive could push several DisCos into insolvency. They argue that surplus revenues, which often arise from improved collections or favorable exchange rate movements, are needed to cover operational deficits from previous years. For instance, the Abuja Electricity Distribution Company (AEDC) reported that it still carries a cumulative shortfall of over N50 billion from under-recovery of allowed tariffs. In 2023 alone, AEDC's actual revenue fell short of approved tariffs by N12 billion due to collection inefficiencies and tariff caps. Forcing such firms to divert surplus cash to capital projects, they contend, would cripple their ability to pay staff and service debts. The CEO of Ibadan Electricity Distribution Company (IBEDC), John Ayodele, said: "We are being asked to starve our operations of working capital. How do we pay staff salaries when every extra kobo is locked up?"
Industry experts point out that DisCos already struggle with high technical and commercial losses, averaging 45% nationally. The new order does not address the root causes of these losses, such as vandalism, meter bypass, and weak enforcement. Instead, it imposes a rigid financial obligation that could discourage private investment in the sector. One analyst, Dr. Oluwole Ogunyemi of the Centre for Energy Studies, noted that the CapEx Order creates a disincentive for DisCos to improve efficiency, because any gains would be immediately earmarked for mandated projects rather than retained as profit. "If a DisCo invests in better metering and collection, any resulting surplus goes to NERC's fund, not to shareholders. That kills the incentive," he said.
State Regulators Challenge Federal Authority
The pushback is not limited to DisCos. State electricity regulators, particularly in Lagos and Edo, have condemned the order as an encroachment on their constitutional powers. Under the Electricity Act 2023, states can establish their own electricity markets and regulate distribution within their borders. Lagos State's Electricity Regulatory Commission (LSERC) issued a statement on July 10 asserting that NERC's order violates the Act by imposing uniform rules on state-licensed DisCos without consultation. LSERC Chairman, Dr. Adebayo Oduntan, said: "We have licensed Eko DisCo and Ikeja DisCo under our state framework. NERC cannot unilaterally impose financial mandates on them. This is a clear usurpation of our authority." Edo State's regulator similarly argued that the CapEx Order undermines the decentralization envisioned by the law. In a July 12 letter to NERC, the Edo State Electricity Regulatory Commission (ESERC) demanded that the order be suspended pending a review by the National Electricity Regulatory Commission (NERC) and state regulators.
Legal experts are divided on the matter. Some argue that NERC retains overarching authority over the national grid and interstate commerce, which justifies the order. Professor Yemi Oke of the University of Lagos said: "The Electricity Act 2023 allows states to regulate intra-state distribution, but NERC still has jurisdiction over technical standards and interstate transactions. The CapEx Order likely falls under NERC's purview." Others contend that the Act clearly devolves regulatory powers to states for intra-state distribution. Barrister Chidi Ogu, a power sector lawyer, countered: "The Act is explicit that states have exclusive authority over their licensed DisCos. NERC's order is an overreach that will be struck down by the courts." Until the courts clarify the boundaries, the standoff risks creating a patchwork of conflicting regulations that could deter investors.
A Summary of the Core Issue
The NERC CapEx Order represents a bold attempt to force infrastructure investment in Nigeria's power sector, but it has sparked a rebellion from DisCos and state regulators who see it as an overreach. The order mandates that surplus revenue be ring-fenced for capital projects, a move that distributors say threatens their survival and states say infringes on their autonomy. The controversy highlights the unresolved struggle between centralized federal control and state-led electricity regulation under the 2023 Act. With $20 billion needed for grid upgrades, the question remains: who decides how DisCos spend their money, and how can investment be ensured without undermining the sector's fragile finances?
Economic Implications for Consumers and Investors
For the average Nigerian household and business, the dispute could have mixed effects. If implemented, the CapEx Order might eventually lead to improved power supply as transformers and lines are upgraded. For instance, if DisCos spend surplus on replacing faulty transformers in Lagos's Ikeja area, businesses there could see fewer outages. However, DisCos warn that the financial strain could force them to seek higher tariffs, which would pass costs to consumers. Already, electricity tariffs have risen by over 40% in the past year, from an average of N55/kWh in 2023 to N77/kWh in July 2024 for Band A customers. Further increases would exacerbate the cost of living crisis, with inflation already at 34.2% in June 2024.
Investors in the power sector are watching nervously. The CapEx Order introduces regulatory uncertainty at a time when the government is courting private capital for the privatization of remaining power assets. International lenders, such as the World Bank and African Development Bank, have tied funding to sector reforms that include cost-reflective tariffs and regulatory independence. A protracted legal battle between NERC and state regulators could delay these reforms and spook investors. The Nigerian Exchange saw power sector stocks decline 3% in the week following the order's announcement, reflecting market jitters. Analysts at CSL Stockbrokers warned: "If the order is enforced, it could reduce the attractiveness of DisCo equity, as investors fear unpredictable regulatory takings."
What Happens Next
NERC has scheduled a stakeholders' meeting for July 30, 2024, to address grievances, but the Commission has signaled it will not back down. In a press release on July 15, NERC Chairman Sanusi Garba said: "The CapEx Order is non-negotiable. We will work with DisCos to implement it smoothly, but the fund must be established." Meanwhile, ANED has hinted at legal action, with a source saying a lawsuit could be filed in the Federal High Court within weeks. State regulators are considering a joint petition to the National Assembly, arguing that the order violates the Constitution and the Electricity Act. The outcome of this standoff will likely shape the trajectory of Nigeria's electricity market for years to come. If the CapEx Order survives legal challenge, it could set a precedent for federal intervention in state-regulated utilities. If it is struck down, it may embolden states to assert greater autonomy, fragmenting the national grid. Either way, the dispute highlights the urgent need for a clear legal framework governing the roles of federal and state regulators in the power sector.
The NERC CapEx Order has become a flashpoint in Nigeria's power sector reform, exposing the deep fractures between federal and state authorities and between regulators and utilities. Resolving this dispute will require not just legal clarity but a broader consensus on how to fund the massive infrastructure upgrades that the country desperately needs. As the July 30 meeting approaches, all eyes are on NERC, DisCos, and state regulators to see if a compromise can be reached or if the battle moves to the courts.