A bill, sponsored by Babajimi Benson, representing Ikorodu Federal Constituency, is seeking the approval of Nigeria’s National Assembly to provide that five per cent of the revenue accruing from power generated by GENCOs – the power generating companies – be reserved for the development of host communities. This is being proposed as part of an amendment to the Electric Power Sector Reform Act (EPSRA).
The proposed legislation, which was read for the first time on February 23, 2020, has passed for second reading as a draft seen by The Guardian showed that the fund would be received, managed and administered by a Trustee to be appointed by the generating companies (GENCOs) and representative of the host communities, upon agreement among the host communities.
Coming amid existing tax burden, which includes a corporate tax rate of 30 per cent, education tax of two per cent, police tax, land use charge and other levies at states and local councils, a source at one of the GENCOs – power generation companies – told The Guardian that the development may force the companies to declare force majeure.
Reacting, some stakeholders in the sector said the development would exponentially increase electricity tariff as the companies may add up the fund as operating expenses and pass the burden to the end-users. However, other stakeholders stressed that the move would lead to the development of communities housing power generation companies.
While the outlook of the power sector has remained dismal, performing far below expectations and projections since privatized in 2013, some stakeholders insist that confusion awaits the sector, especially in the areas of legal and regulatory framework if the new bill scales through.
Recall that pursuant to the EPSRA, the Nigeria Electricity Regulatory Commission (NERC) is empowered to regulate the electricity sector, including generation, transmission, system operations and distribution.
With respect to pricing, Section 76 of the Act provides for tariff regulation. Section 76(1) (a) particularly stipulates a generation tariff in respect of which licenses are required pursuant to the Act, and where the Commission considers regulation of prices is necessary to prevent abuses of market power as subsection two, goes on to state that such prices shall be regulated according to one or more methodologies adopted by the Commission for regulating electricity prices and such tariff.
While the tariff at which the generation companies sell their power is determined based on operations and maintenance, gas, depreciation of generation assets, other plant maintenance costs, experts said that an additional provision for five per cent of the revenue of the GenCos as proposed by the bill, changes the parameters influencing the tariff of the generation companies as it has to be included in their tariff model.