Introduction

The Nigerian Electricity Supply Industry ("NESI") is a multifaceted ecosystem that includes generation, transmission, distribution, and consumption. The six (6) generation companies generate electricity from power plants; eleven (11) distribution companies supply power to customers through transmission lines; and one (1) transmission company supervises electricity transmission. Each component is plagued by several challenges; as a result, the government and other stakeholders have taken concerted efforts to optimise the efficiency of each component.

On 30 April 2024, the Nigerian Electricity Regulatory Commission ("NERC") declared its intention to unbundle the Transmission Company of Nigeria ("TCN") as part of its continuous attempts to revitalise the power industry. A new company, the Nigerian Independent System Operator of Nigeria Limited ("NISO"), shall be incorporated no later than 31 May 2024, to manage the market and system operation functions previously held by TCN. ¹ Notably, this step, which represents a shift in national grid management, complies with the provisions of the Electricity Act (“EA”) 2023.²

Implications of unbundling TCN

Following the 2013 privatisation exercise, the TCN was tasked with the dual responsibilities of being a transmission service provider and an independent system operator. The combination of these major responsibilities in one entity has arguably led to the poor performance of transmission networks, markets, and system operations. Critics attributed this poor performance to issues such as inadequate infrastructure, lack of transparency, poor grid management, and low investment. Hence, the unbundling of TCN is considered necessary to address these challenges and improve access to electricity for Nigerians.

Although the repealed Electric Power Sector Reform Act 2005 envisaged that the TCN would eventually transfer its market and system operator functions to an Independent System Operator (“ISO”), it was the EA 2023 that provided a comprehensive framework concerning the incorporation and licensing of ISO, which is the legal basis for the NERC’s latest move. Accordingly, the NERC ordered the Bureau of Public Enterprises (“BPE”) to incorporate NISO, a private company limited by shares, no later than 31 May 2024.³ NISO shall be responsible for handling the market and system operation functions⁴ stipulated in the EA and the terms and conditions of the system operation license⁵ issued to TCN. The object clause of the Memorandum of Association of NISO is provided in section 16(2) of the EA⁶ and its initial subscribers are the BPE and Ministry of Finance Incorporated.⁷ The TCN is expected to forward information on its assets and liabilities pertaining to its market and system operations to the NERC and the BPE no later than 30 June 2024.⁸

For supporters of unbundling, this recent decision is considered a welcome development. An independent NISO focused on improving the transparency and efficiency of the national grid would optimise power flow, reduce transmission losses, and enhance the reliability of the grid. This would contribute to improved service delivery in the power sector and maybe reduce the incessant blackouts faced by the nation. For example, in 2024 alone, the national grid collapsed about 6 (six) times.⁹ Secondly, unbundling this component of the electricity value chain could foster innovation, competition, and attract private sector investment. Critics of unbundling, on the other hand, question whether this is the right course to take since the unbundling of distribution companies through the 2013 privatisation exercise did not yield the desired result.

Regardless of which side of the argument one supports, it is important to acknowledge that there will be transitional hurdles during this unbundling process, and the NERC must provide strong regulatory oversight and ensure compliance with relevant regulations.

Future Considerations

While the legal framework for unbundling exists, there might remain some areas of ambiguity, such as the operational specifics of NISO and any potential revisions to the existing regulations.

This move, in the long run, impacts the market dynamics of the NESI greatly. A well-functioning national grid system for electricity generation and distribution can increase accessibility for a larger number of consumers and businesses. Therefore, if this restructuring is effectively executed, it will significantly stimulate socio-economic growth and development across the nation.

Conclusion

The unbundling of the TCN and the creation of the NISO are bold moves towards improving the reliability and efficiency of Nigeria’s national grid. The possible benefits of this decision include an enhanced level of transparency, better grid management, and increased opportunities for private sector investment. The NERC can solve the transitional problems that will arise during the unbundling process by providing effective regulatory oversight. Nigerians are headed for a better future if the ongoing restructuring of the electricity industry is properly implemented.

1. NERC, Order on the Establishment of the Independent System Operator in NESI, Order on the Establishment of The Independent System Operator for NESI, NERC, 30th April 2024 (accessed 6/5/2024)
2. Section 10 (1) of the EA
3. NERC, Order on the Establishment of the Independent System Operator in NESI,Order on the Establishment of The Independent System Operator for NESI, NERC, 30th April 2024 (accessed 6/5/2024)
4. Section 10 (1) of the EA
5. Section 67 of the EA
6. Section 16(2) of the EA
7. NERC, Order on the Establishment of the Independent System Operator in NESI, Order on the Establishment of The Independent System Operator for NESI, NERC, 30th April 2024(accessed 6/5/2024)
8. ibid
9. Punch, National grid collapses again, throws Nigerians into blackout, National grid collapses again, throws Nigerians into blackout, 15th April 2024, Punch Newspaper (accessed 7/5/2024)