No doubt, improved electrification of Nigeria and sub-Saharan Africa (SSA) will lead to greater economic growth and prosperity for one of the most populated regions of the world. Over the years, electricity supply to rural and suburban communities across the SSA has been anything but reliable. A good percentage of the region’s population still lack access to national power supply with many relying on self-generating sets, kerosene fired lamps and stoves, etc.
The United States (US) Congress on 1 February 2016 passed the Electrify Africa Act (EAA), after nearly two years of trying to get the bill through both chambers of Congress. It now goes to President Barack Obama for his signature. What about the EAA?
The Act which was chiefly sponsored by Senator Bob Corker and Reps Ed Royce and Eliot Engel seeks to establish a comprehensive United States Government policy on powering up Africa. It is to encourage the efforts of countries in sub-Saharan Africa to develop an appropriate mix of power solutions, including renewable energy, for more broadly distributed electricity accessin order to support poverty reduction, promote development outcomes, drive economic growth,and achieve other purposes.
Section 2 of the Act supports the efforts of countries in sub-Saharan Africa to improve access to affordable and reliable electricity in Africa in order to unlock the potential for economic growth, job creation, food security, improved health, education, and environmental outcomes, and poverty reduction. The law is expected to provide a framework for a major public-private partnership between the United States and sub-Saharan African countries to help millions of people gain access to reliable electricity.
The policy targets of the law are quite interesting and remind me of the policy intentions of Chapter 2 of the Nigerian Constitution. These policy targets are to:
1. promote first-time access to power services for at least 50 million people in SSA by 2020 in both urban and rural areas;
2. encourage the installation of at least additional 20,000 MW of electrical power in SSA by 2020 using a broad mix of energy options;
3. promote reliable, affordable, and sustainable power which will in turn promote economic growth and job creation;
4. promote policies to facilitate public-private partnerships (PPPs) to provide electrical service to rural populations;
5. encourage the necessary in-country reforms, including facilitating public-private partnerships specifically to support electricity access projects to make such expansion of power access possible;
6. promote reforms of power production, delivery, and pricing, as well as regulatory reforms and transparency, to support long-term, market-based power generation and distribution;
7. promote policies to displace kerosene lighting with other technologies; and
8. promote an all-of-the-above energy development strategy for SSA that includes the use of oil, natural gas, coal, hydroelectric, wind, solar, and geothermal power, and other sources of energy.
The law directs the US President to establish a multi-year strategy to assist countries in SSA in implementing national-power strategies with a mix of energy solutions including renewable-energy sources. The multi-year strategy which is to be submitted to the US Congress within 10 months will contain a general description of efforts of the US government in SSA to:
a) increase power production;
b) strengthen electrical transmission and distribution infrastructure;
c) provide for regulatory reform, transparent and accountable governance and oversight;
d) improve the reliability of power;
e) maintain the affordability of power;
f) maximize the financial sustainability of the power sector; and
g) improve access to power.
Interestingly, the multi-year strategy will also provide an analysis of existing mechanisms for ensuring, and make recommendations to promote – commercial cost recovery, power pricing, and reduction in technical and commercial losses, among others. These are clearly burning issues facing the power sector in Nigeria today. Commercial costs recovery and appropriate power pricing have been at the heart of the electricity tariffs disputes playing out in Nigeria today. This has been heightened by the recent kicking off of Multi Year Tariff Order (MYTO) 2.1, the template methodology for determining electricity tariffs from 1st February 2016. A tariff system which, from a regulatory angle, seeks to appropriately price electricity in Nigeria and provide better cost recovery regime for the discos. However, electricity consumers continue to vehemently oppose it as they (consumers) are not certain that there will be a corresponding improvement in power supply with the increased tariffs.
The EAA is Beneficial as well for the US
From an investment angle, the US economy and companies will benefit from the law as well. Because the law requires the President of the US to describe how the US government intends to promote trade in electrical equipment with countries in SSA, including a description of how the government of each country receiving assistance pursuant to the strategy—
1. plans to lower or eliminate import tariffs or other taxes for energy and other power production and distribution technologies destined for SSA;
2. plans to protect the intellectual property of companies designing and manufacturing products that can be used to provide energy access in SSA.
The EAA and US’ Foreign Investments Vehicle – OPIC
The EAA would also include an analysis of the efficacy of efforts by the Overseas Private Investment Corporation (OPIC) and the United States Agency for International Development (USAID) to facilitate the financing of the importation, distribution, sale, leasing, or marketing of distributed renewable energy technologies.Many would argue that for the US, this is the real deal—having to supply their equipment with little or no hitches by way of import duties and protection of the intellectual property of their manufacturers (against who else but the Chinese!).
The EAA mandates OPIC to prioritize projects in the SSA region and simplify its approval processes for giving financing and insurance guarantees for power projects where it is investing less than $20million. When the EAA becomes operative, this would be good news for current projects that fit into the profile of investments that OPIC would be interested in. OPIC is already one of the investors in the Azura-Edo Independent Power Project in Nigeria, committing up to $50milion in the country’s first project financed IPP. OPIC is required to support US companies (and/or companies majorly owned by US citizens) involved in power projects in the region, qualified as “eligible investors”. Such eligible investors can be supported up to $50million.
The law slightly amends the corporate-governance composition of the OPIC as provided under the US Foreign Assistance Act.
Can one Act do it?The EAA shows us how we can use legislation to enhance the Fundamental Objectives and Directive Principles of State Policy under Chapter 2 of the Nigerian Constitution. Furthermore, the intention of this law is crafted to position the US to assist Nigeria in address many of the teething problems affecting the power sector in the country – rural electrification, electricity tariff, transmission infrastructure, distribution assets, deficit in power generation, electricity generation from renewable sources, regulatory independence, sanctity, and certainty. But I am of the view that one Act cannot solve the power infrastructure challenges facing Nigeria in particular and SSA as a whole. Many rural, and even suburban communities, are totally cut off from the grid. Many businesses still rely on diesel generators. Many electricity consumers are unmetered. The revenue bases of the Discos are often misaligned due to high levels of technical and commercial losses, tariff debts owed by public institutions and the armed forces, and electricity theft. Many of the generating companies (Gencos) still have legacy debts on their books. With new settlement statements remaining outstanding, they are unable to generate to their installed capacity. And when they do generate, constraints in the grid limit the actual power wheeled through the system. The challenges are multifarious. But the EAA shows that through appropriate legislation and galvanizing of transnational support, concrete steps can be taken in addressing these issues. It also shows that the international market still have huge expectations that the reforms carried out in countries like Nigeria will eventually pay some of the expected dividends. Conclusion The language of the EAA places emphasis on ‘diversifying’ the energy mix for the power sector especially through innovative technologies in renewable energies. It also emphasizes rural electrification. These ideals are not far from the point we are in Nigeria today. The sector’s regulator NERC has shown that it is more amendable to issuing new licences for renewable projects (rather than thermal projects) and embedded generators. It has also approved the Renewable Energy Feed-in-Tariffs. These are vital policy directions by NERC and are also expressed in the EAA.
I recall that sometime in 2013, the US President launched the Power Africa Initiative, which was aimed at granting first-time access to electricity to 50 million people by the year 2020. This new Act is clearly directed at making that goal a reality by providing the legal framework for US institutions and companies to invest in promoting energy solutions in Nigeria and SSA. It would be interesting to see how Nigeria balances its national interests regarding import tariffs and local content in the face of dwindling revenues; and also work with the US in achieving a mutually beneficial relationship in achieving the aspirations of the EAA.
Y. D. Amakiri, as a private legal practitioner, advises on the Nigerian power sector.
Power generation from various sources such as gas, solar, hydro, biomass, coal, nuclear energy, etc. Although the law makes reference to fossil fuel, for obvious reasons, the section deliberately avoided the mention of the latter two sources.
While Nigerian distribution companies (discos) will no doubt be interested in investments in distribution facilities, expansion of network cover and other facilities in distribution areas of the discos, electricity consumers will be more interested in metering.
This can be deduced as reference to rural electrification.
Once again this shows that the emphasis is on rural electrification through improved reliance on renewable energy sources. In fact, the US President said on 5 February 2016 that he plans to double US spending on renewables energy technology in 2016.
Section 102(b)(9) of the EAA.
See Section of the EAA.
See Section 202 and 204 of the EAA.