The Interpretation section of the Electric
Power Sector Reform Act 2004 (the Act) in Section 100 subsection 1 defines
cross subsidy as the subsidization of one class or group of consumers by
another class or group of consumers, and the Commission means the Nigerian

Electricity Regulatory Commission (NERC). Section 83(1) of the Act requires NERC
to set up and administer the Power Consumer Assistance Fund (the Fund) to be
used for the purposes specified in Section 83 (4) of the Act. Section 83(4) of
the Act provides that the Fund shall be used to subsidize underprivileged power
consumer as specified by the Minister.

NERC, under
Section 83(2) of the Act shall keep and manage the money and assets of the Fund
and shall handle the procedures for disbursement from the Fund while Section 83(3)
of the Act provides that the Fund shall consist of the following capital and
The contributions delivered under Section 85 of the Act; and
Any subsidies received from the Federal Government of
Nigeria as appropriated by the National Assembly.
 Section 85(1) of the Act requires all
consumers and eligible customers liable to make contributions under Section 89(1)
of the Act to make contributions to the Fund at the rates and for the duration
specified by NERC, and by Section 89(1) of the Act the consumers required to
make contributions are the eligible customers, and licensees as may be
determined by
Section 100(1) of the Act defines
eligible customers as a customer that is eligible pursuant to a directive
(s) of the Minister under
Section 27 of the Act to purchase power from a licensee other than a
distribution licensee – The Minister of Power (the Minister) under Section 27
of the Act may issue directives to NERC specifying the class
or classes of end-user customer that
from time to time constitute eligible customers. And a customer is defined in
Section 100(1) of the Act as any end-user of electricity who is a customer of a
distribution licensee that is not an eligible customer.
NERC are
the regulators of electricity tariff, Section 76(1) of the Act makes activities
such as generation and trading, transmission distribution and system operation
in respect of which license are required pursuant to the Act subject to tariff
regulation – Section 62(2) of the Act allows a person to construct, own or
operate an undertaking for generating 1 megawatt in aggregate in a site or an
undertaking for distribution of electricity with a capacity not exceeding 100
megawatt in aggregate at a site, or such other capacity as NERC may determine
from time to time, without a license.
76(2) of the Act provides that prices for the activities referred to in Section
76 (1) of the Act shall be regulated according to one or more methodologies
adopted by the commission for regulating electricity prices and such tariffs
methodologies shall include avoiding undue discrimination between consumers and
consumers categories, and to phase out or substantially reduce cross subsidies,
therefore, it appears that the provisions of Section 76(2) of the Act on
phasing out of cross subsidy makes the continued operation of the Fund during
the life of the Act doubtful.
Section 76
(5) of the Act apparently excludes questions of fundamental rights against discrimination
that may arise under Section 76 (2) above by allowing NERC in establishing
methodologies to differentiate among consumers on the basis of differences in
total consumption, time periods on which electricity is consumed, load factors,
location within the country and other such criteria as may affect cost of
providing a service, and may allow a lifeline tariff for such consumers. Lifeline
tariff is defined in Section 100(1) of the Act as a tariff set by NERC with
prices that incorporate cross subsidies under Section 76 (5).
NERC under
Section 84 of the Act is to set rates of contribution to be sent by designated
customers to the Fund and the subsidies to be disbursed from the Fund in
accordance with policy directives issued by the Minister taking into
consideration the impact of such rates on eligible customers and consumers who
have to assume the burden of such contributions. Further, Section 85(2) of the
Act requires eligible customers to pay their contributions directly to NERC while
consumers pay to their distribution licensee who shall remit the contributions
to NERC pursuant to a Regulation to be established.
The Act, in
Section 87 provides punitive measures for defaults in payment of contributions
within the prescribed time period up to three times the amount owed.
Also, the
Rural Electrification Fund (REF) to be set up pursuant to Section 88(11) of the
Act by the Rural Electrification Agency (the Agency). Section 88 (1) of the Act
establishes the Agency and Section 88(13) of the Act provides that the purposes
of REF shall be to promote, support and promote rural electrification
programmes through public  and private
sector participation in other to achieve equitable regional access to
electricity, maximize the economic, social and environmental benefits of rural
electrification subsidies, and to stimulate approaches to rural electrification
provided that no part of the Fund shall be used as subsidies for consumption.
by Section 88
(12) of the Act shall consist of capital and assets from any assets
appropriated pursuant to Section 53 of the Act, fines obtained by NERC,
donations, gifts or loans made by International Agencies, State or Federal Governments
or other entities, contributions made pursuant to Section 90 of the Act,
interest or other benefits accrued to the Agency, monies appropriated by the
National Assembly and such percentage of the annual turnover of the licensee as
may be determined by NERC.
Sections 90
and 89 (1) of the Act
require eligible customers, and consumers liable to contribute to
the Fund
contribute to
subject to the rate to be set by NERC applying the same methodologies required
under the Fund, and Section 53 of the Act requires
NERC subject to the approval of
National Assembly to pay any surplus of the annual budget requirements of NERC
into the REF.
Therefore, REF is to drive rural electrification infrastructure and
will provide subsidies for infrastructural developments only as opposed to
subsidized consumption under the Fund.
If the provisions
on cross subsidies under the Act are implemented it will drive home
Government’s effort to completely unbundle the power sector and a cushion
against any hardship that the present multi-year tariff order of
NERC may have on the citizens
living in the extreme poverty zones, and on the manufacturing and production
sector of the economy.
Osita F. Enwe
Legal Practitioner at Elisio Law Office