NERC’s new directive on power contracts sparks controversy

The Nigerian Electricity Regulatory Commission (NERC) has introduced a contentious new directive requiring Distribution Companies (DisCos) to move away from the single-buyer model and directly negotiate contracts with Generation Companies (GenCos).

This change, part of the ongoing unbundling of the Nigeria Electricity Supply Industry (NESI), has sparked significant debate within the power sector.

Effective from July, the new rule mandates DisCos to bypass the Nigerian Bulk Electricity Trading Company (NBET) and establish bilateral agreements with GenCos.

Critics argue that this shift could lead to contract breaches and potential disruptions in power supply, affecting end-users.

A key issue emerging from this directive is the burden it places on DisCos.

They are now responsible for honoring contracts initially negotiated by the federal government with power producers, such as the Azura power plant, which could be more costly compared to other alternatives.

“DisCos will have to continue with the Azura contract, despite its higher cost, before exploring other options,” a source told Nairametrics.

The new arrangement also introduces a structured approach to power procurement, prioritizing cost-effective sources like hydroelectric power.

However, to prevent monopolization, each DisCo will be limited to a proportionate share of this power, potentially stifling their ability to secure better deals.

Infrastructural concerns add another layer of complexity. The existing grid may struggle to handle diverse power sources efficiently, raising the risk of inefficiencies or power losses.

“Without significant investments in grid infrastructure, the system could collapse under increased power loads,” a source warned.

The directive also marks a shift away from government subsidies. DisCos will now face a “take-or-pay” contract model with GenCos, meaning they will bear the full cost of gas without government support.

This transition could place additional financial strain on DisCos, which already face operational losses and inadequate revenues.