TRANSFER OF LICENSES IN THE NIGERIAN ELECTRICITY INDUSTRY

Introduction

On June 9, 2023, the Electricity Act, 2023 (the “Act”) was assented to by President Bola Ahmed Tinubu, thereby replacing the Electric Power Sector Reform Act, 2005, under which the extant NERC Licensing and?Operating Fees Regulation 2010 (“Licensing Regulations”) was passed. Although, the said Licensing Regulations provide for the relevant operational licenses obtainable in the Nigerian electricity industry, with the enactment of the Act, principal reference must now be made to its provisions regarding the procurement of such licenses, and all rights and obligations attached thereto.

Indeed, a new October 2023 report by the Nigeria Electricity Regulatory Commission (NERC) has revealed that 17 Independent Electricity Distribution Networks (IEDN) providers were recently licensed, with the 11 successor distribution companies in Nigeria also confirmed to be privatized and their ownership and management transferred to private investors.

This article therefore discusses the provisions of the Act, with reference to the right of licensees to transfer their licenses to third parties.

Operational Licenses under the Act

Section 63 (1) of the Act provides for the businesses which a person may undertake in the Nigerian electricity industry. The operational licenses are:

a.??? Generation?Licenses: Section 65 of the Act authorizes a licensee to construct, own, operate and maintain a generation station for purposes of generation and supply of electricity in accordance with the Act. ?Upon the procurement of such license, the licensee may sell power or ancillary services to any of the classes of persons specified in the license, howbeit, subject to the terms and conditions that are attached to such licenses.?

b.?? Transmission Licenses: Section 66 of the Act provides for a transmission license which authorizes the licensee to construct, operate, and maintain an efficient and integrated smart grid system in Nigeria, or one that connects Nigeria with a neighboring jurisdiction.

?c.??? System Operation Licenses: Section 67 allows for the authorization of a system operation operator who may be licensed to carry on system operation activities which include; generation scheduling, commitment and dispatch, transmission scheduling and generation outage co-ordination, transmission congestion management, international transmission co-ordination, procurement and scheduling of ancillary services and system planning for long term capacity, administration of the wholesale electricity market, and other activities as may be required for reliable and efficient system operation.

?d.?? Distribution and Supply Licenses: A distribution license authorizes the licensee to construct, operate and maintain a distribution system and facilities towards the connection of customers for the purpose of receiving electricity supply; the installation, maintenance and reading of meters, billing and connection; expansion of the distribution network in the licensed area; and other distribution related service. A distribution licensee may also purchase power for resale from a power generation licensee or another trading licensee.

?e.??? Trading licenses: Section 69 of the Act provides for a trading license which permits a licensee to engage in the purchase, sale and trade of electricity by entering into contracts with generating companies, power producers and other generators, for the purchase and resale of electricity and ancillary services.

The procedure for applications for these licenses is provided by the Licensing Regulations, for operations which may be grid-connected, off-grid or embedded. No person is permitted to undertake such operations without a requisite license issued by NERC. Importantly also, Per Section 64 (1) of the Act, licensees are required to comply with the terms and conditions of the license they obtain, alongside industry regulations, codes, orders and other requirements which have been issued or may be issued from time to time, by NERC.

Restriction on Transfer of Licenses

Notably, the Act provides that a person may be directly granted a license to do business or may be deemed to be so licensed. One of the ways in which a deemed license may exist is where there is a transfer of a license from a licensee to a third party.

However, it must be noted that per Section 70 (1) of the Act, a licensee shall generally not assign, cede, or transfer his undertaking, or any part of it, by way of sale, mortgage, charge, pledge, lease, franchise, exchange or otherwise without the prior consent of NERC. Even where such a consent is sought from NERC, it must be noted that the envisaged transfer will be subject to whatever terms and conditions that NERC may consider necessary in any circumstance, or generally.

Section 70 (b) also provides that a licensee shall also not, without the prior written consent of NERC, acquire by purchase or otherwise, or affiliate or merge his undertaking with that of any other licensee or person that is in any electricity business, except as provided under the Act.

The implication of the above is that where even where a licensee, for any reason whatsoever, is desirous of novating, for example, its power generation obligations in a service agreement to a third party, such a licensee cannot transfer or assign its already binding obligations to another, by merely executing a contract donating its license to such other person. Likewise, a licensee cannot create an encumbrance, in the form of a lien, mortgage or pledge over its license, without first obtaining the approval of NERC. In which ever case, it must be noted that under any circumstance whatsoever, the power to issue a license to a new or existing operator, ultimately resides in NERC.

Penalties for Unauthorized Transfer of Licenses

Expectedly, the Act provisions for penalties which shall apply in the event of defaults by licensees.

Particularly, Section 63 (4) of the Act provides that where a licensee contravenes the licensing provisions, NERC shall have the authority to order the following measures:

a.?????? Temporary confiscation of the license, pending conclusion of trial before the High Court;

b.?????? Disconnection of the violator’s facilities;

c.?????? Requirement to apply of the relevant license;

d.?????? Steps to be taken to prevent the continuation or recurrence of the contravention.

It is needful also to also note that where an offence is committed, both the company and principal officers who at the time of the offence was committed was in charge or responsible for the conduct of the business of the company, shall be liable to be proceeded against and punished accordingly in the form of fines or imprisonment, upon conviction. More so, a person who aids or abets the commission of such an offence will be likewise liable. The only event for which the above shall not apply, is where such an officer proves that the offence was committed without his knowledge or that he made all efforts to prevent the occurrence of the offence.

Conclusion

Although generally, assignment of an agreement's rights, obligations, and property to another party is usual in contractual arrangements, however, a licensee cannot assign, sublicense, or otherwise transfer a license to a third party, unless such a transfer was approved in advance in writing by the licensor. This is due to the personal nature of a license and the need for quality control by, in this instance, an industry regulator. Whilst there are situations that may arise which may cause a licensee to contemplate the possibility of assigning its obligations under a service contract to a third party, it is important for licensees to note that the provisions of the Act regarding the transfer of licenses must be complied with, to avoid liability under the penalty provisions therein.

?