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  • How regulatory failure, sabotage, others undermine power sector ( 1)

    How regulatory failure, sabotage, others undermine power sector ( 1)

    Unfair trade practices are as common as daylight in the power sector. The most widespread is the estimated billing for power consumption. Despite several protests by consumers, regulators oftenlook the other way as consumers pay through their noses for services not rendered. Unprotected by regulators, those who feel robbed have taken their case to court. Experts say the massive fleecing of power consumers in a web of corruption and ineptitude requires urgent government intervention, writes JOSEPH JIBUEZE.

    Peter Akinola is a shoemaker in Lagos. There is no heavy duty equipment or electronics in his small shop. All he has is a small machine with which he files the edges of the shoes he produces. A functional power meter is mounted outside his shop. The facility is very accessible. Whenever he was billed based on his meter reading, he received less than N2, 000 per month. Usually, such bills were promptly settled from his meagre profit and he  never owed a dime. But things has changed.

    For about five months, he received successive estimated bills of between N10, 000 and N15, 000. When he could not offset the ‘crazy bills’, which kept accumulating, his line was disconnected by the electricity distribution company. Before the disconnection, Akinola had complained several times to the marketer in charge, who promised to resolve the problem to no avail. Before his electricity supply could be reconnected, he was forced to offset most of the accumulated bills, using his meagre savings. He also paid a reconnection fee, all due to no fault of his. Akinola felt cheated but he was helpless.

     

    Tales of extortions

     

    Across the country, many consumers are in Akinola’s shoes. Daily, they wonder who would bail them out. Others have embarked on protest marches against crazy bills.

    Residents of some communities in Osogbo, the capital of Osun State, protested against what they described as robbery by the Ibadan Electricity Distribution Company (IBEDC). Led by James Adejumo, they said the amount charged consumers who were not using prepaid meters was too high. He urged the Federal Government to go tough on DISCOs, saying many of them rip off consumers despite epileptic power supply. One of the residents, Ade Ponle, said he was getting a bill of N1, 200 per month, but he suddenly started receiving about N7, 500 every month even when there was no power supply for several weeks.

    In Lagos State, residents of the Apapa-Iganmu and Ifelodun Local Council Development Areas marched on the Eko Electricity Distribution Company (EEDC) in Ijora-Badia over excessive bills. The residents said their bills were higher than their house rents. They bore placards and sang solidarity songs, demanding an explanation from the authorities on why such bills should be given to them.

    One of the residents, Kamoru Wole, said some tenants paid as much as N10, 000, which was higher than their house rent of N1, 500 per month.

    He said: “Badia and Amukoko are low-profile populated areas, and we pay as low as N1, 500 for rent. It is a residential area with just a few people engaging in petty commercial activities. Yet, this is an area where residents pay as high as N5, 000 or more as electricity bill. This is day-time robbery by the distribution company servicing or area. Our electricity bills are higher than our house rents. We do not use air conditioners; so how did the company arrive at the high bills?”

    On November 17, members of the Youth Alliance for better Nigeria blocked the two entrances to the Lagos State House of Assembly. They bore lanterns and placards to protest against the Ikeja Electricity Distribution Company (IKEDC). They lamented that they were made to pick the bills of electricity they hardly used.

    Some of the placards read: “Outrageous bill, oppressive conduct of staff”; “Fashola save Nigerians from darkness”; “Enough exploitation of ten streets on a transformer”; “We need prepaid metres”; “Frustration of government effort to provide employment by not improving the epileptic power supply”; “Buhari must dissolve Nigerian Electricity Regulatory Commission. Please do this for us”; and “When learning stops, liberation stops. We cannot read at night. Don’t kill the youth,” among others.

    The protesters lamented that some areas in Alimoso on the outskirts of Lagos had no power supply for over six months, yet they were forced to pay bills. Their leader, Moruf Adegoke, said the group had earlier met with the state government which set up a committee to address their complaints. He, however, alleged that some top management staff of IKEDC frustrated the move for an amicable solution.

    “Abule-Odu in Alimoso has not had power supply in more than three months. The IKEDC supplied pre-paid metres to customers but the metres have not been working. The company has now resorted to coded billing system or what you call estimated billing,” he said.

    It was a similar story in other parts of Lagos. Tired of living in darkness, residents of Abiodun, Adebiyi, Akanbi, Aderibigbe and Lawani streets in Onitiri, Yaba, on December 16 stormed EKEDC on Marina, to demand a better service. They protested against what they called the “outrageous bills” which they had been receiving while living in darkness for six months.

    They bore placards with inscriptions, such as: “Eko Distribution PLC is a cheat”; “EKEDC PLC stop distributing darkness”; “We are tired of outrageous bills”; “Prepaid meter is our right” among others.

    The problem is not limited to Lagos. In some parts of Ondo South Senatorial District, residents had no public electricity supply for nearly a year having been disconnected since last December. The development crippled economic and social activities. The residents’ paltry resources went into the purchase of generators and petroleum products for alternative power supply.

    Efforts to resolve the issue were futile as the Benin Electricity Distribution Company (BEDC) insisted that debts owed it must be liquidated before it would restore electricity to the area. A due diligence audit committee was raised by the Okitipupa Local Government Area chairman to authenticate the debts, proffer solution on how to settle them and recommend the way out of the logjam.

    The committee sat continuously for over two weeks and deliberated over the matter.

    It found that BEDC indulged in many unwholesome practices that were unbecoming of a patriotic corporate citizen. The infractions included using constant coding (Code 3) for customers who have functional meters, as well as failure and/or refusal to install meters for customers who have paid for them.

    It was also found that communities that had no electricity supply for extended periods of time – in some instances months – were billed for the periods and dubbed as debtors. It was alleged that BEDC took bills and debts from local government areas outside Okitipupa and subsumed them as part of the debt of Okitipupa council area. Some of these locations are in Ondo State. At least one is in Ogun State.

    An activist, Jim Daniel, said: “Except for mischief and/or fraud, it is difficult to believe that BEDC does not know the boundary of Okitipupa Local Government Area!”

    The committee found that BEDC allegedly refused or failed to settle the bills incurred by its (BEDC’s) offices and sub-stations, but attributed the bills/debts to Okitipupa council area. Another discovery was that BEDC generated bills for up to January this year for many customers when electricity supply had been disconnected about the middle of December, 2014. This is despite the fact that it was BEDC which cut supply from its customers.

    In all, consumers in the local government area were said to have owed BEDC N113.6 million, which they contested. As a way out, the committee recommend that BEDC should generate new bills based on the actual debts and that BEDC/Consumers Consultative Committees should be inaugurated at various levels/locations to settle disagreements before they degenerate to crises.

    “The privatisation of electricity supply by the Federal Government should not be allowed to turn to a curse to Nigerians. BEDC should not be carried away by the fact of it (BEDC) being a monopoly in the area,” Daniel said.

    The DISCOs do not deny the extortion. They admit it. A consumer, who lives in Lagos, Ishola Shodunke, on September 16, wrote IKEDC to complain about an excessive estimated bill of N13, 642.96 he received for August. That month, his meter was not read. His previous bills were as follows: January, N2, 454.09; February, N1, 384.08; March, N2, 229.52; April, N1, 423.71; May, N1, 133.09; June, N1, 542.60 and July: N1, 347.42.

    On September 19, IKEDC replied, saying: “In response to your mail regarding your electricity bill for August, 2015, we write to inform you that your bill for the period in focus was generated based on estimation and your complaint has been forwarded to the appropriate unit for further investigation to ascertain why your bill was estimated. Please be assured that it will be attended to and you will be informed as soon as we receive a detailed feedback. We sincerely apologise for any inconvenience caused you, please bear with us.”

    As at the time of filing this report mid-December, IKEDC was yet to furnish Mr Shodunke with the outcome of the promised investigation as to why he got an estimated bill for August. While he was waiting for an answer, he received yet another estimated bill.

     

    Consumers beseech courts

    Several suits have been filed in Lagos courts this year over excessive billing. The suits accuse DISCOs of extortion and the Nigerian Electricity Regulatory Agency (NERC) of negligence.

    Residents of Itire/Ijesha Community in Surulere and Mushin Local Government Areas, after a long-standing dispute with EKEDC, filed a suit at the Federal High Court in Lagos.

    In the, suit numbered FHC/L/C5/1996/14, they sued for themselves and on behalf of electricity consumers with analogue meters and those without. The plaintiffs – Olufemi Okuyemi, Junaid Fatimat, Abdulrasheed Jimba, Haruna Ogunyomi, Azeem Owe, Ajia Ifeoma and Segun Shonubi sued EEDC, NERC and Attorney-General of the Federation (AGF).

    They sought a declaration that EKEDC is negligent in computing their electricity bills. They prayed the court to hold that NERC failed in its duty in regulating EEDC’s operations with respect to computation and issuance of electricity bills. The plaintiffs sought an order directing EKEDC to “scientifically, diligently and accurately” compute their bills according to what they consumed.

    The plaintiffs said the problems began with the defunct National Electric Power Authority (NEPA) in 2005 when those of them with meters noticed discrepancies in their bills and their meter readings. Their monthly bills, they said, were far in excess of their consumption. The problem, they said, persisted with the Power Holding Company of Nigeria (PHCN), which succeeded NEPA.

    When EKEDC took over, the residents thought their problem would soon be over. But they were wrong. “When EKEDC took over from PHCN, it also operated exactly in the same way and manner as PHCN. EKEDC issued estimated bills to us (far above our consumption and as reflected in our meter readings), and also disconnected us from electricity supply over bills which arose out of the estimated and excessive billings,” the plaintiffs claimed.

    The residents said some of them could not afford to pay the bills while other refused to pay to protest what they believed, had no correlation with the watts or level of electric power supplied in a given period  and the bills issued them for the period.

    To illustrate the excessive billing, Ogunyomi said he received bills of N2, 613.6 on June 5, 2014 and November 4, 2014. But he got N19,008, N9,108 and N9,820 for September, October and November 2014 on the same functional meter.

     

    Lawyer seeks damages

    A lawyer, James Ogunyemi, sued IKEDC at the Lagos State High Court for allegedly extorting huge sums of money from Nigerians in the name of estimated electricity bills. He and a consumer, Igiebor Solomon, sought a declaration that it is illegal to issue estimated bills to them when IKEDC confirmed that they had functional meters. According to them, they received estimated bills last year for March, August, September, and December, as well as January and February this year despite having accessible, functional meters as confirmed by IKEDC officials.

    Among others, they sought a declaration that the disconnection of electricity supply to Ogunyemi’s apartment last December 22 and March 23 this year in order to extort money/payment from him is contrary to Section 406 of the Criminal Code Act is illegal and criminal.

    They also sought an injunction restraining IKEDC from further giving them estimated/coded and any form of fraudulent bills in excess of the actual units of electricity they consumed.

    The claimants said the defendant investigated the working condition of their meters and confirmed they are in perfect working condition. Despite the confirmation, the estimated bills did not stop.

    “The fraudulent billing with threat of disconnection to extort payment from the claimant and other helpless Nigerians by the officials of the defendant continued till the filing of this suit. The defendant’s officials ignominiously confirmed to the first claimant that the revenue target of the defendant must be met with or without reading of meters or supplies of electricity.

    “It is criminal and fraudulent of the defendant to pursue its revenue target to the detriment of innocent and helpless Nigerians, including the first claimant by extorting payment from them for units of electricity neither supplied nor consumed by the claimants and other Nigerians.

    “Extortion of payment from the first claimant with threat of disconnection and actual disconnection of electricity supply on December 22, 2014 and March 23, 2015 notwithstanding the unresolved complaint of fraudulent, extortionate and excessive billing amount to obtaining money with menace from the 1st Claimant by the Defendant contrary Section 406 of the Criminal Code Act,” the claimants said.

    The claimants aver that IKEDC is determined to continue to use its fraudulently estimated/coded bills to extort monthly payment from its  helpless customers, who have no alternative supplier of electricity.

    Ogunyemi and Solomon are seeking N5 million damages for unlawful disconnection of electricity supply to the lawyer’s apartment and fraudulent extortion of money/payment from him.

    The claimants, who live on the same street in Agege, Lagos, said in August, 2014, IKEDC was motivated by avaricious revenue drive to abandon the reading of the meter to pave the way for fraudulent billing and extortion of payment from consumers with threat of disconnection.

    According to them, before they stated receiving estimated bills, they always made oughtright payment of the total amount represented by the bills when their meters were read.

    But, things changed when IKEDC served on Ogunyemi a bill reflecting 530E units of electricity in the total sum of N7, 990.91, which shows that the claimants, whose electricity meter was working, was billed on estimation.

    Despite several complaints to the marketer in charge, the problem persisted. They wrote to IKEDC, which said the complaint was “being investigated and the resolution will be communicated….”

    “While awaiting the rectification of the fraudulently estimated bills for the months of August, 2014 and September, 2014, the defendant’s officials disconnected the electricity supply of the first claimant on Monday 22nd December, 2014 to compel payment of the extortionate bills.

    “The first claimant paid N11, 500 (Eleven thousand five hundred Naira) on the 23rd December, 2014 on the bill for November, 2014 and was consequently reconnected with threat to further disconnect the first claimant until complete settlement of the fraudulent bills.

    “The claimants’ bills for the month of October, 2014 and November, 2014 respectively reflects 108 units and 206 units of electricity consumed by the first claimant in the sum of N2, 285.83 and N3, 644.82 respectively, with the meter service charge and VAT. Notwithstanding the perfect working condition of the meter, the defendant resumed the fraudulently estimated and coded billing in December, 2014 and continue till the filing of this suit and thereafter,” the claimants said.

    According to them, the estimated bills has continued. “The last straw was the statement of the top management official of the defendant at Alausa, Ikeja, on March 24 to the first  claimant that if the customers are to be billed on the actual units of electricity consumed, the defendant will not able to meet its revenue targets.

    Ogunyemi said the meter reflecting the actual units of electricity he consumes is fixed outside his apartment, readily accessible to the defendant’s officials.

    “It is fraudulent, illegal and criminal of the defendant to use estimated/coded bills with threat of/actual disconnection to oppressively extort payment/money from me despite the fact that I am being compelled to spend over N30, 000.00 on premium motor spirit (PMS) monthly to supply electricity to my apartment as a direct result of epileptic/total lack of power supply for my use,” he added.

     

    Defendants react

    EKEDC, NERC and IKEDC filed notices of preliminary objection to the suits. EKEDC said the court lacks jurisdiction to adjudicate or determine the reliefs sought because electricity is not contained under Section 351 of the 1999 Constitution (as amended). It added that the suit discloses no reasonable cause of action against the defendants, and that the plaintiffs “are bereft of the requisite locus standi (legal right) to initiate the action.” EKEDC said it was also a “non-juristic” person and therefore cannot be sued.

    NERC prayed the court to strike out the suit for lack of jurisdiction. It said the plaintiffs did not follow the procedure for filing complaints before it. According to it, a complaint must first be lodged with the DISCO’s customer unit. And if the unit fails to address the problem, the matter can be referred to a NERC forum, and where the forum fails to rectify the problem, an appeal from the forum’s decision is then presented to NERC as a last resort.

    IKEDC, in its objection dated August 5, also challenged the court’s jurisdiction. The objection is on the ground that the name “Ikeja Electricity Distribution Company” is neither that of a natural person nor an incorporated company and therefore lacks the capacity to sue or be sued. The defendant said its name is actually Ikeja Electricity Distribution Plc (IKEDP).

    “An action against a Nigerian company must be brought in the incorporated name of the company as registered with the Corporate Affairs Commission (CAC). The fefendant ‘Ikeja Electricity Distribution Company’ is not a juristic person recognised by law. The suit is incompetent, having been initiated against, and in the name of a non-juristic person. This honourable court lacks the jurisdiction to entertain this suit,” the defendant said.

    In response, Ogunyemi said IKEDC is the name on the bills he received. He said the “false representation made by the defendant itself to all Nigerians through its electricity bills and letters does not divest this Honourable Court of the cherished jurisdiction to entertain the suit. This is more so when it is evidently clear that the defendant took advantage of the name (IKEDC) on the bills to collect money,” Ogunyemi added.

     

    Controversy over fixed charges

    The fixed charge is a component of the customer’s electricity bill. It varies from region to region, depending on the DISCO. The monthly fixed charge is different from the energy charge which is the true representation of the amount of power consumed. The fixed charge is paid by the analog meter as well as the prepaid meter owners.

    It is an amount the customer is compelled to pay whether energy is consumed or not. Prepaid meter users are compelled to pay any backlogs of fixed charges before buying units. To observers, the fixed charge is free money for the DISCOs as it represents no goods or service rendered. The charge is collected whether energy is supplied to customers or not.

    An Edo State-based activist, Osazee Edigin, who has been campaigning for the removal of the fixed charges and an end to unfair trade practices in the power sector, said the charge is different from service charge or maintenance fees.

    “The maintenance fees have been abolished since December 2011. This fixed charge was smuggled in to replace the maintenance fees or service charge. Even while we had the maintenance fees or service charge, the customers still did the maintenance themselves; they bought their transformers, poles, meters, strings.

    “When the power sector was still under the defunct NEPA, there were neither maintenance fees nor service charge. What a customer consumed was calculated at the end of the month and actual bills were issued. At what point was this fraudulent fixed charge added to our bill? Why would the people be compelled to pay a fixed charge to privately owned entities whether they are rendered services or not?

    “It is on good record that these DISCOs were actually transferred to family and friends of the powers that be. The BEDC rakes in to N3.5 billion naira monthly from fixed charges alone, yet a private liability company that makes so much will not bother to improve its sevices ,” Edigin said.

    A lawyer, Toluwani Adebiyi, in a suit he filed at the Federal High Court in Lagos, is challenging, among others, the fixed charge and a bid to increase tariff. While NERC justified the fixed charge by saying that such money “is to service or maintain permanent investments like poles, cables and transformers,” Adebiyi said most communities have been funding such maintenance through their personal contributions.

    “Of what use then, is the N750 fixed charge which consumers pay? The DISCOs collect the money but do not use it for any maintenance. This is nothing but fraud, just like estimated bills. This is why the fixed charge must be abolished,” he said.

    Mr. Yusuf Babalola, who lives in Isale Ijebu in Ajah, Lagos, said the transformer in his area had been in a state of disuse for over three years. Throughout the period, they were receiving electricity bills, with fixed charges embed in them.

    His words: “I live in Isale-Ijebu, Ajah community where a transformer has been abandoned for over three years. Yet, the Eko Distribution Company keeps collecting a fixed charge of N750 from us which is supposed to be meant for purposes like this. The company’s officials told us that we should contribute money so that they can install our transforming. In fact, the community has already raised money to buy some items needed to get the transformer working.”

    Babalola is not alone. Mr. George Ibizugbe, who lives in Oka community in Sokponba, Benin City, recalled that in November 2013, the transformer servicing their community broke down. The residents contributed money to the tune of N325, 000. 00 to enable BEDC fix the transformer. Four months later, BEDC returned the repaired transformer and installed it, using the money the community raised.

    Having exhausted the 18 units left in his prepaid meter within two days, Ibizugbe sought to buy N1,000 recharge voucher from a BEDC sales centre. He was shocked when BEDC officials told him to first pay N3, 000, which represents N750 monthly fixed charge being arrears for the fourmonths there was no functional transformer in the community. It was not until Ibizugbe paid the money that he was allowed to buy the N1,000 recharge voucher.

    “I was forced to pay for something I did not use. Was it my fault the transformer broke down? Even when it broke down, I contributed money towards repairing the transformer despite all the fixed charges I had paid previously. This is highly unfair and very exploitative. And the worse is that our government is doing nothing about the rip off,” lamented.

     

    Is regulation dead?

    NERC is the primary regulatory agency for the power sector. Its functions include protection of the industry players and customers. To some analysts, the commission has not lived up to expectations.

    “NERC has not been able to coordinate and call to order these DISCOs going by the way and manner they exploit their customers. As matter of fact, NERC, through its Multi-Year Tariff Order (MYTO), has empowered these DISCOs to collect fixed charges from customers.

    “What that means is that, whether these DISCOs have energy to distribute to customers or not, they smile to the banks on daily basis while the people and businesses groan in darkness. Why would a Federal Government commission that is expected to protect the people against exploitation be the one colluding with capitalists in ‘strangulating’ the people? This has given room for questions begging for answers.

    “Until the people start paying for energy consumed and the fixed charge regime abolished, and the DISCOs are compelled to give meters to customers who have been placed on arbitrary estimated bills, Nigerians should not expect steady power supply,” Edigin said.

     

    Case for tariff increment

    The Federal Government and DISCOs have justified the need to increase tariff. Despite being substantially privately controlled, the power sector remains problematic across the value chain of generation, transmission and distribution. The DISCOs, which feed the entire value chain financially, are facing funding deficit, a challenge that has affected the generation and transmission segments. The two legs depend on revenues collected by the distribution companies.

    According to operators in the power sector, the transmission network is the weakest link in the chain. The transmission company can at its peak, wheel 5, 300 megawatts (MW). Therefore, even if the generation companies can pool 10, 000MW, customers can only get 5100MW because 200MW may be kept as spinning reserve to balance emergencies.

    The distribution companies take at best 60 per cent of what they are supposed to get. No thanks to technical and commercial challenges. Power is lost in transit due to poor equipment. DISCOS were said to be owed over N32 billion, the bulk of which was in the hands of Federal Government Ministries, Departments and Agencies (MDAs), and the military.

    Vice President Yemi Osinbajo (SAN), speaking at the Annual General Meeting of the Manufacturers Association of Nigeria (MAN), said: “At this point, if we wanted to have a cost-effective tariff, the only way is to service that core value chain. The only way is to ensure that we are paying and compensating the value chain – from generation down to distribution – a cost effective tariff.

    “At the moment, when you compare how much it costs to produce power, and the amount of power that is generated, the losses on account of distribution are significant. In some cases, you have up to 40 per cent losses in distribution, and of course, it is the DISCOs that have to take that burden.

    “The generating companies are producing power but they expect to be paid for all the power that they produce. Now, if 40 per cent of this is lost, it means the DISCOs cannot collect 40 per cent, but they have to pay for it somehow. So, the government has to come in and play some kind of role in order to ensure that the whole value chain is paid for.

    “But, I think that we must be ready to accept that for a while, until things stabilise somewhat, tariffs cannot remain at the levels at which they are today, they cannot remain at that level, and that just simply is the truth of the matter. It certainly means that there may be higher costs, but I don’t think that the option of not having power is really what we want.

    “The real issue of course is that at the end of the day, some of the cost goes to the consumer, but a cost reflective tariff is an absolute necessity, otherwise, privatisation and all of that simply doesn’t make sense.”

    Executive Director, Association of National Electricity Distributors, Mr. Sunday Oduntan, said current electricity tariffs were not cost-reflective. This, he said, had impacted negatively on the operations of the DISCOs across the country and had continued to drag down their revenues.

    “All we want are cost-reflective tariffs. Our people should realise that we need cost-reflective tariffs or else, this industry will die. It is not primarily about tariff increase, but all we are saying is that the tariffs should be cost-reflective or else this industry will collapse,” Oduntan said.

    According to the Chairman, Egbin Power Generation Plc., Mr. Kola Adesina, the company is owed N39 billion by the Federal Government, which accumulated from when they took over the asset in November 1, 2013 to October this year.

     

    • To be continued
  • Spate of regulatory sanctions worries LCCI

    Spate of regulatory sanctions worries LCCI

    • Chamber calls for restraint 

    The Lagos Chamber of Commerce and Industry (LCCI) is worried over the spate of regulatory sanctions in recent times, saying the penalties are severe, arbitrary and disproportionate.

    In a document signed by its President, Mr. Remi Bello, and made available to The Nation, Bello said while the LCCI would not support impunity under whatever guise, it would desire that the activities of regulatory institutions are in consonance with best regulatory practice.

    He identified the recent sanctions of N1.4 trillion fine imposed on MTN by the Nigerian Communications Commission (NCC) because of non-registration of SIM cards; and N1 billion administrative charge imposed on Guinness by the National Agency for Food, Drug Administration and Control (NAFDAC).

    Others are the N4 billion penalty imposed by the Central Bank of Nigeria (CBN) on Skye Bank; penalty on FirstBank to the tune of  N1.9 billion and N2.9 billion imposed on UBA by the CBN.

    LCCI argued that “sanctions should be proportionate and corrective. It should not be of such magnitude as to impose a shock from which recovery by firms may either be difficult or impossible. There should also be a clear framework and guidelines for the imposition of sanctions or penalties.”

    Bello canvassed the defining of the limits of regulatory discretional powers. He said the chamber took this position to check the abuse of power by regulatory agencies to avoid high-handedness and intimidating disposition which would not augur well for an economy that needs to attract investment.

    “Already, the perception and ranking of Nigeria as an investment destination is unsatisfactory. For instance, Nigeria ranks 169 out of 189 countries profiled in the World Bank Ease of Doing Business Report for 2015.

    “It also has a ranking of 124 out of 140 countries profiled in the global competitiveness report of the World Economic Forum. The regulatory environment is a critical factor in this ranking performance of Nigeria”, Bello added.

  • Fed Govt mulls regulatory framework for fertilizer

    The Federal Government has called for the establishment of a regulatory framework to ensure that quality fertilizers are distributed to farmers.

    The government said a draft Fertilizer Bill has passed First Reading on the floor of the National Assembly.

    Deputy Director, Quality Control, Federal Ministry of Agriculture and Rural Development, Mrs. Chinyere Akudinobi, said the government considered it necessary to develop a regulatory framework for quality checks and enforcement to ensure that farmers accessed quality fertilizers.

    In her presentation at the launch of the Alliance for a Green Revolution in Africa, in Abuja, said fertilizer was needed to increase crop productivity and production.

    She said: “Nigeria’s agriculture sector has enormous potential with an opportunity to increase output by up to 160 per cent in 2030.

    “The realisation of the above potential could be achieved by policy capacity, stability, and implementation efficiency, competitive input end subsidy administration system and optimal use of fertilizers among others.

    “One of the measures to ensure quality fertilizers are distributed to farmers especially for the small scale farmers is to establish a fertilizer regulatory frame work system.”

    She said Nigerian farmers used 790, 000 metric tonnes (MT) of fertilizer annually, adding that off this,  280, 000 MT are blended locally every year while the rest are imported.

    She said:“It is in this direction that AGRA is supporting the ministry in the establishment of an efficient fertilizer regulatory system which would ensure that the right kind and quality fertilizers are sold to Nigerian farmers at prices such that while farmers achieve higher crop yields, the environment will not be negatively impacted.

    “The overall objective of the project is to increase household productivity and income through the establishment of a functional fertilizer regulatory system in Nigeria.”

  • SEC mulls new regulatory framework for capital market

    THE Securities and Exchange Commission (SEC),  in a major paradigm shift in its regulatory framework, is considering substitution of the class minimum capital requirement with risk-based capitalisation approach.

    Reliable SEC and market sources at the weekend said the  regulator plans to progress from the minimum capital requirement framework, which new deadlines expires on September 30, this year to a more robust risk-based capital base.

    Under the class minimum capital requirement, SEC stipulates minimum capital requirements for all capital market functions. This mostly apply to all operators within each function, irrespective of assets size, operations and inherent risks. SEC had in December 2013 announced new minimum capital requirements for capital market operators with a compliance deadline of December 31, last year. The Commission however extended the deadline till September 30, this year. It has ruled out any further extension.

    With the risk-based capital adequacy framework under consideration, the capital market regulator will align assets’ risk, operations and segmental peculiarities to fashion out a graduated capital requirement scale for all operators, providing each operator with a clear capital guideline in line with its position.

    Sources at SEC said the regulator plans to introduce the risk-based capital adequacy framework to address the failure of the current minimum capital requirement, which does not align a firm’s capital with risk arising from operation, business and market activities.

    Besides, the sources added that SEC would strengthen its enforcement framework for corporate governance by building into the new regulatory framework a strong corporate governance and robust enterprise risk management provisions for all capital market operators.

    Recent events have strengthened the voices of several industry leaders that had called for risk-based capital approach. SEC was recently shocked by the failure of BGL Group, one of the biggest capital market firms, after the  regulator discovered that the firm was bankrupt and running several billion of naira in deficit and unremitted investors’ funds. BGL was categorised as having met the minimum capital base.

    A market source said the change in the regulatory framework would be akin to the 2010 change in banking regulatory framework. The Central Bank of Nigeria’s (CBN’s) Scope of Banking Activities and Ancillary Matters No 3, 2010 requires banks to fully concentrate on core banking functions. The new model requires banks to either sell all non-core banking businesses or form a holding company to hold such non-core banking businesses, including activities, such as insurance, asset management and capital market operations. It led to several divestment and asset sales by most banks while three banks – FirstBank of Nigeria, First City Monument Bank and Stanbic IBTC formed holding companies.

    The source noted that SEC might consider a raised-platform approach that uses the new minimum capital requirements, which take effect now on October 1, 2015, as the base for further derivation of the risk-based capital requirements

    The source said the new approach might receive wide acceptance in the industry and beyond. Most advanced and emerging capital market regulators use risk-based approach. The Chartered Institute of Stockbrokers (CIS), the statutory regulatory body for stockbroking practice, which members form the largest bulk of capital market operators, had also canvassed for risk-based approach. Capital market doyens including Mr. Olutola Mobolurin, chairman of Capital Bancorp Plc, were also in favour of risk-based approach.

    The new director general of SEC, Mr. Mounir Gwarzo, a chartered stockbroker and investment banker with extensive experience across private practice and regulation, has made implementation of the long-term capital market master plan, which entails stronger corporate governance, disclosures and enforcements as well as investors’ education and inclusive participation, as the cardinal programme of its administration.

    Under the new minimum capital requirements, minimum capital base for broker and dealer was increased by 329 per cent from the existing N70 million to N300 million. Broker, which currently operates with capital base of N40 million, will now be required to have N200 million, representing an increase of 400 per cent. Minimum capital base for dealer increased by 233 per cent from N30 million to N100 million.

    Also, issuing houses, which facilitate new issues in the primary market, will now be required to have minimum capital base of N200 million as against the current capital base of N150 million. The capital requirement for underwriter also doubled from N100 million to N200 million. Trustees, rating agencies and portfolio and fund managers had their minimum capital base increased by 650 per cent each from N40 million, N20 million and N20 million to N300 million, N150 million and N150 million respectively. A  Registrar will now have a minimum capital base of N150 million as against the current requirement of N50 million. While the minimum capital base for corporate investment adviser remained unchanged at N5 million, individual investment advisers will have to increase their capital base by 300 per cent from N500,000 to N2 million.

  • Regulatory squabble sets CBN, NDIC on war path

    Regulatory squabble sets CBN, NDIC on war path

    For many stakeholders, ongoing clash between the Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance Corporation (NDIC) over proposed amendment of the NDIC Act 2006 is a distraction that should be stopped to safeguard the banking sector. They insist that the proposed Act, which  seeks to duplicate regulatory roles, could hurt financial sector stability and dampen depositors’ confidence, writes COLLINS NWEZE.

    The banking sector has been evolving in recent years, bracing up for new challenges. For instance, the Central Bank of Nigeria (CBN) and other stakeholders are promoting the cash-less banking initiative, a policy meant to move the economy away from cash. So far, the cash-less banking initiative has made banking easier and transactions faster for customers.

    But getting things done differently, may sometimes spell doom for the economy especially if such move will hurt financial sector stability and subsequently, customers’ confidence in the sector.

    That explains rising skepticism over the planned amendment of the Nigeria Deposit Insurance Corporation (NDIC) Act 2006, to bring about proposed NDIC Act 2014.

    But the Corporation simply wants a change from the status quo. Managing Director/Chief Executive of the NDIC, Alhaji Umaru Ibrahim, insisted that the proposed amendments were based on lessons learnt from past and recent experiences of the corporation in the supervision of banks and protection of bank deposits.

    As financial experts weigh the necessity or otherwise of the proposed Act, the two regulatory institutions have engaged in protracted debate.

    Other stakeholders also held different views from that of the NDIC’s boss. The Director-General, West African Institute for Financial and Economic Management (WAIFEM), Professor Akpan Ekpo said the Act, if enacted, would run contrary to the established responsibilities of deposit Insurance Corporation.

    He said it would also give NDIC power to license banks, suspend banks without recourse to the CBN, determine the licences of banks and appoint itself as a liquidator. This, he said, overlapped with that of the role of the CBN and out of line with the functions of the deposit insurers anywhere in the world.

    He called for clear indications of mandate and collaboration from both institutions in the interest of growth and development of the economy. “There is no need amending the NDIC Act to enable it be at par with the CBN. It will amount to overkill. It has never happened anywhere in the world. It will create a loot of confusion and weaken the financial system,” he told The Nation.

    A financial expert and strategist, Mr Opeyemi Agbaje, did not believe any serious changes will be made in the banking regulatory landscape, implying that the NDIC’s proposed Act 2014 may not materialise. He said now is not the time to begin radical changes in the financial services sector.

    Also, Mr Bismarck Rewane, an economist, said it was not necessary for the NDIC to seek for additional powers for effective operations. “Since there has been an existing collaboration between the two institutions, they should work in the interest of the growth of the sector,’’ he said.

    For the CBN Governor, Godwin Emefiele, amending the NDIC Act will spell doom for industry.  “Permit me to humbly invite the Senate Committee on Banking, Insurance and Other Financial Institutions to note that the amendments being sought by the NDIC are the very ingredient for chaos and anarchy, and will threaten the fabric of our financial stability, which, ironically, the Corporation claims, it is seeking to ensure. Rather, in the interest of financial stability, we propose that this opportunity be used to review the Corporation’s enabling Act to focus it on its essence, which is deposit insurance, in line with best practices.

    “We submit the above for the consideration of the Senate Committee on Banking, Insurance and Other Financial Institutions, please,” Emefiele stated while submitting the memorandum.

    While it is clear that CBN is not totally opposed to change in all the sections of the NDIC’s proposed Bill, Emefiele kicked against certain aspects of the proposal at a hearing of the Senate Committee on Banking, Insurance and other Financial Institutions on the amendment. He said that if the bill was passed as recommended, it would make the NDIC and the CBN parallel regulators of the country’s banks.

    “It will confer conflicting supervisory functions and powers on NDIC over banks and create overlapping regulatory responsibilities for the corporation,’’ Emefiele said.

    The CBN governor, who was represented by Deputy CBN Governor (Operations), Alhaji Suleiman Barau, said that the apex bank also objected to Section 49 of the draft bill, which empowered the NDIC to appoint itself as liquidator upon the revocation of a bank’s licence by the CBN, among others.

    However, analysis of the powers that the corporation sought to assume and exercise and the consequences thereof are still ongoing but tilting in favour of CBN.

    Regulatory powers sought by NDIC

    The Corporation seeks power to licence banks which was evidenced by the position of the NDIC that applicants for banking licences should simultaneously submit to the CBN and the NDIC, their applications for licences to enable the Corporation determine whether or not it will grant Deposit Insurance Status to the bank, if and when licensed.

    CBN said this position, appears to still form the bedrock of some of its current proposals on the amendments and is the basis for some of the powers that it seeks to exercise. In this regard, it is the corporation’s position that since it is not involved in the licensing of the banks but is compelled to insure them, it should be bestowed with the power to determine their deposit insurance status with a mere notification in writing to the CBN.

    Another is the power to supervise banks without Reference to the CBN: The NDIC’s position in this respect is evidenced by its written request to the CBN that banks in the financial system be equally shared between both organizations with each party able to exercise regulatory and supervisory powers over its “share” without reference to the other.

    It is in this regard that the corporation proposed to examine banks and issue reports thereon without reference to the CBN. Also, the corporation seeks to be able to remove board and management based on the report of its examinations on these banks. Furthermore, the Corporation has sought powers to carry out the consolidated supervision of banks subsidiaries, associates and affiliates without due regard for the sector regulators of such entities.

    It also seeks power to determine the licences of banks: The power sought by the NDIC in this regard is evidenced by the proposed amendment to its Act which will empower it to terminate the Deposit Insurance Status of a bank with a mere notification in writing to the CBN.

    Experts explain that one of the effects of such an action alongside the consequential run on the bank, will be the technical and effective revocation of the bank’s licence, as deposit insurance coverage is a mandatory requirement for a licensed bank. This power, which is subsequent upon the occurrence of some events that are listed in the proposed Act, can be exercised by the Corporation on its own with a mere notification in writing to the CBN.

    It also seeks the power to appoint itself as liquidator: Subsequent to the power to determine the licence of a bank as detailed in (3) above, the Corporation also seeks the power to appoint itself as liquidator of the same institution. In other words, should its proposal receive a favorable consideration, NDIC would licence, supervise, insure and resolve a bank.

    Industry analysts said that all the above powers, which the NDIC seeks to assume and exercise, are ostensibly to ensure that it carries out its function as a risk minimizer and that depositors of distressed banks and other deposit taking financial institutions are paid in good time to avoid delays.

    Implications of the Act

    While the CBN supports the desire to pay depositors of distressed institutions in good time,it says  the proposal to make NDIC “the judge and juror” in cases involving banks is fraught with dangers and is a recipe for financial instability.

    “It is indeed the ingredient for chaos and anarchy and is not practiced in any financial system in the world. There is also the moral hazard of the NDIC as a deposit insurer that charges premium on the basis of the riskiness of an institution which it supervises without recourse to the CBN to rate such institutions as riskier than they actually are in order to enhance the premium charged to bolster the deposit insurance fund.

    “Consequently, it is essential that the NDIC must flow from its primary function, which is the basis for its establishment, that is, Deposit Insurance.  Then and only then, will its role in the financial system as it relates to banks and other deposit taking financial institutions be properly defined,” CBN stated in a memorandum to the senate committee at the Public Hearing on the Proposed Amendment (House of Representatives).

    To Ibrahim, the proposed amendments are aimed at incorporating provisions that would enhance the legal framework put in place for the corporation to effectively carry out liquidation activities with little or no interference from courts, among other challenges.

    He, nonetheless, pledged the corporation’s readiness to work in collaboration with the CBN in a sustainable manner.

    “This has been the culture, we are not in competition with the CBN; we are here to work together for the growth and development of the banking sector.

    “All we are asking for is additional powers to work effectively and we are not competing with the CBN,’’ he said.

    Other jurisdictions

    To those in the camp of the apex bank, the above responsibilities, which should form the basis of the mandate of the corporation, do not differ from those in other jurisdictions including Canada, Malaysia, and Japan.  Consequently, the new powers that the Corporation seeks to assume and exercise are not only difficult to subsume under its responsibilities as detailed above, but are alien to deposit insurance practices in those jurisdictions.

    The NDIC cited two reasons for its proposal, which are: The Core Principles for Effective Deposit Insurance issued by the International Association of Deposit Insurers (IADI) issued in June 2009; and the practice in the United States of America, where the Federal Deposit Insurance Corporation (FDIC), along with the Federal Reserve and the Office of the Comptroller of Currency regulates and supervises banks to ensure the safety and soundness of financial institutions, stability in the financial markets, and fair and equitable treatment of consumers in their financial transactions.

    Regarding the Corporation’s assertions with regard to (i) above, experts explained that the IADI Core Principles for Effective Deposit Insurance Systems on which the Corporation relies for its propositions acknowledges the limitation of deposit insurance in ensuring financial stability. Specifically, item 5 under the core principles and preconditions states that, a deposit insurance system is not intended to deal, by itself, with systemically significant bank failures or a “systemic crisis”.

    In such cases all financial system safety-net participants must work together effectively.  Furthermore, Core Principle 1, states that, “… the principal objectives for deposit insurance systems are to contribute to the stability of the financial system and protect depositors”.

    This principle makes no reference to supervision and does not advocate a take-over of the supervisory function as is being canvassed by the NDIC. The IADI Core Principle 2 on mitigating moral hazard, expatiating on the role of the deposit insurer, states that, “…the deposit insurance system contains appropriate design features and through other elements of the financial system safety net”.

    Also, Item 4, under the core principles and preconditions states that, “the introduction or the reform of a deposit insurance system can be more successful when a country’s banking system is healthy and its institutional environment is sound.

    While a herd of analysts agree that the Federal Reserve shares supervisory and regulatory responsibilities for domestic banking institutions with the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS) at the federal level, and with the banking departments of the various states, the primary supervisor of a domestic banking institution is generally determined by the type of institution that it is and the governmental authority that granted it permission to commence business.

  • Experts flay creation of another regulatory body  

    Experts in the aviation industry have picked holes in some sections of the Nigeria Civil Aviation Policy ( NCAP), including the proposed creation of an economic regulatory body for the sector other than the Nigeria Civil Aviation Authority (NCAA).

    They insisted that taking over the statutory function of the NCAA would bring about infraction on air safety as experience has shown in other countries, including the United Kingdom.

    The experts are Captain Dung Pam, chairman, Nigerian Aviation Safety a initiative ( NASI), and Mr Olumide Ohunayo, an aviation analyst and Head of Strategy, Zenith Travels.

    They spoke in separate interviews in Lagos.

    Capt Pam argued that withdrawing the statutory economic regulation functions of the aviation sector from the NCAA, and giving to another autonomous body would create communication gaps between the economic and safety components of the industry.

    He said: “The danger with this proposal is that it will introduce a communication chasm between safety and economic regulation as both bodies may tend to display their autonomy. This will make prompt coordinated remedial action almost impossible.

    “The outcome will dilute the effectiveness of the NCAA in performing its statutory functions with regards to aviation safety, consumer protection and anti-trust matters.”

    Corroborating Capt Pam, Ohunayo said some aspects of the policy need to be reviewed and taht an independent search and rescue agency with offices in the six geo-political zones would only over burden the system with attendant cost implication.

    “Why do we want to protect a new group of private investors at the expense of investors using the banner of a national carrier? The government is starting another flag carrier not national, so the carrier should be free to compete rather than seek government protection?” he asked.

     

  • Emerging markets seek inclusion in global regulatory reform

    Emerging markets seek inclusion in global regulatory reform

    Securities regulators in the emerging markets have called for greater reflection of the views and positions of emerging markets in the early stages of new international regulatory reforms to ensure a more inclusive and reflective global reform.

    At a three-day meeting of emerging market securities regulators of the International Organisation of Securities Commissions (IOSCO) last week, the name of the group was changed from Emerging Market Committee (EMC) to Growth and Emerging Markets (GEM) Committee to better reflect the nature of the markets in which its members operate. The 86 members of GEM Committee include some of world’s fastest growing economies and 10 of the G-20 members.

    Emerging market regulators said they would seek to provide greater focus towards balancing growth and implementation of regulation, including looking at greater inclusiveness, strengthening channels of communication and developing greater regulatory capacity for emerging markets.

    The group reinforced strong support for the establishment of the IOSCO Foundation, which will assist members in their market development and capacity building efforts.

    Members urged industry to support the Foundation expeditiously so that emerging markets can benefit from the overall activities relating to three pillars: research, education and training, and technical assistance noting that increased funding of these activities will be of significant benefit to emerging market members, especially at a time of growing demand for market-based financing.

    Also at the meeting, Chairman of the Securities Commission Malaysia, Ranjit Ajit Singh, was elected the new chairman of the GEMC while Bert Chanetsa, deputy executive officer capital markets, Financial Services Board, South Africa, was elected as the vice chairman.

    Singh said there was a major opportunity for emerging markets to contribute to global discussions and for the committee to be a highly visible, effective and inclusive grouping for emerging markets.

    “In doing so, emerging markets must have a stronger and more inclusive voice and be supported by an efficient structure and process. The contribution to global regulatory debate must be enhanced. Market development and capacity building efforts remain critical for many emerging markets and we look forward to the establishment of the IOSCO Foundation,” Singh said.

    Chairman of the board of IOSCO, Greg Medcraft, who was present at the meetings, noted that emerging financial markets have a very significant role to play in global economic growth pointing out that the leadership of the EMC is critical to ensure IOSCO is seen as effective, pro-active and forward looking.

    “We look forward to the support from the industry to be able to launch the IOSCO Foundation soon. I look forward to working together with the new chair and vice chair of the GEMC towards achieving these objectives,” Medcraft said.

    The committee also held a public conference and discussed, among other panels, the impact of global regulatory reforms on emerging securities markets.

    Panelists emphasised the need for better streamlining of conduct and prudential regulation, and to ensure a strong and cohesive way to communicate these views at a higher level.

    The panel on impact of high frequency trading and algorithmic trading on emerging markets acknowledged that HFT and algorithms are the new normal, and it is critical to have a sound regulatory framework to ensure markets continue to operate in a fair, orderly and transparent manner.

    IOSCO is the leading international policy forum for securities regulators and is recognised as the global standard setter for securities regulation. The organisation’s membership regulates more than 95 per cent of the world’s securities markets in more than 115 jurisdictions.

     

  • Regulatory framework stalls finance houses’ reforms

    Regulatory framework stalls finance houses’ reforms

    A meeting between the Central Bank of Nigeria (CBN) and top management of finance houses last week ended in a deadlock because of the latter’s regulatory framework.

    An insider at the Finance Houses Association of Nigeria (FHAN) said operators rejected the proposed framework from the CBN because it was too stringent. He said the operators thought that the botched meeting, which held in Lagos, was the last in the resolution of the regulatory logjam in the subsector, adding that the matter might be resolved at the next meeting which holds this month.

    “I am hopeful that by the time the CBN and operators meet this month, pending issues especially on regulatory framework will have been resolved,” the source said. He said the mode of capitalisation had been agreed and would be made public soon.

    The CBN had last May, given a 30-day notice to 47 finance houses closed or inactive to submit evidence of their existence and/or operations, or lose their licences. The order had expired on Tuesday, April 18, but the banking watchdog is yet to take a decision on the matter. The CBN said the affected finance companies had closed shop, ceased to operate, or abandoned finance business.

    The source said stakeholders approvals had been secured in critical areas, especially in the drive to raise the sector’s capital base from N20 million to about N100 million.

    This, he said, would ensure that only seriously minded operators were allowed to carry on the businesses of finance houses in the country.

    The source said stakeholders were expecting the reform, which is expected to be unfolded by the CBN before the end of the month. It is also expected that the restructuring would expand the funding structure of the subsector to pave the way for new investors.

    The Nation findings showed that the CBN Board of Governors would release new prudential guidelines for the subsector. Also, other policy issues, such as the appointment of Managing Directors would form part of the ongoing reforms in the subsector.

    The source said the apex bank is also considering developing a regulatory framework that will govern finance lease practice, institutionalising a “funding pool” to stimulate lending activities in the sub-sector and structured programmes to address the reputation and poor visibility challenges of the sub-sector.

    He said issues, such as withdrawal of licences of 47 finance houses whose liquidity were questioned last May, and funding for the subsector are also being looked into.

    FHAN agreed with the CBN that reforms in the sector would transform, and reposition the finance company sub-sector to enable it to play more role.