Electricity distribution companies have criticised a new regulatory directive requiring them to channel a large share of their revenues into dedicated capital expenditure (CapEx) accounts, warning that the policy could undermine investor confidence and interfere with the management of privately owned utilities.
The directive, contained in NERC Order No. NERC/2026/062, came into effect on July 1, 2026. It mandates all distribution companies (DisCos) to establish CapEx provision accounts where a significant portion of their residual revenues must be deposited after settling upstream market obligations and administrative operating costs.
According to the Nigerian Electricity Regulatory Commission (NERC), the measure is intended to improve investment in electricity distribution infrastructure, strengthen financial discipline and enhance service delivery across the sector.
However, electricity distributors argue that the order extends beyond regulation by giving the commission substantial control over how privately generated revenues are managed and spent.
Under the new framework, DisCos without outstanding market debts are required to set aside 70 per cent of their eligible residual revenue for capital projects, retaining only 30 per cent for other operational needs.
For operators with unpaid market obligations, the directive allocates 25 per cent of residual revenue to the Nigerian Bulk Electricity Trading Plc (NBET), another 25 per cent to the Market Operator, and 35 per cent to the CapEx account, leaving the utility with only 15 per cent of the balance.
The order also provides that where a DisCo owes only one of the two market entities, the share meant for the other institution will instead be transferred into the CapEx account.
Industry operators contend that the arrangement significantly limits their financial flexibility and effectively places regulatory oversight over internal spending decisions.
They also objected to the requirement that funds in the CapEx account can only be spent on projects approved under NERC’s Performance Improvement Plan. Before accessing the funds, DisCos must obtain regulatory approval at multiple stages, including project selection, contract awards and payment milestones.
The companies maintain that such conditions amount to the commission assuming responsibilities that ordinarily belong to company boards and executive management.
Some operators further warned that the directive could discourage future private investment in the electricity sector and increase bureaucratic processes around infrastructure development.
They also expressed concerns that increased regulatory involvement in contract approvals could expose the sector to rent-seeking practices.
Beyond the financial provisions, the order directs indebted DisCos to complete reconciliation of their outstanding obligations with NBET and the Market Operator within 180 days and agree on repayment plans subject to NERC’s approval.
In defending the policy, NERC said its review of the 2025 market cycle revealed that while some DisCos struggled to meet upstream payment obligations, several generated sufficient revenues to recover approved tariff components after covering administrative expenses.
The commission said the directive was issued under the powers granted by the Electricity Act, 2023, to ensure available revenues are prioritised for network rehabilitation, expansion and improved electricity supply.
Despite the regulator’s position, stakeholders argued that while NERC has the authority to enforce investment obligations and monitor compliance, directing how private companies retain and disburse their revenues amounts to direct management of their operations.
Some operators also questioned the legal basis for the order, alleging that affected licensees were not adequately consulted before the directive was introduced, contrary to provisions of the Electricity Act, NERC’s Business Rules and the Constitution.
