NIGERIAN ELECTRICITY REGULATORY COMMISSION Policy & Regulatory Framework for Energy Infrastructure Investment Energy Sector Governance – Building Political Support for Energy Sector Initiatives and Regulatory Bodies BY Ransome E. Owan, Ph.D Chairman & CEO Workshop on Commercial Framework for Energy Investment Abuja May 1, 2008

= + Nigeria’s Power Sector Generation, T&D Fully Unbundled 11 Local Distribution Firms + 6 Unregulated Generation + IPPs & JVs Generation 100% deregulated with Multiple Players Open Access to the Grid + Transparent Wheeling Prices One Transmission Company of Nigeria = TCN Transmission – One Regulated Power Super Highway +

NERC Nigerian Electricity Regulatory Commission 1.Reform Act 2005 & Start: November 1, Commissioners & 6 Divisions 3.Tenured Presidential Appointments 4.Senate Confirmation 5. Regulatory Autonomy 6.2-Term Limits & 2yrs Cooling Period 7. Ability to Sue and be Sued 8.Bound by Law or Contract 9. NERC Speaks via Binding Orders 10.Matters of Law Reserved & Referred to Court

Who We Are: (NERC) - as Sector Regulator MISSION: Ensure Adequate, Safe, Reliable and Affordable Electricity to all Consumers Promote Fair Competition & Honor Sanctity of Contracts Establish Predictable & Transparent Rules & Regulations Ensure Consumer and Public Interest Protection License Needed for: * Generation Over 1MW * Distribution Over 100 kW Ensure cost recovery and reasonable returns on investments Monitor Market Power: warn, suspend & revoke Licenses NERC = Unbiased Fact Finder & INDUSTRY REFEREE

Nature of NERC Regulation ECONOMIC REGULATION of Price & Profits Open/Public Rulemaking & UNIFORM RULES TRANSPARENT & FAIR LICENSING Cost RECOVERY & RETURN ON INVESTMENT REGULATORY ASSURANCE & STABILITY ACCOUNTABILITY & SERVICE QUALITY

Power Sector Infrastructure As an ASSET CLASS Define Power Sector Infrastructure as an Asset Class –Generation, Transmission, Distribution, Gas pipelines –Natural Gas Strategic Reserves (underground salt caverns) Monetization, commoditization & Securtization of Assets –Create Ratable Govt-backed paper with long tenure –Provide financial leverage for added capitalization –Free up limited Govt-Money for other public goods Capital Market, Asset Managers, Buy-Side Inst. Investors –Huge fixed income opportunity –Excellent Emerging Market Play –Huge Cross-Boarder Trade: West African Power Pool

Electricity & Infrastructure Needs Huge Generation Needs – Nigeria & Sub-Region Large Scale Integrated Transmission Networks (Nigeria & West African Power Pool) Extensive Distribution Network Upgrades & New Ones Natural Gas Commodity Supply for Nigeria and West Africa Natural Gas Pipelines for Nigeria, Coal, Nukes, Hydro, Solar, Wind, Trash-to-Power, Geothermal/Hot Springs Strategic Reserves for Natural Gas & Petroleum Infrastructure Financing, Project Execution & Complex Contracts

ECOWAS Energy Policy Defined in 1982 by ECOWAS Heads of States and Government to: –Ensure energy security for the region –Diversify primary energy sources –Promote access of the masses to energy Implementation strategies: –Execution of West African Gas Pipeline –WAPP –Project for Energy Access by rural and semi – urban populations –Establishment of Regional Regulatory Body (ERERA) Ecowas energy protocol – 2003 –Provision to guarantee free movement of energy products –Define non discriminatory rules for exchange and dispute resolution –Attract and protect private investment –promote environmental protection and efficient energy development

Regional Regulatory Needs - ERERA Regulate the cross – border exchanges and improve those that exist Contribute to creating enabling environment to attract investment in the sector Participate in the preparation and the establishment of the market and assist ECOWAS in proposing directives on the matter Supervise the market operation and settle disputes Participate in providing advice on regional policy to the ECOWAS Commission Ensure communication with the actors Assist national regulators as well as any other actor of the regional market

Proposed Powers for ERERA 1.Technical Regulation of the regional transmission network monopoly 2.Regulation of market operation 3.Required Mechanisms: –Enacting and interpretatiojn of rules –Authorization, approval, supervision of the various actors activities –Inquiry and injunction and sanction of violations –Dispute resolution

ERERA Regulatory Framework (1) –Source:ECOWAS Secretariat

ERERA Regulatory Framework (2) –Source:ECOWAS Secretariat

The Challenge of Creating A New Market A Strong Legal & Regulatory Framework Govt. Gift of an Enabling Space Financial Framework & Capital Formation Commodity Pricing – Tariff & Payment Scheme Transaction & Settlement Framework Contracting, Off-Taker, Liability Issues Risk Sharing & Investor Appetite Management Interpretation of Political Space - PolyEconomy Capacity Building for All Closing Projects with High Hit Rates Power as a Tradable Commodity

GUINEA BISSAU GUINEA SIERRA LEONE LIBERIA GAMBIA GHANA CÔTE D’IVOIRE TOGO BENIN SENEGAL MALI NIGERIA NIGER BURKINA FASO WAPP Regional Integration of Electricity Markets (Source WAPP) Takoradi Cotonou Lomé Lagos Tema West Africa Gas Pipeline (WAGP) Project

NIGERIA NIGER SENEGAL GAMBIA GUINEA BISSAU GUINEA MALI SIERRA LEONE LIBERIA Implementation Road Map (Source – WAPP) TOGO GHANA CÔTE D’IVOIRE BURKINA FASO BENIN Coastal Trans Backbone Sub-program Inter-Zonal Trans Sub-program North-core Trans Sub-program OMVG/OMVS Development Sub-program LSG System Redevelopment Sub-program

West Coast Transmission Backbone (Source WAPP) NIGERIABENINTOGOGHANA CÔTE D’IVOIRE Kumasi Obuasi Prestea Aboadze Accra Volta Akosombo Lomé Momé Hague Cotonou Sakété Existing 161 kV Committed 330 kV line Committed 161 kV line Proposed 330 kV operated at 161 kV NIGERIABENINTOGOGHANA CÔTE D’IVOIRE Kumasi Obuasi Prestea Aboadze Accra Volta Akosombo Lomé Momé Hagou Cotonou Sakété Existing 161 kV 330 kV line under construction 330 kV line under development kV

Africa The Electricity Infrastructure Picture: Investments, Contracts, Advisory, Arbitration, Litigation, Settlements, Profits!!

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