Nigeria’s electricity distribution companies have rejected a new regulatory directive requiring them to place a large share of their residual revenue into dedicated capital-expenditure accounts.
The companies argue that the directive gives the Nigerian Electricity Regulatory Commission excessive control over privately owned utilities. NERC’s reported position is that the measure will improve financial discipline and ensure that money allocated for network investment is actually used for approved infrastructure projects.
The dispute concerns Order No. NERC/2026/062, which reportedly took effect on July 1, 2026.
Its outcome could influence electricity investment, market debts, service delivery and investor confidence in Nigeria’s power sector.
What NERC’s directive requires
Under the reported framework, a distribution company without outstanding market debts must place 70 per cent of its eligible residual revenue into a capital-expenditure provision account and retain 30 per cent.
For a DisCo with outstanding market obligations, 25 per cent would go to the Nigerian Bulk Electricity Trading company, another 25 per cent to the Market Operator and 35 per cent to the CapEx account.
That structure would leave the indebted DisCo with 15 per cent of the relevant residual revenue for other operational requirements.
Money in the CapEx account can reportedly be spent only on approved Performance Improvement Plan projects.
DisCos would need regulatory clearance at several stages, including before eligible projects proceed, before contracts are awarded and before some payment milestones are completed.
Why NERC may consider the measure necessary
Nigeria’s electricity distribution networks require major investment.
Consumers regularly complain about overloaded transformers, estimated billing, delayed meter deployment, weak distribution lines and unreliable supply.
Electricity tariffs contain allowances intended to support network investment. Regulators therefore need to ensure that these funds are not diverted to unrelated expenses.
A ring-fenced account can protect capital funding from day-to-day financial pressures. It creates a clearer trail showing how much money is available and which projects receive it.
The approach may also reduce the risk that DisCos continually cite funding shortages while failing to execute investments already recognised in their tariff structures.
From a consumer perspective, the question is simple. If customers pay tariffs containing investment provisions, will those funds produce better infrastructure?
Why the DisCos are opposing the directive
The distribution companies argue that the order goes beyond regulation and enters company management.
Private boards normally decide how revenue is allocated among operations, debt repayment, maintenance, technology, staff costs and investment.
The DisCos contend that fixing exact percentages and requiring approvals before spending reduces their ability to respond quickly to operational problems.
A company left with only 15 per cent of residual revenue may struggle to fund customer service, maintenance, technology, security and other expenses not covered by the restricted accounts.
The approval process could also delay urgent projects if every stage requires regulatory clearance.
Their broader concern is that investors may be reluctant to provide capital to a company whose regulator exercises extensive control over its cash flow.
The problem of market debt
Nigeria’s electricity market has a long-standing liquidity problem.
Distribution companies collect money from customers and are expected to remit funds to other participants, including power generators, the bulk trader and the Market Operator.
When collections are insufficient or remittances fall short, debts accumulate across the value chain.
Generation companies then struggle to pay gas suppliers, maintain plants or invest in new capacity. The problem spreads through the entire market.
NERC’s approach appears designed to ensure that indebted DisCos meet upstream obligations while still reserving part of their remaining revenue for network investment.
The DisCos’ response is that the formula may leave too little cash for the operations required to collect revenue in the first place.
A distribution company must maintain its network and billing systems to improve collection. Reducing operational flexibility too severely could therefore weaken the revenue required to repay debts.
What the dispute means for electricity consumers
Consumers should not assume that either side’s position will automatically produce better electricity.
Ring-fenced investment funds can improve accountability, but only when projects are selected properly and completed efficiently.
DisCo management freedom can allow faster decisions, but only when companies are transparent and meet service targets.
The most useful outcome would connect every approved expenditure to measurable improvements.
These could include the number of meters installed, transformers replaced, feeders upgraded, technical losses reduced and additional hours of supply delivered.
Consumers should be able to see how much was allocated, which contractor received the work and whether the project achieved its target.
Could the directive discourage investment?
Regulatory predictability is important to infrastructure investors.
Investors accept that electricity is a regulated industry. Tariffs, service standards, safety requirements and investment obligations cannot be left entirely to private companies.
However, investors also need confidence that management can make reasonable commercial decisions.
A system that appears to transfer board-level financial control to the regulator may increase perceived risk. Investors could demand higher returns or avoid the sector.
On the other hand, stronger controls could attract investors if they reduce financial leakage and improve the credibility of the market.
The impact will depend on how transparently and efficiently the order is implemented.
What should happen next?
NERC and the DisCos need a framework that protects capital expenditure without paralysing operations.
The regulator could establish clear approval timelines so that projects are not delayed indefinitely. Emergency spending rules may also be necessary for network faults and urgent repairs.
Independent audits should verify the CapEx accounts and publish project-level results.
DisCos should provide stronger evidence showing how previous investment allowances were used. Opposition to regulation will carry more weight when companies can demonstrate transparent spending and measurable service improvements.
The dispute should not become an argument over institutional power alone. The final test is whether electricity customers receive more reliable supply and whether the industry becomes financially sustainable.
