Nigeria’s electricity distribution companies have rejected a new order from the Nigerian Electricity Regulatory Commission that dictates how they must allocate and spend a significant portion of their revenues.
The DisCos described the directive as excessive regulatory interference in the financial and operational management of privately owned electricity companies. They also warned that the policy could discourage investors, weaken their ability to respond to emergencies and make it more difficult to secure commercial financing.
The dispute centres on Order No. NERC/2026/062, which took effect on July 1, 2026. The order requires electricity distribution companies to open dedicated Capital Expenditure Provision Accounts and transfer a large percentage of their residual revenues into them.
NERC said the policy would improve financial discipline, increase investment in distribution infrastructure and ensure that funds intended for network upgrades are used for their approved purpose.
How NERC’s New Revenue Formula Works
Under the new arrangement, a DisCo without outstanding market debts must transfer 70 percent of its earned non-administrative operating expenditure into a dedicated capital expenditure account. The company may retain the remaining 30 percent for its operations.
The conditions are stricter for a distribution company that owes other participants in the electricity market.
Such a DisCo must transfer 25 percent of its residual revenue to the Nigerian Bulk Electricity Trading Plc to reduce its debt. Another 25 percent must go to the Market Operator, while 35 percent must be placed in the CapEx Provision Account.
This leaves the distribution company with only 15 percent of its residual revenue for operational expenses. Where a company owes only NBET or the Market Operator, the amount that would have gone to the other institution must also be transferred into the capital expenditure account.
DisCos with outstanding obligations must also reconcile their debts with NBET and the Market Operator within 180 days and agree on repayment plans that require NERC’s approval.
DisCos Accuse NERC of Taking Over Management Functions
The distribution companies argue that the order goes beyond setting performance standards and effectively gives the regulator control over how they manage their earnings.
They said NERC can legitimately demand network improvements, impose service targets and sanction companies that fail to meet their licence conditions. However, they argued that deciding where privately earned revenue must be deposited and approving every stage of expenditure should remain the responsibility of company boards and management teams.
Funds placed in the CapEx Provision Accounts can only be used for projects contained in NERC-approved Performance Improvement Plans.
Before spending the money, a DisCo must obtain a “No Objection” from NERC for an eligible project. It must also receive regulatory approval before awarding contracts and secure additional approval before making payments at each project milestone.
The companies fear that this approval process could slow down projects and reduce their ability to respond quickly when transformers, feeders and other critical infrastructure fail.
Power Companies Warn of Investor Fallout
The DisCos said restricting between 70 percent and 85 percent of residual revenues could damage investor confidence in Nigeria’s electricity market.
Investors usually assess whether a business can control its earnings, meet operating costs and make independent commercial decisions. A policy that places a large share of revenue in restricted accounts could make electricity distribution companies appear less attractive to private investors and lenders.
The utilities also argued that reduced control over their cash flow could weaken their ability to borrow money from commercial banks. Lenders may consider the sector riskier if companies need regulatory approval before accessing funds for capital projects.
Some operators also warned that NERC’s involvement in approving contracts and payment stages could create additional bureaucracy and opportunities for undue influence in procurement processes.
Why NERC Introduced the CapEx Order
NERC defended the directive by pointing to persistent underinvestment and weak financial performance across Nigeria’s electricity distribution sector.
The regulator said its review of the 2025 market cycle showed that some DisCos earned enough revenue to cover their administrative expenses and recover parts of the costs recognised in their tariffs. However, many still struggled to settle their upstream obligations and invest adequately in electricity networks.
NERC said the order would channel available resources into feeder rehabilitation, network expansion and projects designed to improve electricity reliability.
The regulator also said its authority comes from Sections 34(1) and 116(2) of the Electricity Act 2023, which empower it to promote efficiency, support prudent investment and ensure that resources within the electricity market are properly used.
NERC expects the new accounts to strengthen the implementation of DisCos’ Performance Improvement Plans and support projects linked to the World Bank-funded Distribution Sector Recovery Programme and the Presidential Metering Initiative.
Poor DisCo Performance Strengthens NERC’s Position
The regulator’s concerns are supported by recent performance figures from the electricity distribution sector.
In the first quarter of 2026, DisCos collected ₦597.56 billion from ₦756.93 billion billed to customers. Their collection efficiency stood at 78.95 percent, while total Aggregate Technical, Commercial and Collection losses reached 37.44 percent.
The loss rate was significantly higher than the regulatory target of 16.92 percent and resulted in an estimated revenue shortfall of ₦140.64 billion during the quarter.
None of the distribution companies met its approved loss target, according to figures attributed to NERC’s first-quarter report.
These figures strengthen the regulator’s argument that relying on existing management structures has not produced sufficient investment or financial discipline.
Consumers have also repeatedly complained about poor electricity supply, inadequate metering and situations where communities must contribute money to repair transformers or other distribution equipment.
The Wider Business Impact
The dispute creates fresh uncertainty in a sector that urgently needs private capital.
Nigeria’s distribution network requires extensive investment in meters, transformers, feeders, substations and digital monitoring systems. Limiting DisCos’ access to cash could protect capital expenditure funds, but an overly restrictive system may also reduce their flexibility and discourage new investors.
The central issue is whether NERC’s approach will produce faster infrastructure upgrades or create another layer of bureaucracy in an already troubled electricity market.
The regulator will need to make approval processes transparent and fast. DisCos, on the other hand, must show that greater financial freedom will lead to measurable investment, improved supply and better service for customers.
The disagreement may eventually require consultations between NERC, the distribution companies, lenders, investors and electricity-market institutions.
Without a workable compromise, the policy could trigger legal disputes and deepen uncertainty at a time when Nigeria’s power sector needs stronger investment and improved performance.
Frequently Asked Questions
What is NERC’s new CapEx order?
It is Order No. NERC/2026/062, which requires electricity distribution companies to place part of their residual revenues in dedicated capital expenditure accounts.
How much can indebted DisCos retain?
A DisCo with market debts may retain only 15 percent of its residual revenue after payments to NBET, the Market Operator and the CapEx account.
Why are the DisCos opposing the order?
They argue that the directive interferes with private management decisions, restricts cash flow and could discourage investors and commercial lenders.
