The Nigerian Electricity Regulatory Commission (NERC) has issued a landmark directive requiring electricity Distribution Companies (DisCos) to allocate at least 60% of their earned Non-Administrative Operating Expenditure (Non-Admin OpEx) toward capital expenditure (CapEx). This regulatory shift, which is set to take effect from February 2027, represents a significant move by the commission to force long-delayed investments into the country’s fragile power distribution network.
According to the regulatory order, the mandate is designed to ensure that a larger share of the revenue collected from consumers is reinvested into tangible assets such as transformers, feeders, and meters, rather than being consumed by operational overheads. The commission specified that the 60% threshold applies specifically to non-administrative costs, which include technical maintenance and field operations, ensuring that the core of DisCo spending is tied to service improvement.
The directive comes at a time when the Nigerian power sector continues to grapple with a massive infrastructure deficit. Despite various interventions and tariff adjustments under the Multi-Year Tariff Order (MYTO), many DisCos have been criticised for failing to upgrade their networks sufficiently to handle increased loads or reduce technical and commercial losses. By setting a hard percentage for capital investment, NERC is effectively taking direct control over the internal financial prioritisation of these private utility firms.
Industry analysts suggest that this move is a response to the persistent liquidity crisis and the perceived lack of accountability in how DisCos utilise their cash flows. For years, the sector has operated in a cycle of under-investment, where the lack of infrastructure leads to poor collection rates, which in turn limits the funds available for upgrades. NERC’s new rule attempts to break this cycle by making infrastructure spending a non-negotiable regulatory requirement rather than a discretionary corporate decision.
Addressing Nigeria’s Chronic Power Infrastructure Gap
The primary objective of the 2027 mandate is the reduction of Aggregate Technical, Commercial and Collection (ATC&C) losses. These losses remain a primary bottleneck for the Nigerian electricity supply industry, often exceeding 40% in certain regions. High technical losses are usually the result of dilapidated equipment and overloaded transformers, while commercial losses stem from poor metering and energy theft. Channelling 60% of non-admin funds into CapEx is expected to accelerate the rollout of smart meters and the rehabilitation of distribution lines.
Under the new framework, DisCos will be required to submit detailed investment plans to the commission, demonstrating how the allocated funds will be used to improve service quality in their respective franchise areas. NERC has indicated that compliance with this directive will be a key performance indicator during future license reviews and tariff reviews. Failure to meet the investment threshold could result in heavy penalties or the downward adjustment of allowed operational expenses in future MYTO cycles.
The Bureau of Public Enterprises (BPE), which holds a minority stake in the DisCos on behalf of the Federal Government, has previously expressed concerns regarding the slow pace of post-privatisation investment. While the DisCos often cite the lack of a cost-reflective tariff as the reason for limited investment, NERC has countered that operational efficiency must improve alongside tariff adjustments. This directive places the burden of proof on the DisCos to show that they are prioritising the grid’s health over short-term liquidity management.
Operational costs in the Nigerian power sector are traditionally divided into administrative expenses, such as salaries and office rent, and non-administrative expenses, which cover the actual work of maintaining the grid. By exempting administrative costs from the 60% calculation, NERC is allowing DisCos to maintain their workforce and office operations, but it is effectively capping the amount of money they can spend on general maintenance and repairs without also investing in new assets.
For investors and stakeholders in the energy market, this regulation introduces a new layer of financial planning. DisCos will now need to balance their debt service obligations and operational needs against this mandatory capital spend. Some industry experts warn that without a corresponding improvement in the macroeconomic environment and access to low-interest financing, some DisCos may struggle to meet the 2027 deadline without significant restructuring of their current balance sheets.
The next few years leading up to February 2027 will likely see a flurry of activity as DisCos attempt to realign their financial strategies. The commission is expected to release further guidelines on the specific types of equipment and projects that qualify as CapEx under this order. This clarity will be essential to prevent DisCos from misclassifying ordinary maintenance as capital investment to meet the regulatory threshold. As the implementation date approaches, the focus will remain on whether this forced investment will finally lead to a more stable and reliable electricity supply for Nigerian businesses and households.
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