Ending Judicial Incursions in Power Sector

 A recent directive by the Chief Justice of Nigeria, Justice Walter Onnoghen, asking the judges in Nigeria’s appellate courts to stop entertaining cases instituted by parties in commercial contracts with arbitration clauses, may eventually see the country’s judiciary lead in protecting and nurturing investments in the power sector, writes Chineme Okafor 

 To protect investments in Nigeria’s privatised electricity market and other commercial sectors of the country, as well as nurture them to fruition, the Chief Justice of Nigeria (CJN), Justice Walter Onnoghen, has written to heads of appellate courts and judicial officers in the country, asking them to stop entertaining court cases instituted by parties in commercial contracts with arbitration clauses.

Rather than entertain such cases, Onnoghen, has advised the judicial officers to invoke the powers under their respective courts’ rules to issue practice directions to the parties involved, which in most cases include attorneys who hold briefs for parties involved in such differences.

As matter of fact, he stated that in doing so, the courts would be helping parties in such commercial contracts to benefit from the time saving nature of arbitration proceedings, while encouraging heightened commercial and economic activities and investments that could support Nigeria’s economic growth.

Onnoghen’s letter to this effect, which was obtained by THISDAY, was addressed to the President of the Court of Appeal; Chief Judge of the Federal High Court; and Chief Judge of the Federal Capital Territory High Court of Justice.

Though written in May, the letter was in sync with Onnoghen’s reported assurance to the Minister of Power, Works, and Housing, Mr. Babatunde Fashola, at a recent national workshop for judicial officers, that the judiciary would help protect investments made in the country’s power sector by emphasising on respect for arbitration clauses in power investments and contracts.

Fashola had at the workshop, which was organised by the International Institute for Petroleum, Energy, Law, and Policy (IIPELP), described in his remarks, the negative impacts frivolous courts cases on the country’s power sector. He also reportedly complained to Onnoghen who brought to his notice, the letter to the judicial officers.

 

Court cases in power sector

Since its privatisation, Nigeria’s power sector has seen a couple of court actions initiated by stakeholders to mostly enforce their perceived rights, and these cases have in many ways, left the sector in disarray.

Always at the risk of taking the shine off the privatisation exercise, the judicial actions have also ensured that power shortage which was the primary reason for the privatisation has not been cut short.

The long drawn dispute over a 20-year lease granted to Geometric Power Aba Limited to generate, transmit and distribute electricity in the Aba and Ariaria business districts of Enugu electricity distribution network, is perhaps the sector’s most celebrated court case, wherein about 141 megawatts (MW) of expected electricity generation was bogged down by contractual and ancillary controversies.

Geometric had reportedly obtained a concession for the Aba and Ariaria electricity business districts which were owned by the government before privatisation. It further rehabilitated the distribution assets; built five new substations; and made relevant investment to cover over 105 kilometres of 33kV and 40 kilometres of 11kV power lines.

The company also built the Aba IPP at a reported cost of $530 million, and from which steady electricity would be generated and supplied to Aba; Arairia, and indeed the national grid.

But a protracted legal tussle between Geometric and Interstate Electrics which became the preferred investor for the Enugu Disco upon its privatization, has kept the investment from fruition despite the concession deal Geometric has.

Another celebrated court case in the sector was that of a Lagos-based lawyer, Toluwani Adebiyi, who in 2015, approached the Federal High Court in Lagos to stop the Nigerian Electricity Regulatory Commission (NERC) from undertaking its statutory periodic tariff review on the grounds that there was no adequate power supply in the country to justify the review by NERC.

Adebiyi’s request to the court was granted by Justice Ibrahim Idris, who ruled against any increment, thus barring NERC from conducting a tariff review, and subsequently leading to huge revenue shortfalls in the power market.

Similarly, two Federal High Courts sitting in Abuja in 2016, granted separate injunctions to eight Discos, restraining the NERC from implementing its directive for the Central Bank of Nigeria (CBN) to escrow the accounts of Discos, which cannot meet their monthly payment obligations to the Nigeria Bulk Electricity Trading Plc (NBET).

Perhaps flowing from the revenue shortfalls that was stirred by the Lagos court ruling against tariff review, NERC and other connected persons were further restrained from compelling the Discos from entering into Promissory Note arrangement with NBET, as well as from calling on the Letters of Credit (LC) placed by the Discos with NBET through certain commercial banks, pending the hearing and determination of the Motion on Notice.

The Discos had equally alleged that they had severe cash flow problems as a result of NERC’s bad management of the power sector, and so would not be able to meet up with certain obligations demanded of them by the market.

Ending legal incursions in power sector

In his letter to judges on this, Onnoghen however said that: “It goes without saying that no investor, whether domestic or international would want his investment tied down in seemingly endless litigation, especially where there is an arbitration clause in the contract,” adding that “in such cases, the use of arbitration must be employed.”

He thus directed: “That no court shall entertain an action instituted to enforce a contract or claim damages arising from a breach thereof, in which the parties have, by consent, included an arbitration clause and without first ensuring that the clause is invoked and enforces.”

He added that: “The courts must insist on enforcement of the arbitration clause by declining jurisdiction and award substantial costs against parties engaged in the practice.”

Onnoghen equally argued that any party who instituted an action in court to enforce breach of contract containing an arbitration clause without first invoking the clause had himself breached the said contract and should not be encouraged further by the courts. He then asked judicial officers to take urgent action along his line of suggestion to salvage existing situations as they existed.

 

Impacts of court cases on power investments

Similarly, in his remark at the workshop, Fashola stated that with an average of 200 homes that benefit from every single megawatts (MW) of electricity that comes to the national grid, up to 770,000 Nigerian homes may have been denied electricity from three power projects that have been legally encumbered.

The minister listed these projects to include the Geometric Aba power project; the 700MW Zungeru; and 3050MW Mambilla hydro power projects, all of which he said have been stopped from getting completed by years of legal actions.

He lamented that judicial officers were yet to appreciate the current operational background of the country’s privatised power sector as provided for by the Electric Power Sector Reform Act 2005 (EPSRA), adding that the courts have often tried to stop the NERC from performing its statutory regulatory roles in the sector.

According to him, about nine court actions were instituted against the NERC and the sector in 2015 against periodic tariff reviews and other market related issues. This, he explained was unwholesome and detrimental to the sector.

“I believe that in making judicial pronouncements especially on matters relating to power; oil; and gas, you are indeed making economic decisions for Nigeria. With respect to the power sector, let me say that it is in transition and we must all understand that. It has survived and endured a totally government owned and operated sector for over 60 years, but within the last four years, it is now largely in private hands, therefore proceeding in transition from a state monopoly towards a competitive electricity sector,” said Fashola.

He further explained: “It is my humble view therefore, that in deciding cases that will arise in this sector, it must be understood that the sector is no longer wholly government owned like in the days when it was known as NEPA or PHCN, and the legal principles that probably apply then, certainly are no longer applicable. There is a lot more access to court rooms with regards to tariffs; connections; injuries; compensations and others. I would like to also stress that with the privatisation, government now owns only a subsidiary interest in the Discos. The entire sector is now regulated by the NERC which is the body for monitoring and regulating the industry.”

Insisting that other regulatory agencies in the country such as the Central Bank of Nigeria (CBN) and Nigerian Communication Commission (NCC), have exercised their regulatory powers without interference from the courts, the minister then wondered why that of NERC should be different.

“My Lords, I would like to add that in the interest of the Nigerian economy, that NERC is understood in this light and allowed as best as it can to perform its statutory functions, this of course should not be misunderstood that it should be above the law. There will be fitting and appropriate cases where clearly your judicial powers of reviews would be brought to bear,” Fashola said.

“I am of the view that for the power sector to play its roles, we must as much as possible afford the parties the opportunities to be held to their contract. I would refer to three power projects that went before various courts in the country – the Aba power project, held up in court for three years and was not concluded but your lordships and all of us need the electricity and because they were fighting over ownership, they could not complete the plant that would have added at least 100 megawatts of power to the grid, and if we go by the rule of thumb that each one megawatt of power produced is used by 200 homes, you can imagine how many homes that are denied this power. The Zungeru power plant in Niger state is another example with potential 700 megawatts to the grid. The Mambilla power project which is the biggest hydro power plant in the country has been held in the court for seven years, and a potential of 3050 megawatts,” he explained.

Fashola further noted that while most of the agreements in the sector are usually with arbitration clauses, the parties do not always obey the clauses and then resort to court actions.

“I say that it is dishonourable for any party who has signed an arbitration agreement to go to court, and by granting access to such people, we are perhaps inadvertently providing a sanctuary for them to dishonour their contracts. My plea is that you should drive them from your court, don’t drive them away from justice, but drive them to arbitration. I am of the humble and considered view that the role of the judiciary in the power privatisation is to encourage them to grow. To hold parties to their contracts and to ensure that the regulator does not exceed its mandate while citizens are responsible to their obligation and technicalities do not derail the sector,” Fashola added.