REGULATORY UPDATE: GENERATION, TRANSMISSION AND DISTRIBUTION OF ELECTRICITY IN NIGERIA

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By: Aderonke Alex-Adedipe and Feyijuwa Akinyanmi

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Introduction
Inadequate power supply has remained a major factor affecting the growth of the Nigerian economy, as constant power supply is required by many indigenous companies and Micro, Small and Medium Enterprises.

Although Nigeria has the capacity to generate approximately 12,000 MegaWatts (MW) of electricity, the actual generated output is less than half at under 6,000 MW. This underperformance has been attributed to various factors including faulty government policies and inadequate infrastructure. To address these issues, the legislature proposed the Electricity Bill, 2022, and sought to amend the provisions of the Constitution of the Federal Republic of Nigeria (as amended) (“Constitution”) in relation to the generation, transmission and distribution of electricity. With respect to the latter, President Muhammadu Buhari has now assented to the amendment of the provisions of the Constitution.

Today’s newsletter briefly describes the constitutional amendment and its implications on the Power Sector and the Nigerian economy at large.

Power Generation, Transmission and Distribution in Nigeria
Prior to its 5th amendment, the Constitution granted the Federal Government exclusive authority to regulate the generation, transmission and distribution of electricity in or to any part of the federation and from one state to the other. In contrast, States were limited to regulating the generation, transmission and distribution of electricity in areas which are not covered by the national grid.

Although the Constitution did not make clear the meaning of “not covered by the national grid”, in practice, the provision has been interpreted to enable the Federal Government monopolise the generation, transmission and distribution of electricity in the country, under the now defunct agency of the Federal Government, Nigerian Electric Power Authority (“NEPA”). Nevertheless, due to NEPA’s inability to ensure adequate power supply across the country, the Federal Government moved to cancel its monopoly by enacting the Electric Power Sector Reform Act (“EPSRA”), 2005. The EPSRA dismantled NEPA into 18 business units, consisting of 6 generating companies (Gencos), 1 transmission company and 11 distribution company (Discos) and established the Nigerian Electricity Regulatory Commission. The EPSRA also mandated the privatization of these companies, except for the Transmission Company of Nigeria, which remained under the ownership of the Federal Government.

While the reforms have led to significant progress in Nigeria’s Power Sector, the performance of companies within the sector still falls short of expectations, necessitating the need for further measures such as the constitutional amendment.

Provisions of the Constitutional Amendment
The Fifth alteration to the Constitution as assented to by President Muhammadu Buhari includes an amendment of Schedule II, Part II, Paragraph 14b. By virtue of this amendment, the State Governments now have the powers to regulate the generation, transmission and distribution of electricity to areas within their respective states. In addition, the states are empowered to regulate amongst others, the establishment of electric power stations and to establish an authority for the promotion and management of electric power stations established by the state.

Implications of the Constitutional Amendment
The decentralization of the generation, transmission and distribution of electricity has ushered in a possible breakthrough for the Power sector and the Nigerian economy at large. State governments can now develop facilities for electricity generation, transmission and distribution and more diligently seek out the unserved and underserved areas within the state. States will also be at liberty to achieve power generation and distribution by engaging experts through public-private partnerships or outright licensing to private service providers.

Although the Federal Government is still entitled to regulate the generation, transmission and distribution of electricity from one state to another state as well as any area within Nigeria, one major challenge that may arise from the Constitutional amendment is the multiplicity of laws, which may lead to multiple licensing, approval requirements and payment of levies for participating companies. To mitigate this, we recommend that the EPSRA be amended or repealed, as it currently gives the Nigerian Electricity Regulatory Commission the sole rights to grant licenses to companies participating in the generation, transmission and distribution of electricity. In addition, it is expected that the responsibilities of the Federal Government would now be narrowed to the regulation of entities involved in the generation, transmission and distribution of electricity across states.

 

NEW CENTRAL BANK OF NIGERIA GUIDELINES FOR OPEN BANKING IN NIGERIA: FIRST IN AFRICA

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By Seun Timi-Koleolu and Nuratulahi Yishawu

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On the 7th day of March 2023, the Central Bank of Nigeria (“CBN”) set a record in Africa, by releasing the Operational Guidelines for Open Banking in Nigeria (“Guidelines”), thereby making Nigeria the first African country to adopt open banking regulations, particularly in view of the regulatory framework earlier issued by the CBN (please see our article on this).

We have set out in this article salient provisions in the Guidelines.

A. WHAT IS OPEN BANKING?
As explained in our earlier article, Open Banking is the banking practice that grants third-party financial service providers access (to the extent approved by the customers) to consumer banking transactions and financial data through the use of Application Programming Interfaces (APIs).

With Open Banking, Fintechs will be able to provide more innovative and seamless services to customers. For instance, it will allow customers to: (i) view and manage their various bank accounts from one centralized location; (ii) grant credit facility to customers quicker by utilizing APIs to access information required for the purpose of KYC; amongst other innovations.

B. WHO ARE THE PARTICIPANTS IN OPEN BANKING?
As previously explained here, the Guidelines categorises participants as:

(i) the API Provider (“APP”) i.e. a participant that uses API to provide data or service to another participant, e.g a licensed financial institution/service provider, a Fast-Moving Consumer Goods (FMCG) company, or a payroll service bureau;
(ii) API Consumer (“AC”) i.e. a participant that uses API released by the AP to access data or service. An AC can be a licensed financial institution/service provider, an FMCG or a payroll service bureau etc; and
(iii) Customer: the data owner and end-user that may be required to provide consent for the release of data for the purpose of accessing financial services.

C. WHAT ARE THE KEY PROVISIONS IN THE GUIDELINES?
The following are key provisions to note in the Guidelines:

1. Establishment Of an Open Banking Registry (“OBR”): The CBN will maintain an Open Banking Registry to provide regulatory oversight on participants, enhance transparency and ensure that only registered institutions operate within the open banking system. Each participant shall be identified by its CAC registration number which will be used as its unique key across the OBR ecosystem.

2. Execution Of a Service Level Agreement: API providers and API consumers who intend to share financial data are expected to execute a Service Level Agreement (“SLA”) which meets minimum requirements as set out in the Guidelines. SLAs at a minimum should include: (i) details of the Accounting and Settlement processes; (ii) the fees for the service and also set out the fees on their website; (iii) a system for easy reconciliation of bills; (iv) service monitoring provisions; (v) incident management procedures; (vi) performance monitoring procedures; and (vii) key performance indicators.

3. Reporting Requirements: The Guidelines also sets out reports that should be shared amongst APs and ACs. Some of them include the number and category of fraud and disputes on their platform; changes scheduled for the next month and potential impact; and excerpts of its problem register indicating new, existing, and resolved problems.

4. Submission Of Returns to the CBN: ACs and APs are to render periodic returns to the CBN setting out the volume of transactions; value of transactions; number of users; success rates; failure rates; security incidents; fraud incidents; and downtime reports.

5. Data Management: All APs and ACs are expected to have a Data Governance Policy which is to be approved by their Board of Directors. The policy is expected to ensure that data is well managed and fulfil all legal regulatory requirements.
In addition, a Data Ethics Framework is to be put in place setting out the principles for the acquisition, collection, collation, analysis, use, and sharing of personal data.
APs and ACs are at all times subject to the Nigerian Data Protection Regulation and any CBN issued data protection regulation for Financial Institutions.

6. Anti-Money Laundering (“AML”) And Combating The Financing Of Terrorism (“CFT”): According to the Guidelines, APs and ACs are mandated to comply with the extant Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) in Banks and Other Financial Institutions in Nigeria Regulation.

7. Information Security: APs and ACs are expected to comply with security principles set out in the Guidelines so as to protect the confidentiality, integrity and availability of information and data in the open banking system.

CONCLUSION
With the Guidelines, we expect that Fintechs will be empowered to innovate and improve financial services in Nigeria. Nonetheless, it is important that customers understand that their consent must be obtained prior to ACs and APs accessing their data and also understand their rights under the Guidelines.

FOREIGN CITIZENSHIP BY INVESTMENT: AN OVERVIEW

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By Aderonke Alex-Adedipe and Qasim Ogunjimi

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Introduction

Citizenship acquisition can be a long and rigorous process but that is not always the case for high-net-worth individuals who may explore the option of acquiring citizenship by investment. In this newsletter, we will discuss what citizenship by investment is; the pros and cons from the perspective of the countries offering it and the individuals who seek to obtain it; citizenship by investment programs; legal and regulatory considerations; and more.

Understanding Citizenship by Investment

Citizenship by investment is an alternative route to acquire citizenship for high-net-worth individuals who are willing to invest a significant amount of capital in a country’s economy. The requirements for citizenship by investment programs vary from country to country, but they generally involve making a substantial investment in the country, such as purchasing real estate, making a financial investment, or creating a business. In return, the individual will be granted citizenship in the country, along with all the benefits that come with citizenship, such as the ability to travel freely, access to social services, and the right to vote and participate in the political process.

Pros and Cons of Citizenship by Investment

Citizenship by investment programs offers a range of potential benefits and drawbacks for both the countries offering the programs and the individuals seeking citizenship.

From the viewpoint of the countries offering citizenship by investment programs, there are several potential advantages. These programs can attract foreign investment, boost tourism, and stimulate economic growth. In addition, citizenship by investment programs can be a way to attract talented individuals and entrepreneurs who can help drive innovation and economic development. One concern is that these programs may create opportunities for abuse and fraud, potentially undermining the integrity of the citizenship process. There is also a risk that citizenship by investment programs may be exploited by individuals seeking to evade taxes or launder money.

From the perspective of individuals seeking citizenship by investment, there are also potential benefits and drawbacks. Citizenship by investment programs can provide access to visa-free travel, better healthcare and education systems, and tax advantages. Additionally, citizenship by investment can provide a sense of security and stability, especially for individuals from countries facing political or economic instability. However, the costs associated with citizenship by investment can be significant, and the requirements for obtaining citizenship can be complex and time-consuming. There is also a concern that citizenship by investment programs may perpetuate inequality by providing opportunities for the wealthy to access citizenship in countries with better economic and social systems while leaving behind those who cannot afford to participate in such programs.

Citizenship by Investment Programs

The European Union has taken a cautious approach to citizenship by investment programs. In 2020, the European Commission published a report highlighting the risks associated with such programs, including money laundering and tax evasion. The report recommended that member states should phase out their citizenship by investment programs or limit the access of non-EU citizens to such programs. Additionally, following the Ukraine conflict, there were concerns that citizenship by investment programs could pose a security risk, as they may provide a means for individuals who are subject to sanctions due to their involvement in the conflict to evade those sanctions. In light of the foregoing, a number of European countries have either ended their citizenship by investment programs or restricted access to the programs. For example, in February 2023, the Prime Minister of Portugal, Antonio Costa announced that the country is ending its citizenship by investment program even though it has brought almost  €398 million to the country. The prime minister noted that the need to tackle property and rent price speculation in the country led to the decision to put an end to its citizenship by investment program.

Regardless of the European Commission’s call to crack down on this multi-billion dollar industry, there are still a variety of citizenship-by-investment programs available in Europe and around the world, each with its own set of requirements, benefits, and drawbacks. Some countries, such as Malta, Antigua & Barbuda, and St. Kitts & Nevis, offer well-established citizenship by investment programs, while others, such as Grenada, Dominica, and Vanuatu, have newer programs. It’s important to clarify the requirements and benefits of each program carefully before deciding which one to pursue.

Conclusion

Citizenship by investment programs are subject to a range of legal and regulatory requirements, including due diligence requirements, anti-money laundering regulations, and residency requirements. Additionally, investors who obtain citizenship through investment may be subject to additional legal requirements, such as reporting requirements for their investments. It’s important to work with experienced legal counsel when pursuing citizenship by investment to ensure that you are complying with all necessary legal and regulatory requirements. At Pavestones, our experienced attorneys can help guide you through the legal and regulatory landscape of citizenship by investment programs. If you’re interested in learning more, please don’t hesitate to contact us.

 

 

THE CENTRAL BANK OF NIGERIA’S GUIDELINES ON THE TENURE OF EXECUTIVE MANANGEMENT AND NON-EXECUTIVE DIRECTORS OF DEPOSIT MONEY BANKS IN NIGERIA- REGULATORY UPDATE.

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By Seun Timi-Koleolu and Oyinkansola Famuyide

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Introduction

In a bid to strengthen corporate governance practices in the banking industry, the Central Bank of Nigeria (‘’CBN”), on the 24th of February 2023, released a circular titled ”Review of Tenure of Executive Management and Non-Executive Directors of Deposit Money Banks in Nigeria” (the “Circular”)  to improve on the existing framework on the tenure of Executive Management and Non Executive Directors of Deposit Money Banks (DMB) and Financial Holding Companies.

This newsletter seeks to highlight the provisions of this Circular vis-a-vis the previous provisions of the CBN.

What was the previous position of the CBN?
Prior to the release of the Circular, the position of the apex bank was that Chief Executive Officers (CEOs) of commercial banks were limited to a maximum tenure of ten (10) years. Any person who had served as a CEO for the maximum tenure in a bank would not qualify for appointment at such a bank or any of its subsidiaries in any capacity until after a period of three (3) years upon the expiration of his tenure as CEO.

To ensure continuity and a fresh injection of ideas, the Code of Corporate Governance released by the CBN in 2014, provided that Non-Executive Directors of banks shall serve for a maximum of three (3) terms of four (4) years each.
It also reiterated its earlier position on the 10 year tenure for bank CEOs, but provided that the tenure may be broken into periods not exceeding 5 years at a time. It further stated that such a CEO shall not be eligible for appointment as CEO of any of its subsidiaries.

2. What is the new position of the CBN?
The position of the CBN today is as follows:
a) the tenure of Executive Directors (“ED”), Deputy Managing Directors (“DMD”) and Managing Directors (“MD”) shall be subject to a maximum of 10 years while Non-Executive Directors (NED) with the exception of Independent Non-Executive-Directors are expected to serve a maximum tenure of 12 years;

b) where a DMD later becomes MD/CEO of the bank before the end of the maximum tenure, he/she shall serve a cumulative tenure not exceeding 12 years for both;

c) where an ED becomes the DMD, the tenure as both shall not exceed 10 years cumulatively;

d) EDs, DMDs and MDs who exit the Board of a bank upon or prior to their maximum tenure shall not be eligible for an appointment as a NED to the Board of Directors for a period of 1 year upon their exit;

e) NEDs who exit a bank upon or prior to the expiration of the maximum tenure of 12 years shall serve a cooling-off period of 1 year before becoming eligible for appointment as  Directors of any other DMB; and

f) the cumulative permitted tenure of any individual as EDs/DMDs, MDs and NEDs across the banking industry is 20 years;

3.What is the relevance of the Circular?

This circular brings a change to the Nigerian banking industry. It provides a maximum tenure for not only the CEO but also for those who hold executive positions in DMBs.

Worthy of note, is that there is now a one (1) year cooling-off period that EDs, DMDs and MDs are to observe prior to serving as a NED to the Board of Directors. NEDs, are also required to observe a 1 year cooling-off period before appointment to the Board of Directors at any other DMB.

Perhaps the CBN’s intention is to avoid a conflict of interest and enforce confidentiality in the banking industry.

Conclusion

We expect that this will improve the corporate governance practices in the banking sector and promote diversity in leadership.