WHEN THE REGULATOR TAKES THE BOARD: THE LEGAL LIMITS OF NERC’S INTERVENTION
BY ADERONKE ALEX-ADEDIPE & EFE OKPARAVERO
Introduction
On 10 August 2026, the Nigerian Electricity Regulatory Commission (“NERC”) issued Order No. NERC/2026/086 in respect of Kaduna Electricity Distribution Plc (“KAEDC”), dissolving its existing board and appointing an interim board of “Special Directors” to oversee the company. NERC has also appointed an Administrator and commenced a 12-month process aimed at identifying a new core investor for KAEDC.
The intervention follows what NERC describes as a “grave situation”, including prolonged regulatory and market defaults, inadequate investment, operational weaknesses and significant outstanding market obligations.
The Order raises an important question for Nigeria’s electricity sector, which is how far can NERC go in taking control of a privately owned electricity distribution company without crossing the line between regulatory intervention and corporate ownership?
Taking control is not taking ownership
Section 75 of the Electricity Act, 2023 (“Electricity Act”) permits NERC, following an inquiry into the conduct or affairs of a licensee, to intervene where it determines that the licensee is in a “grave situation”.
The statutory triggers include;
- an inability to discharge obligations under the Act or licence terms,
- prolonged default in complying with statutory or regulatory obligations,
- a protracted management crisis detrimental to shareholders, consumers or the operation of the undertaking, or
- insufficient assets to meet liabilities with an imminent risk of receivership.
Where these circumstances exist, NERC is empowered to issue an interim order dissolving and removing the board and appointing Special Directors and an Administrator to manage the undertaking, notwithstanding anything contained in any written law and the memorandum and articles of association of the undertaking/licensee.
Accordingly, while the usual rights of shareholders to appoint or remove directors are displaced for as long as the intervention remains in force, the intervention does not transfer the shareholders’ ownership of KAEDC to NERC. The shareholders retain their shares and their underlying proprietary interests. What changes is the control over the affairs of the licensed undertaking.
Implications of an unsuccessful intervention
By the provisions of the Electricity Act, where the state of affairs of the licensee does not improve after NERC has taken the appropriate measures, NERC shall revoke the licence.
The Act therefore contemplates progression from regulatory intervention to licence revocation where the intervention fails, and ultimately to the sale and transfer of the undertaking. It provides for the sale and transfer of the undertaking and addresses the treatment of liabilities and security interests.
Accordingly, if the intervention fails and a core investor has been identified, NERC may in line with the Electricity Act, proceed to revoke KAEDC’s licence and invoke the statutory process for the sale of the undertaking. This must however follow the statutory process:
- Regulatory intervention: This is the stage KAEDC is currently at and is critical to the preservation of its existing shareholding. At this stage, the focus is on addressing the circumstances that gave rise to the intervention and restoring the undertaking to a viable position.
- Licence revocation: If the regulatory intervention fails and the underlying issues are not resolved, NERC may revoke KAEDC’s licence in accordance with the Electricity Act. Revocation would trigger the statutory process for dealing with the undertaking.
- Compulsory sale: Following the licence revocation, NERC shall invoke the statutory sale mechanism under Section 77 of the Electricity Act and direct the sale of the undertaking.
Implications of the Intervention for KAEDC’s Creditors
The intervention has immediate implications for KAEDC’s creditors. While NERC has not revoked KAEDC’s licence or commenced the statutory process for the sale of the undertaking, the Order places KAEDC under regulatory control and introduces measures governing the company’s affairs during the intervention period.
For example, the Order directs the Corporate Affairs Commission not to register any change in KAEDC’s shareholding or directorship during the intervention period without NERC’s prior written approval. NERC has also directed the Administrator, Bureau of Public Enterprises, Nigerian Bulk Electricity Trading Plc, Nigerian Independent System Operator and other material creditors to reconcile KAEDC’s liabilities and file a liability-management plan with the Commission within 90 days from the commencement of the Order. This means that creditors should endeavour to file their interests with the Commission. The Order further provides that the liability-management plan may allow for interim warehousing of the liabilities. Under this arrangement, such warehoused liability would not be immediately enforceable but temporarily preserved for later settlement as part of the sale transaction. The warehoused liabilities would need to be disclosed in the transaction documents in relation to the sale, and prospective investors would be required to set out in their bids how they propose to settle those liabilities.
The above becomes even more significant if NERC proceeds to a statutory sale as the Electricity Act provides that the new purchaser of the undertaking gets it free of KAEDC’s existing debts and other encumbrances. Therefore, the creditors are precluded from filing any claims against the undertaking or its assets after the sale. Instead, they must recover what they are owed from the funds paid for the purchase of the undertaking, according to their order of priority.
In the interim, however, the key point is that KAEDC is in a regulatory intervention, not yet a statutory sale. Hence, Creditors should seek to have their interests expressly captured in the liability-management plan, where they can be warehoused and settlement provided for in the event of a sale. If they fail to do so, their principal avenue for recovery may be limited to the purchase price paid by the purchaser, distributed in accordance with the applicable order of priority, which may ultimately be insufficient to satisfy their outstanding debts.
The legal limits of NERC’s power
NERC’s intervention powers are broad, but they are not unfettered. Their exercise remains subject to the statutory framework established by the Electricity Act. In particular:
- Statutory threshold: There must be a proper basis for concluding that the licensee is in a “grave situation” within the meaning of section 75 of the Electricity Act with at least one of the four statutory triggers identified above being present.
- Statutory purpose: The intervention must be directed towards the statutory objectives underlying section 75 of the Electricity Act, including maintaining the continuity of electricity supply and resolving the particular statutory trigger that warranted the regulatory intervention.
- Legal constraints: NERC’s exercise of its powers remains subject to applicable legal principles. Accordingly, issues of compliance with statutory preconditions, procedural requirements, and the rationality of the decision may arise in any litigation challenging the intervention.
These limitations do not, however, mean that NERC requires shareholder approval before exercising its power to remove or replace a licensee’s board.
Recommendations
- For KAEDC and its shareholders: KAEDC and its shareholders should closely monitor the intervention and ensure strict compliance with the requirements of the Order. In particular, they should obtain legal advice on the extent to which the intervention affects existing shareholder rights, board powers, contractual arrangements and proposed changes to the company’s shareholding or directorship.
- For creditors: Creditors should undertake an immediate review of their existing exposures to KAEDC, including the nature and enforceability of any security interests. They should also assess the effect of the Order on enforcement rights and engage with the liability-management process within 90 days as directed by NERC, to ensure that their claims are properly recognised and protected.
- For NERC: NERC should ensure that the intervention remains closely tied to the statutory conditions and objectives under section 75 of the Electricity Act. Any further measures taken during the intervention should have a clear statutory basis and be implemented in a manner that provides sufficient certainty to KAEDC, its shareholders, creditors and prospective investors.
- For prospective investors: Potential investors should conduct enhanced legal and regulatory due diligence before committing to KAEDC. This should extend beyond KAEDC’s financial position to include its regulatory obligations, outstanding liabilities, existing security interests, shareholder structure and the statutory implications of any subsequent licence revocation or sale.
- For other DisCos and their stakeholders: Other electricity distribution companies should treat the KAEDC intervention as a regulatory warning. DisCos should strengthen compliance, investment, governance and financial-management frameworks to address regulatory and market defaults before they develop into circumstances capable of triggering intervention under section 75 of the Electricity Act.
- For policymakers and regulators: The KAEDC intervention also highlights the need for greater clarity around the relationship between regulatory intervention, shareholder ownership, creditor rights and the proposed replacement of a core investor. Clearer guidance on how a replacement investor is to acquire an interest during an intervention would provide greater certainty for existing shareholders, creditors and prospective investors.
Conclusion
The KAEDC intervention is more than a decision to remove a board. It is a test of the boundary between regulatory control and corporate ownership. The Electricity Act gives NERC significant powers to intervene in the management of a distressed electricity licensee. However, removing the board does not, by itself, make NERC the owner of KAEDC or extinguish the proprietary interests of its shareholders and creditors.
If the intervention succeeds and KAEDC is returned to a viable position, NERC’s role may remain one of temporary regulatory control. If it does not succeed, section 75(4) of the Electricity Act creates a potential route towards licence revocation and the statutory sale of the undertaking. This is where the balance between regulatory intervention, shareholder ownership and creditor rights becomes most significant.