The Nigerian Electricity Regulatory Commission (NERC) has introduced a new funding requirement that will compel power distribution companies to channel 60 per cent of their earned Non-Administrative Operating Expenditure towards capital projects beginning with the February 2027 market cycle.
The directive, contained in a new Order issued by the Commission and signed by its Chairman, Musiliu Oseni, and Vice Chairman, Yusuf Ali, is aimed at strengthening investment in electricity distribution networks and improving the reliability of power supply.
Under the new framework, DisCos without outstanding market debts will be required to remit 60 per cent of their earned Non-Admin OpEx into dedicated CapEx Provision Accounts, while the remaining 40 per cent will be retained in their respective operation accounts.
However, DisCos with outstanding obligations will operate under a different allocation structure.
NERC stipulated that 30 per cent of the earned Non-Admin OpEx of indebted DisCos should be transferred to their dedicated CapEx accounts, while another 20 per cent will be retained for operations.
The remaining 50 per cent will be applied towards outstanding obligations to the Nigerian Bulk Electricity Trading Plc (NBET) and the Market Operator (MO), where applicable.
The Commission said the new allocation framework followed its review in April 2026 of how DisCos utilised earned Non-Admin OpEx during the 2025 market cycle.
According to NERC, the review showed significant differences in the financial performance and revenue positions of the distribution companies.
It said while several DisCos were unable to generate sufficient revenue to meet their upstream market obligations, some companies recorded revenue recoveries above their upstream obligations.
This enabled such DisCos to earn significant portions of other components of their approved revenue requirements, providing additional resources that could be deployed towards network investment.
NERC also linked the improved financial position of some DisCos to reductions in Aggregate Technical, Commercial and Collection (ATC&C) losses.
The Commission said improvements in loss reduction had enabled some DisCos to generate enough revenue to fully cover their Administrative Operating Expenditure (Admin OpEx), with additional funds becoming available from other components of their approved revenue requirements.
The regulator said the new framework was necessary because DisCos continue to face challenges in accessing external financing for network development and expansion.
NERC therefore said internally generated resources would need to play a greater role in funding investments required to improve distribution infrastructure.
“Non-Admin OpEx is deployed for network improvement and expansion to ensure improved reliability of supply,” the Commission said.
The directive will be implemented in phases, with a transitional allocation arrangement taking effect from the August 2026 market cycle before the 60 per cent CapEx requirement becomes applicable in February 2027.
Under the transitional framework, which will run from August 2026 to January 2027, DisCos without outstanding debts will be required to allocate 50 per cent of their earned Non-Admin OpEx to their CapEx Provision Accounts and retain the remaining 50 per cent in their DisCo Operation Accounts.
For DisCos with outstanding debts during the transition period, 25 per cent of earned Non-Admin OpEx will be allocated to the CapEx Provision Account, while another 25 per cent will be retained for operational requirements.
The remaining 50 per cent will be applied in accordance with the applicable obligations to NBET and the MO.
NERC also provided for DisCos that owe either NBET or the Market Operator but not both.
In such cases, the applicable share that would ordinarily be directed towards the outstanding obligation will instead be remitted to the dedicated CapEx Provision Account.
The Commission’s latest directive effectively places greater emphasis on the use of DisCos’ internally generated resources for infrastructure development, particularly at a time when the companies face constraints in securing external funding.
The policy is also expected to strengthen the link between revenue recovery, loss reduction and investment in distribution infrastructure, as DisCos that improve their collection and reduce technical and commercial losses could have greater resources available for network upgrades.
NERC’s decision comes amid persistent challenges in Nigeria’s electricity distribution system, including inadequate network capacity, technical losses, equipment constraints and the need for additional investment to improve supply reliability.
By requiring a larger proportion of eligible Non-Admin OpEx to be committed to CapEx, the regulator is seeking to ensure that available funds are channelled towards investments capable of improving the capacity and reliability of the distribution networks.
The new framework will therefore require DisCos to balance their operational funding needs with increased obligations to invest in infrastructure, while companies with outstanding market debts will face additional restrictions on the deployment of their earned Non-Admin OpEx.
