Introduction:

The Nigerian Electricity Regulatory Commission (“NERC” or the “Commission”) has delegated regulatory authority over Oyo State’s power market to the Oyo State Electricity Regulatory Commission (“OSERC”). As a result of this order, the newly established OSERC will assume the regulatory responsibilities tasks that NERC previously had prior to decentralization. Decentralisation of Nigerian power regulation is supported by both the 2023 Electricity Act and the 2023 Constitutional Amendment Act, which align with this change. The commission has granted Oyo State the right to control its electricity market independent of NERC through via Order No. NERC/2024/110. This designation makes Oyo State the fifth state with this authority. Before this, Ondo, Imo, Enugu, and Ekiti states were granted similar oversight over their electricity sectors, encompassing power generation, distribution, and transmission. The new regulatory framework for Oyo State, approved by NERC Chairman Sanusi Garba, will take effect on August 6, 2024.

Brief Background

NERC has long overseen the Nigerian Electricity Supply Industry (“NESI”), under a centrally controlled framework. However, following presidential approval of constitutional modifications on March 17, 2023, this centralized system underwent significant transformation. The Electricity Act of 2023, specifically section 2(2), supports the autonomy of states in overseeing their electricity markets. It guarantees that state laws, even in the presence of Federal legislation, continue to apply to all facets of the electricity industry, including transmission, generation, operation of systems, distribution, supply, and retailing. Despite this decentralisation, NERC remains a critical primary regulator, particularly in overseeing the overall,  operations of electricity on both national and international levels.  

States are now empowered to regulate smaller electrical grids, Independent Electricity Distribution Networks (“IEDNS”), and Independent Electricity Transmission Networks (“IETNS”) within their borders, provided they establish the necessary required institutional and legal frameworks. However, states intending to develop and manage interstate electricity markets must adhere to Section 230 of the Act.

Objectives of the Order

The primary objective of the Order is to systematically transition the regulatory authority and oversight responsibilities from the NERC to the OSERC.

Key Directives:

• Decentralisation of Regulatory Authority: The Order aims to implement the constitutional amendments that give states legislative control over their electricity markets. This allows Oyo State to control, oversee, and regulate every aspect of the electricity industry that falls under its scope. This includes setting up and running markets, regulatory agencies, and power plants owned by the state.
• Improvement of State-Specific Regulatory Framework: The Order seeks to create and apply state-specific regulatory frameworks, policies, and tariffs adapted to the requirements and conditions of Oyo State’s electricity market by transferring regulatory oversight to OSERC. This personalisation is anticipated to result in improved regulation and alignment with regional social, ecological, and economic concerns.
  
  
• Enhancement of Service Delivery and Market Efficiency: By creating a more responsive and localised regulatory framework, the Order seeks to enhance the effectiveness of Oyo State’s electricity distribution and supply. To guarantee a more effective, dependable, and continuous power supply to Oyo State consumers, this includes establishing IBEDC SubCo, a subsidiary of the Ibadan Electricity Distribution Company (“IBEDC”), which will be solely in charge of the state’s electricity distribution and supply.
  
  
• Clarity in Asset and Liability Management: The Order lays out the necessary procedures for the identification, valuation, and transfer of all power infrastructure assets, contractual obligations, liabilities, and personnel related to IBEDC’s operations in Oyo State to the newly incorporated IBEDC SubCo. This transfer aims to clarify and guarantee that all assets and liabilities are appropriately managed and accounted for, facilitating a seamless regulatory transition.
  
  
• Facilitation of Inter-Institutional Collaboration: To preserve regulatory coherence and reduce risks related to the transition, the Order highlights how crucial it is that NERC and OSERC continue to collaborate. As part of this partnership, the federal and state levels of government will harmonise concepts, standards, and regulations to provide uniformity and stability throughout the NESI.
  
  
• Protection of Stakeholders’ Interests: By guaranteeing that the transition process is open, systematic, and inclusive, the Order aims to safeguard the interests of all parties involved, including customers, license holders, and permit holders. To reduce any possible hiccups or uncertainties throughout the transition, all impacted parties will be formally notified, and precise standards for tariff setting, contract approval, and regulatory compliance will be established.
  
  
• Timely and Orderly Transition: A precise timeline for the transition is outlined in the Order, with the procedure scheduled to start on August 6, 2024, and end on February 5, 2025. This schedule is designed to ensure that all tasks are completed in a timely and organised manner, including the incorporation of IBEDC SubCo, transfer of liabilities and assets, and the assumption of regulatory responsibilities by OSERC.

Conclusion and Recommendations

The decentralisation of energy regulation has reached a significant milestone with the Order for the Transfer of Regulatory Oversight of the Energy Market in Oyo State. This change is a calculated step toward improving local governance, aligning regulations with Oyo State’s specific needs, and developing a more responsive and effective energy market. By granting OSERC the authority to manage regulatory responsibilities, the state is better equipped to handle the opportunities and problems within its electricity sector. For the successful implementation of this Order, all stakeholders—including regulatory bodies and to electricity providers—must adhere to the detailed transition plan and timelines outlined by NERC. This will guarantee an orderly transfer of duties, which would eventually result in improved better service delivery, increased operational effectiveness, and steady growth in the electricity market in Oyo State. Going forward, the Oyo State Government and OSERC must maintain a collaborative relationship with NERC to navigate any challenges that may arise and, ensure that this regulatory shift’s objectives are fully realised.

Introduction

Nigeria seeks to increase the effectiveness and reliability of its power sector. It has established a framework that aims to facilitate a more competitive environment by promoting direct contracts between Generation Companies (GenCos) and Distribution Companies (DisCos). This Order represents a strategic change from the previous provision, in which the exclusive authority to buy power from the GenCos and resale to the DisCos, so serving as a middleman in the Nigerian electricity trading, belonged to the Nigerian Bulk Electricity Trading Company (NBET) Plc. This regulatory initiative is expected to transform Nigeria’s electricity market by promoting bilateral trading, enhancing competition, and improving the contractual framework while providing clear directives to NBET regarding its role, responsibilities, and orders on energy invoicing and settlement. The “Order on the Transition to Bilateral Trading in the Nigerian Electricity Supply Industry (NESI)” (the Order), which came into effect on the 25th of July 2024, represents a significant shift in Nigeria’s approach to electricity market operations. It essentially provides the context of the Order. It comprehensively describes the Trends in the Wholesale Energy Trading Segment of NESI, the Administration of the Power Purchase Agreements (PPAs) with Omotosho Power Plc and Olorunsogo Power Plc; the current State of Energy Trading with NBET, Objectives of the Order and categorised the capacity of DisCos based on vesting contracts and GenCos contracted or vested capacities with fully operational agreements.

By analysing the regulatory changes and their anticipated impact on market dynamics, this review aims to provide a comprehensive understanding of the Order’s role in shaping the future of Nigeria’s electricity landscape.

Background of the Order

The Order is rooted in the broader context of Nigeria’s electricity sector reforms, which began with the unbundling of the Power Holding Company of Nigeria Plc. (PHCN). This unbundling was part of a strategic initiative to privatise the successor GenCos and DisCos to enhance efficiency and service delivery in the power sector. The Electric Power Sector Reform Act (EPSRA) established a framework to create a bulk trading company, tasked with serving as an interface for GenCos and DisCos. This was required to make it possible to buy capacity and energy up until the DisCos could get the necessary creditworthiness to enter into Power Purchase Agreements (PPAs).

Consequently, the NBET Plc was incorporated in 2010, with the mandate to serve as a credible off-taker, ensuring that GenCos received timely payments while enabling the development of bankable independent power projects. In August 2011, the NBET was licensed by the Nigerian Electricity Regulatory Commission (NERC), with a crucial part in acquiring and offering DisCos ancillary services and bulk electricity with a 10-year tenure license, subject to renewal, which NERC would determine. The energy and capacity contracted by NBET are in accordance with the proportion of assured capacity indicated in the completed Vesting Contract (“VC”) between NBET and the DisCos are vested in the DisCos. 

However, over time, it became evident that the NBET’s continued dominance and monopoly hindered the transition to an increasingly competing and decentralised electricity trading environment. Upon the expiration of the NBET’s initial 10-year license, NERC renewed its license for a period of three years only after consultations with stakeholders who highlighted the shortfalls associated with NBET’s role and cited that beyond tariff assistance, its ongoing involvement has served as a deterrent to bilateral contracting between DisCos and GenCos, thereby exposing the federal government to income deficits. In response to these challenges, the Electricity Act 2023 mandated NERC to guide the development of NESI towards more advanced market stages. This included directing NBET to stop executing new agreements to purchase and resell electricity and to leave its existing contractual rights and obligations to other licensees.

Trends in NESI’s Bulk Electricity Trading Division

The trends in  NESI’s bulk electricity trading are a significant evolution in the market dynamics, particularly in the transition towards bilateral trading, an increasingly competing and decentralised electricity commercial environment. Since 2022, NERC has actively encouraged the development of a more competitive trading environment, leading to several notable trends. There have been private trading companies, and ten private businesses who are interested in trading electricity bilaterally with DisCos and qualified consumers have been granted trading licenses by the Commission. This influx of private players indicates a growing interest in the wholesale electricity market outside the traditional single-buyer model dominated by the NBET, hence creating the possibility of wholesale electricity trading outside of the NBET’s exclusive clientele. Before this time, DisCos had usually requested regulatory approval from other parties for electricity purchases. At the same time, several DisCos stated that they would prefer to buy electricity from the GenCos directly or via other trading licensees rather than relying solely on NBET. 

On the other hand, NERC has gotten some notifications from a number of GenCos indicating their intention to exercise the partial or complete exit rights outlined in their PPAs with NBET to enter into contracts for the direct supply of electricity to DisCos, other bulk traders, and qualified customers. There is a growing willingness among GenCos to explore alternative trading arrangements that may offer better financial viability and operational flexibility.  GenCos entering into bilateral contracts with DisCos for electricity and capacity are primarily motivated by the desire to increase the predictability of production and the accessibility of gas to obtain satisfactory off-take commitments supported by some payment guarantee.

PPAs Administration with Omotosho Power Plc and Olorunsogo Power Plc

NBET and Pacific Energy Ltd (the operator of both power plants) contracted for a capacity of 304 MW for the Olorunsogo and Omotosho power plants under a PPA.  The PPA stipulates an arrangement to ensure a reliable electricity supply to the grid with a contracted capacity of 304 MW for each plant and a minimum guaranteed capacity charge of 186 MW. In 2023, the average availability of the Omotosho and Olorunsogo power plants was reported at only 106.6 MW, significantly below the contracted capacity.  However, operational records show a significant mismatch with the capacity payment of 186 MW. This shortfall was primarily attributed to gas supply shortages, which had hindered the plants’ ability to meet their generation obligations. A significant challenge was the need for bank guarantees to secure payment obligations under the PPAs, which created financial risks for Pacific Energy Ltd. To address these challenges, NBET waived the requirement for a firm gas supply agreement (GSA) through a supplement to the PPAs, providing some flexibility in meeting capacity delivery obligations. By signing an amendment to the PPA, NBET eliminated the requirement for a formal gas supply agreement.

NERC emphasises eliminating payments for undelivered capacity for all “take and pay” contracts. Therefore, this directive seeks to ensure that the plants operate at a minimum level to fulfil their contractual obligations. NERC has further mandated that the power plants be dispatched at no lower than their “take or pay” capacity of 186 MW. Thus, from 1^st October 2024, Pacific Energy Ltd will be held accountable for both plants’ combined mechanical and gas availability. Failure to achieve the minimum average availability of 186 MWh/h will result in liquidated damages, thereby incentivising improved operational performance.

Present Energy Trading Situation with NBET

The current state shows several challenges and developments within the NESI. Although the Power Sector Recovery Program (PSRP) has made progress in improving the sustainability of the national electricity supply, the difficulty of having insufficient income to meet funding needs has persisted since 2013. Factors contributing to this liquidity issue include non-cost reflective customer tariffs, untimely subsidy disbursement, and inadequate DisCo billing. NBET has always been dependent on PSRP funds and ad hoc payments from budgetary appropriations, and the Federal Government’s balance sheet. Only eight of the twenty-eight GenCos trading with NBET had fully functional contracts supported by payment guarantees as of June 2024. The remaining 20 GenCos operated. On a “take and pay” basis without such guarantees, they are leading to significant operational challenges and growing debt for electricity delivered to the grid. The average plant availability factor for GenCos has been low, with only 23.25% of the gross installed capacity available for generation quarter one of 2024. This introduced operational challenges due to debt growth, high plant unavailability and limited capacity availability. The mismatch between supply and demand on the national grid is made worse by this low availability, contributing to technical fragility and customer dissatisfaction. Consequently, the NESI continues to face liquidity challenges due to non-cost reflective end-user tariffs, delayed subsidy disbursements, and poor billing and collection practices by DisCos. These issues have hindered NBET’s ability to attract new Independent Power Producers (IPPs) and secure sustainable financing.

Objectives of the Order

The goal of the Order is to move the market for power towards bilateral contracts, reducing the financial risk exposure of the Federal Government to the market. It also seeks to promote a market structure that is more competitive. by repositioning NBET from being the sole bulk electricity trader in NESI, providing equal opportunities for thermal and hydro power companies to lower their contracted capacities, changing the NESI’s bulk energy trading contractual framework to “take-or-pay” contracts, to encourage more market discipline and clarity among players and allowing DisCos to optimise their wholesale energy off-take.

Nigerian Electricity Regulatory Commission’s Directives and Orders

NERC has directed by NBET to cease pursuing new NESI contracts for power and ancillary services. Any violation will result in regulatory sanctions. Meanwhile, NBET will in the meantime continue administering contracts with five GenCos, (Azura Power West Africa Limited (APWAL), Omotosho Power PLC, Olorunsogo Power Plc, Nigerian Agip Oil Company Limited and SPDC Company of Nigeria Limited) vested with capacity from these plants based on their vesting contracts in line with the capacities contained in Table 1 of the Order. The System Operator (“SO”) is directed to dispatch APWAL at a baseload equal to its lowest take-or-pay capacity of 360. Additionally, in the event that on-grid GenCos are unable to fulfil their contractual obligations, the SO may issue directives to APWAL to enhance generation and function as a supplier of last resort. After that, NBET will send an invoice to the impacted GenCo(s) for the energy that the APWAL provided on their behalf.  Within sixty (60) days of the Order’s inception, any other power plants that have interim energy sales agreements or “take and pay” PPAs, in addition to the capacity that is currently with the NBET (“Contracted Capacity”), must negotiate and enter into bilateral agreements with DisCos. NERC’s Q1/2024 review of GenCo’s performance showed an average plant availability factor of 23.25%. Contract capacity for GenCos as seen in the first Schedule of the Order. GenCos must inform NBET of any bilateral capacity exchanged with DisCos and/or eligible customers on or before 30^th September 2024. Thus, on the basis of an interim agreement, any residual capacity that is not exchanged with DisCos will be traded with NBET.

Furthermore, hydropower GenCos must equitably make available their contracted capacity to DisCos, provided the net capacity being traded is not less than the average capacity supplied in 2023. DisCo’s maximum bilaterally traded energy capacity shall be determined by the difference between its energy offtake in the July 2024 MYTO Order and its share of the “NBET Firm Capacity” in Table 2.  Where the committed capacity in the July 2024 MYTO Order is greater than the total capacity contracted from NBET’s firm capacity and bilateral contracts, the deficit capacity will be filled from the NBET interim pool on a “take and pay” basis. The SO will give NBET Firm Capacity and bilaterally contracted energy priority over residual capacity with NBET in the merit order dispatch of generation plants. GenCos capacity under bilateral contracts will be supported by firm GSAs on a “take or pay” basis within three months of contracting, with adequate provisions for supplier defaults. The administration of PPAs with Omotosho Power Plc and Olorunsogo Power Plc will follow certain guidelines. The payment waterfall will rank the payment obligation to Pacific Energy Ltd pan passu with the bilaterally contracted energy by DisCos as a proxy for payment assurance if a bank guarantee is not available to back NBET’s payment obligation under its PPA with Pacific Energy Ltd. The SO will ensure that Pacific Energy Ltd’s Olorunsogo and Omotosho power plants are dispatched at a capacity of 186 MW. Pacific Energy Ltd must secure a firm GSA covering its capacity delivery obligation of 186 MW for each power plant under its PPA with NBET within six weeks from the commencement of the Order. In addition, from 1^st October 1, 2024, Pacific Energy Ltd will be responsible for the plants’ combined mechanical and gas availability, with failure resulting in liquidated damages.

The procedure of energy invoicing and settlement will focus on bilateral contracts, NBET’s role in managing tariff subsidies and the distribution of waterfall DisCo revenue collection, which will ranked as follows: energy traded bilaterally between DisCos and GenCos, NBET firm contracts with five GenCos, NBET pool energy under temporary “take or pay” structures, and PPAs. Firm bilaterally contracted capacity will align with recoverable generation costs, reducing payment default risks and ensuring market discipline by all parties. NERC will review monthly tariffs to ensure that DisCo-permitted tariff is adequate to cover the agreed-upon BTE expenses. If a DisCo’s tariff exceeds BTE, NERC will provide regulatory direction. DisCos will be required to hire greater capacity if the Federal Government of Nigeria’s (FGN) tariff reform policies enable higher market revenues. NERC and NBET will collaborate with all government ministries, departments and agencies (MDAs) to develop a credible financing plan for any tariff policy approved by the FGN.

Conclusion and Recommendations

The successful implementation of the directive specified in the Order is crucial for Nigeria to achieve better service delivery, increased investment prospects, and increased consumer satisfaction as it navigates this critical phase of its reform in the power sector. In the end, cooperation between all parties involved will be necessary to reap the total rewards of bilateral trade and guarantee the country’s reliable and sustainable electricity supply. It also gives DisCos more freedom to manage their energy procurement strategy and bargain for improved terms and conditions in the NESI; this move aims to empower market players and promote a more orderly and transparent electricity trading environment. However, NERC has a huge responsibility to complete this shift ahead of time. Firstly, Regular audits of the agreements between GenCos and DisCos would help NERC prevent possible market abuses and preserve transparency while strengthening its enforcement and monitoring capabilities to guarantee adherence to the new bilateral trading regime.  In addition, NERC needs to set up the necessary tools and training so that GenCos and DisCos can successfully negotiate the new bilateral trade environment. Stakeholders can also benefit from these workshops and seminars by better understanding the nuances of risk management, contract negotiation and market operations. Again, NERC should also collaborate with financial institutions to create customised financing options for credit facilities or guarantees for GenCos and DisCos to facilitate the switch to bilateral contracts and enhance the creditworthiness of market players. Also, to foster confidence and promote market participation, there should be a greater understanding among all parties involved, especially consumers, of the advantages and operation of the new trading system. Lastly, NERC needs to proactively expedite the licensing procedure for novel trading enterprises while guaranteeing that current participants are not unfairly privileged.

Introduction:

One of the main concerns of countries all over the world is the issue of energy security. Energy-rich nations must contend with issues related to energy security. For instance, Nigeria’s economy in which crude oil and natural gas are the primary economic commodities, exemplifies the country’s sensitivity to energy. Therefore, Nigeria’s inadequate and inefficient use of crude oil and gas to meet its domestic energy needs over the years, gave rise to energy instability in the country. Thus, in an attempt to address the nation’s persistent problem of inadequate energy supply, a tripartite committee was formed by the Nigerian Upstream Petroleum Regulatory Commission (“NUPRC” or “the Commission”) to tackle problems relating to the implementation of Domestic Crude Oil Supply. This committee, comprised of representatives of the Commission, NNPC Ltd, Oil Producers Trade Section (“OPTS”), Independent Petroleum Producers Group (“IPPG”) and Crude Oil Refiners-Owners Association of Nigeria (“CORAN”), and Dangote Refinery, developed a “Framework for Seamless Operationalization of the Domestic Crude Oil Supply Obligations (DCSO)” to ensure effective and efficient management of crude oil supply and likewise prevent shortages of crude oil supply to domestic refineries.

This article discusses the background and goals of the framework. It examines the framework’s provisions and further explores recommendations for strengthening the framework.

Brief Background:

 In an attempt to curtail Nigeria’s great dependency on imported petroleum liquids and product, a new obligations requiring oil producing companies to supply crude to domestic refineries before exportation has been imposed. The NUPRC has developed a regulatory template “DCSO framework” in this regard, thereby fulfilling its obligation under section 109 of the Petroleum Industry Act (PIA) 2021. The guideline was created in cooperation with relevant institutions. It guarantees that domestic crude supply commitments are fulfilled to local refineries, thereby boosting the supply of crude oil to local refineries including the recently established Dangote Refinery. The guidelines lay down responsibilities of oil producing companies, prescribes sanctions for non-compliance in accordance with section 231 of the PIA  2021 and further addresses legal, administrative, and logistical elements.

This DCSO intends to guide companies on the imposition of domestic crude supply obligations on lessees (holders of petroleum mining leases) in upstream operations including penalties.  Its provisions cover the procedure imposing domestic crude supply obligations on upstream petroleum operations, including payments, penalties, and requirements for regular allocation supply of refinery crude. This Framework ensures that crude oil will be sold only to holders of a Refining License with operational refineries in order to promote long-term sustainability in Nigeria’s oil sector as well as improve the nation’s overall economic stability. Accordingly, its ultimate goals involve minimizing shortages, promoting fairness, and guaranteeing a steady supply of crude oil to the country’s refineries.

Furthermore, the guideline seeks to prevent shortage in petroleum operations and guarantee a smooth and effective delivery of petroleum products to domestic refineries by establishing a comprehensive structure that encourages collaboration, transparency, promotes Lessees-Refiner negotiation of extra crude oil supply and guarantees the transparent distribution of expected production levels to domestic demand. The establishment of a simplified and effective domestic crude oil supply structure will provide a steady foundation for crude oil supply, ensure crude security and prevent crude oil diversion, reduce operational delays, and apply consequences of non-compliance. With the DSCO, crude supply can be commercially negotiated, considering international market prices, and license holders can make payments in United States Dollars (USD) or Naira.

Contents of the Framework:

1. Legal Framework: This framework was issued pursuant to Parts III and IV of The Production Curtailment and Domestic Crude Oil Supply Obligation Regulations 2023 and Sections 109 and 231 of PIA 2021.
2. Procedure for Implementation of Domestic Crude Oil Supply Obligations (DCSO):
   The Nigeria Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) is responsible for furnishing the NUPRC with the necessary crude oil requirements of refineries and disclosing any supply shortage to the Commission. Thus, before lessees can export any excess quantities, they must first fulfil their domestic supply obligation (DSO). The domestic crude oil refining requirements of operating refineries in Nigeria will be published bi-annually by the NUPRC on its official website and in three newspapers based on the NMDPRA data. It shall be released yearly on the 1 of January and 1 of July and will include the total number of functioning refineries, the plate crude requirement of each refinery, the actual forecasted daily crude requirement of each refinery for the publication period, the name and location of each refinery and the crude specification for each refinery. Furthermore, the NUPRC will provide information about the production forecast of each producing licensee for the corresponding period based on a daily rate, name, location and terminal stream of each producing license, name of licensee of each producing license and crude specification produced from each license.
   
   
3. Procedure for Domestic Crude Oil Requirement Allocation:
   Before a request for quotation (RFQ) will be released, the NUPRC is required to develop transparent metrics to determine how much crude oil is allocated for domestic consumption. In spite of this, lessees are allowed to negotiate with refineries for extra supplies, mutually agree on rates and take into account the monthly fiscal differences of oil prices. Additionally, where a refinery is having trouble finding crude oil, they may request assistance from the Commission before the 15 Business day of M-3.

   NUPRC then issues an RFQ for required crude oil grades and volumes to lessees on the 1 and 2 Business days of M-2 and lessees are expected to reply to the Commission’s RFQ by the fifth business day of M-2, per the standards for DCSO. The Commission then shares the bid with the refiner between the sixth and seventh business day of M-2. By the eighth or eleventh day of M-2, the refiner then signs a Sales and Purchase Agreement (SPA) with the lessee on a willing buyer, willing seller (WBWS) basis. The Commission releases the results of lessees and refineries, showcasing domestic supply records, after every six-month cycle. In assessing or determining a fair price where inappropriate pricing is causing a standoff, the Commission is to use the fiscal oil price differentials.

   The DCSO will ensure that the allotted volumes are completely discharged to the assigned refinery. On the tenth and fifteenth business days of M-2, there will be a programming meeting for stakeholders regarding the Domestic Crude Refining Requirement (DCRR). Subsequently, on the sixteenth and nineteenth business days of M-2, there will be a meeting for production curtailment and lifting programming. However, the Commission may impose a DCSO on the lessee if the deadlock continues; and it will be announced by the fourteenth working day of M-2. However, a DSCO will not be imposed if the unreasonableness is because of the refiner.

Payment Instruments:

1. Letter of Credit: The Refiner’s Bank must provide a reputable Nigerian or International bank with an acceptable irrevocable Letter of Credit (LC) to the lessee’s office within six banking days before the first day of LAYCAN and the bank must be approved by the lessee. The LC is valid for 90 days, effective from the second day of LAYCAN with a minimum rating of BBB. If the lessee and refiner have a long-term supply and purchase contract, they can use a revolving standby letter of credit (SBLC).
   
   
2. Bank Guarantee: The Lessee can accept a Bank Guarantee from refiners with smaller output capacities. The Guarantee must be irrevocable and revolving, issued by a reputable Nigerian bank for an amount that is equal to the sales value of the crude oil cargo. The guarantee must be provided seven days before the first delivery and valid for one year with its initial expiration 31 December of the year of issuance. The Guarantee must be drawable on demand without the buyer’s consent and can be replaced and extended for thirty days before its expiration.

Payment: 

Payments may be made in either USD or Naira, or both. Where payment is made in both currencies, the split shall be as agreed by the parties in the SPA.

Logistics Scheduling:

On the first day of LAYCAN, the lessee and refiner must reach an agreement on the loading or delivery window, which must not exceed the 25 of M-2.  If there are operational limitations, the lessee must inform refiners of a changed delivery window within 21 days of LAYCAN’s issuance. The Refiner must ensure proper logistics arrangements to load within the agreed delivery window to prevent tank/top production curtailment or face penalties.

Continuous Obligation:

A lessee’s obligation to sell crude is contingent upon the refinery’s operation when entering a long-term supply contract.

Crude Oil Diversion:

DSCO-allocated cargo must be discharged into the designated refinery without diversion or swapping. Accordingly, Refiners using DSCO allocations for non-domestic processing without the Commission’s approval will face suspension and penalties, and prosecution. 

Penalties Under the Framework:

1. Failure to respond to Commission’s Request for Quotation: Lessees who fail to respond to NUPRC’s RFQ or submits RFQ outside the specified time frame, is liable to an administrative fine of $10,0000 to the Commission. While lessees affected by force majeure situations must respond to the RFQ with an attached declaration of force majeure.
   
   
2. Failure to Comply with DCSO: Lessees who fail to comply with the DSCO by not entering into a contract for delivery or supply under the Framework, is liable to an administrative penalty of 15% of the fiscal price of the DSCO volume imposed and payable to the Commission. However, this penalty does not apply for defaults caused by force majeure, default of the buyer under the supply contract, or any other reason acceptable by the commission.
   
   
3. Default of Payment: Where a Refiner defaults in payment, the Commission will not allocate DCSO to that refiner for a specified period in addition to the penalty outlined in the SPA between the refiner and the lessee.
   
   
4. Failure to lift within the Scheduled LAYCAN (or delivery window): If the Refiner fails to lift within the scheduled LAYCAN, leading to tank top/production curtailment, the Commission will suspend the Refiner from DSCO allocation and impose a fine equivalent to the delayed royalties.
   
   
5. Failure to offtake Crude: Where Refiners fail to offtake the allocated DSCO, they shall face the following penalties: Take or Pay conditions, for pipeline, barging or trucking deliveries; Liquidated damages for marine deliveries under the SPA, and the lessee shall sell off the crude oil parcel as distressed cargo, and selling crude oil parcel as distressed cargo for marine deliveries with the defaulting refiner liable for liquidated damages.
   
   
6. Failure to supply Crude: A lessee who fails to supply DSCO, resulting in refinery shortage will be liable to an administrative penalty of 15% of the fiscal price of the imposed DSCO volume.
   
   

Conclusion and Recommendations:

The long-term reliability of Nigeria’s oil and gas sector will be reflected in the longevity of our domestic refineries. Thus, the goal of making Nigeria a net exporter of refined petroleum products starts by measuring how Nigeria can effectively distribute crude to its domestic refineries.  The PIA, 2021 and the NUPRC’s further formulation of DCSO is necessary in strengthening Nigeria’s domestic refining capacity and to become less dependent on imported refined products. To increase the efficiency and reliability of Nigeria’s supply of crude oil to domestic refineries, the NUPRC should ensure that the new DCSO requirements are rigorously followed for a predetermined amount of time. Thus, enforcing stringent penalties for non-compliance will deter lessees and refiners from violating the terms of the guidelines, agreements or contracts and ensure steady supplies of crude oil to domestic refineries.  Furthermore, to strengthen the connection between lessees and refiners and to ensure accountability, the NUPRC should also effectively communicate with all stakeholders involved. This includes setting up a clear framework for the transparent reporting and distribution of refinery demands and lessees’ output predictions. The committee should update the framework frequently to close gaps and quickly handle newly discovered issues. Again, important facets of petroleum operationalisation, such as implementation procedures, payment security, logistics, ongoing accountability, and fines, are covered in this thorough framework. It provides local refineries with a well-organised method for a seamless crude oil supply. 

Introduction:

On June 27^th, 2024, the Nigerian Electricity Regulatory Commission (“NERC”) issued an Order to transfer the regulatory oversight of the Electricity Market in Imo State to ISERC. This move follows the enactment of the Constitution of the Federal Republic of Nigeria, 1999 (Fifth Alteration), Act, (No. 17), 2023, and the Electricity Act 2023 (“EA 2023”), which facilitated the decentralization of electricity regulation in Nigeria.

The Nigerian Electricity Supply Industry (“NESI”) has always operated under a centralized jurisdiction overseen by NERC. However, a significant shift occurred with the presidential assent amending key sections of the Nigerian Constitution on March 17, 2023. Specifically, Paragraph 14(b) Part II of the Second Schedule to the 1999 Constitution was amended to grant states legislative authority over the generation, transmission, and distribution of electricity within their respective territories. This Constitutional amendment, coupled with Section 2(2) of the EA 2023, recognizes the autonomy of states in managing their electricity markets. This provision ensures that state laws pertaining to generation, transmission, system operation, distribution, supply, and retail of electricity are not invalidated by federal legislation. This includes the provision for the establishment and management of state-owned electricity power stations, markets, and regulatory bodies.

Despite the decentralization, NERC maintains a pivotal role as the central regulator responsible for overseeing inter-state and international electricity generation, transmission, supply, trading, and system operations. However, states are empowered to regulate mini-grids, Independent Electricity Distribution Networks (“IEDNs”), and Independent Electricity Transmission Networks (“IETNs”) within their territories, provided they establish the necessary legal and institutional frameworks. States seeking to regulate intrastate electricity markets must adhere to the provisions of Section 230 of the EA 2023. This section outlines the procedure for states to enact relevant laws, establish state electricity regulatory authorities, and formally request NERC to hand over regulatory oversight of electricity operations within the state to new regulators now established by the state.

Objectives of the IMO Order and Key Directives for Transition:

The overarching objectives of the Order are outlined as follows:

1. Initiate the Transfer Process: Begin the process of transferring regulatory oversight of the intrastate electricity market in Imo State from NERC to ISERC, in accordance with the legal framework set by the CFRN and the EA, 2023.
2. Establish a Transition Plan: Provide a comprehensive plan to manage the transition, ensuring all procedural and logistical steps are clearly outlined and adhered to.
3. Address Transitional Matters: Identify and resolve any issues that may arise during the transition phase, ensuring a seamless transfer of responsibilities.

In compliance with Section 230(3) of the EA, 2023, NERC has developed a transition plan to facilitate this transfer to ensure a smooth transition of responsibilities. Key directives for transition include:

1. Incorporation of a Subsidiary: The Enugu Electricity Distribution Company (“EEDC”) is instructed to register a subsidiary (“EEDC SubCo”) with the Corporate Affairs Commission tasked specifically with handling intrastate electricity supply and distribution within Imo State. This subsidiary is be incorporated within 60 days from the start date of the Order and acquire a license for intrastate electricity supply and distribution from ISERC.
2. Geographic and Network Delineation: EEDC is directed to delineate the geographic boundaries of Imo State, establishing boundary meters at all crossing points to ensure a standalone network for Imo State.
3. Asset and Liability Management: EEDC is responsible for identifying and transferring all relevant assets, liabilities, and employees to EEDC SubCo. This includes establishing an asset register and apportioning contractual obligations related to operations in Imo State.
4. Register and Notification: NERC will compile a register of licensees and other authorization holders in Imo State, notifying them of the regulatory oversight transfer to ISERC.
5. Contractual and Tariff Details: ISERC will validate supply contracts for EEDC SubCo. Authorization from NERC will be required for the electricity sourced from the national grid.
6. Regulatory Responsibilities: ISERC is mandated to adopt and implement an end-user tariff methodology exclusive to Imo State. While contracts and tariffs related to national grid electricity must be approved by NERC, final end-user tariffs will be set by ISERC in collaboration with the Government of Imo State.
7. Completion Timeline: All transfers and necessary adjustments are to be finalized by December 31, 2024.

These directives and objectives underscore the structured approach toward transitioning regulatory oversight of the electricity market in Imo State to the newly established ISERC, ensuring regulatory compliance and operational continuity throughout the process.

CONCLUSION

The Order marks a significant power shift in the evolution of the country’s electricity regulatory landscape. This Order signals the beginning of a carefully calculated transition, transferring regulatory responsibilities from the central oversight of the NERC to the newly empowered ISERC.

INTRODUCTION

The dire need to ensure fair access, efficient and effective distribution of electricity is quite paramount in the electricity sector. In order to achieve this stride, the Nigerian electricity Regulatory Commission (NERC) released the Eligible Customer’s (EC) Regulations 2024, pursuant to Sections 11, 12, and 13 the Electricity Act 2023 (the Act), to establish criteria for customer eligibility, stating the categories of persons who can access certain types of services and the conditions under which such services can be accessed. Understanding these criteria is essential for both consumers and service providers for effective navigation of the landscape of established electricity provisions. The criteria for customer eligibility are outlined by NERC, these criteria serve several purposes, including ensuring the reliability and stability of the electricity grid, promoting competition and safeguarding consumer rights. This paper shall examine the intricacies involved in acquiring the status of an eligible customer as well as the rights and obligations of the EC and suppliers and other parties to the transaction.

CUSTOMER ELIGIBILITY

NERC through its guidelines have set different criteria for who constitutes an eligible customer. The regulations classify eligible customers into different classes or categories based on various factors such as consumption levels, connection types, and agreements with electricity providers.  

The NERC classified eligible customers into five classes.in the following manner:

1. Point to Point Connection: This category typically applies to end-users with a significant level of consumption, usually not less than 6MWh/h over a 90-day period. These customers are directly connected, or will be connected, to a generation facility via a metered 33kV delivery point. Agreements with both generation and distribution licensees are necessary for energy procurement and delivery.
2. New Connection to 33kV Network: These are unconnected end-users planning to consume at least 10MWh/h over 90 days. They must be connected to a metered 33kV delivery point on the distribution network and have agreements in place for energy delivery.
3. Existing DisCo’s Customer Transitioning to Eligibility: These are customers are already connected to the distribution network but seeking eligibility, they typically have consumption levels similar to those in the second class. They must meet the same consumption criteria and have appropriate agreements with distribution licensees.
4. Existing Customer Connected to Transmission Network: This category includes customers with substantial consumption levels, often not less than 20MWh/h over 90 days. They are directly connected to a metered 132kV or 330kV delivery point on the transmission network and have agreements in place for energy delivery.
5. New Connection to Transmission Network: This applies to unconnected end-users with planned consumption levels of at least 20MWh/h over 90 days. They must be connected to a metered 132kV or 330kV delivery point on the transmission network and have relevant agreements in place.

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Abstract:

The distribution of petroleum resources has always been an issue of serious controversy in the Nigerian state under the previous petroleum regime. Thus, this paper examined the extent to which the newly enacted Petroleum Industry Act (PIA) 2021 has engrained distributive justice with respect to petroleum resources management. It concludes that the PIA has made giant strides towards this end, in view of the creation of the Host Communities Development Trust Fund, Frontier Basin Exploration Fund and improved environment protection measures. However, this study identified certain factors which will limit the full realisation of the distributive justice intendment of the Act. It is, therefore, submitted that until these issues are addressed, distributive justice would continue to remain elusive for petroleum resources management.

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Introduction:

The emergence of social media has remarkably redefined human interactions, making communication more interactive and immediate. With platforms such as Facebook, X, Instagram, YouTube, TikTok, and LinkedIn ingrained in our daily lives, individuals can now instantly share their thoughts and experiences with the global audience, fostering real-time engagement and feedback. Social media has introduced novel platforms that enable content creators and business owners to connect with their audiences and customers, as well as to promote their offerings and services. While it is indubitable that the emergence of social media has enhanced connectivity and convenience, it is not devoid of its negative impacts and challenges, especially as it relates to protecting intellectual property rights (“IPRs”).

According to WIPO, the internet and other constantly evolving digital technologies have opened up exciting opportunities for business and for new modes of creativity, while at the same time presenting complex challenges for the evolution of copyright. Infringements of IPRs has soared with the advent of social media, making these rights more difficult to protect than they were before the evolution  of social media. Consequently, it has become increasingly important for brands and businesses to adopt effective strategies to ensure that their IPRs are protected from infringements

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1. Introduction:

Artificial  Intelligence (AI) is rapidly altering the mode and manner of human and business interactions in the world, with its applications present in virtually every industry and sector ranging from financial to health, real estate, human resources, cloud computing and storage, telecommunications, entertainment/content creation etc. The common denominator in the application of AI in these industries is that data is processed on a massive and continuous scale throughout the lifecycle of AI systems, and much of this data is personal data. The interplay between AI and privacy is evolving and because developing AI systems is iterative coupled with the presence of personal data processing after deployment, AI utilization raises new and complex privacy concerns which pose risks to the rights and freedoms of humans.  

Pre-deployment, AI systems are often trained on massive datasets that contain personal data, which could include sensitive personal data. When AI systems are trained using personal data, they acquire the capacity to make inferences and identify objects, patterns and relationships that can be used to make predictions about human behaviour and preferences. This could be useful in many cases, but it could also pose risks to the rights and freedoms of data subjects and individuals at large. The personal data in training datasets could also be deployed for purposes beyond that for which it was initially processed, and privacy breaches could expose data subjects to numerous risks in the hands of malicious threat actors.

This work  examines the delicate and intricate nexus between AI development and deployment and data privacy and protection.  It  also outlines key privacy considerations that AI developers or organizations should consider to enable compliance with the Nigeria Data Protection Act (NDPA) 2023. The work is  structured into three (3) major sections comprising of  the examination of AI systems use in a Nigerian context; the nexus between AI and the NDPA 2023, as well as  data privacy considerations for AI systems use in Nigeria. There will be references to foreign guides for  context where the NDPA does not provide a sufficient description of a subject or concept.

2. Artificial Intelligence: Uses and Lifecycle

In the Nigerian context, artificial intelligence (AI) is increasingly deployed in diverse applications, including creditworthiness assessment by financial institutions, talent acquisition processes, document authentication, biometric recognition in consumer electronic devices and smart home systems, plagiarism detection, data analysis, chatbots for consumer related services, and generative AI. All the aforementioned applications involve the processing of personal data at some point, and in various capacities and volumes. Some of the industries in Nigeria where this utilization of AI systems is common include legal, finance, healthcare, security, telecommunications, insurance, real estate, etc. Artificial Intelligence has subsets such as deep learning (DL) – the recognition of complex patterns in pictures, text, sounds, and other data to produce accurate insights and predictions e.g virtual assistants, facial recognition and language translation;;[1] machine learning (ML) – the focus on the use of data and algorithms to imitate the way and manner in which humans learn, gradually improving the accuracy of the system e.g customer service chatbots;[2]  and natural language processing (NLP – the  branch of AI) that enables computers and machines to comprehend, generate, and manipulate human language e.g analysis of large documents and also chatbots. An AI system could sometimes rely on third-party frameworks and codes, which creates increased complexity of relationships involving personal data processing.

Artificial Intelligence systems typically transit from the design and development phase to the deployment phase. The design and development phase includes building, testing, and validation of the models by AI developers in collaboration with software engineers, analysts, enterprises etc., to ensure that it meets performance metrics, baselines and is scalable before deployment at production levels.    After an AI model has gone through the iterations of the development phase, it is deployed into production.[3]  As summed by Rybalko, “deployment is the process of configuring an analytic asset for integration with other applications or access by business users to serve production workload at scale.”[4]  Each phase within the outlined life cycle of AI systems exhibits distinct activities, contexts, and goals, entailing a spectrum of varying privacy risks and considerations.  This is further accentuated by the pervasive practice of collecting personal data without data subject participation, as exemplified by web scraping and facial recognition technologies.

3. Nexus Between Artificial Intelligence Systems Use and the Nigeria Data Protection Act 2023:

Section 2(1) of the Nigeria Data Protection Act 2023 (“the NDPA” or “the Act”), provides that the Act shall apply to all forms of processing of personal data, whether by automated means or not. The processing of personal data in AI systems, whether at the development stage or after deployment, falls within the ambit of the NDPA, and the data controller or processor is expected to carefully ensure the lawfulness of such processing, among other key privacy considerations under the Act.

Data Preparation/Data Pre-Processing

Data Preparation is a critical part of an AI system development process. It is the process of gathering, combining, structuring and organizing data so that it can be used in business intelligence (BI), analytics and data visualization applications.[5] Data preprocessing on the other hand, a component of data preparation, describes any type of processing performed on raw data to prepare it for another data processing procedure.[6]

It is usually a misconception that data privacy obligations do not apply to these phases of an AI model development. Under the NDPA, once any operation or set of operations is performed on any information relating to an identified or identifiable individual during these stages, personal data processing is deemed to have occurred.[7] This includes during data collection, discovery and profiling, cleaning, structuring, transformation, validation, etc. Therefore, the data preparation and pre-processing stages fall  within the purview of the NDPA irrespective of how they are designated once an individual can be identified directly or indirectly through the concerned data, until such personal data is deidentified.

4. Data Privacy Considerations for Artificial Intelligence Systems Use;

By virtue of the processing of personal data both at the development and deployment of artificial intelligence models/systems, several privacy considerations must be taken into account  by AI system developers and users that operate within the scope and jurisdiction of the NDPA. The factors below are  not exhaustive, and new regulations  guides, and global best pest practices must be considered at all times to ensure robust compliance with the NDPA. It should also be noted that the considerations below should not be confused with pure principles of responsible AI use.

i. Lawfulness, Fairness and Transparency of Processing:

This is one of the key principles of data privacy and is mandated by section 25(1)(a) of the NDPA. This principle has three arms and demands that all personal data processing must be lawful  fair and transparent. The NDPA does not elucidate on this principle but the GDPR and the UK Information Commissioner’s Office (UK ICO) Guide provide some clarity. The UK ICO, in its Guide on AI and Data Protection, recommends  that to achieve adequate compliance under the lawfulness of the processing arm, each distinct operation during the development phase and the deployment phase must be broken down and an appropriate lawful basis for processing identified.[8] An apt illustration of the appropriateness of this recommendation can be found in the difference between the purposes for designing and training an AI model by a software engineer and data scientists, and the purpose for the purchase and use of such system by a financial institution for credit scoring purposes. The software engineer will primarily focus on designing and training models for optimum performance and prediction accuracy, while the financial institutions deploy  it to determine credit worthiness of individuals. The Financial institutions and the AI systems designers will typically encounter disparate legal basis for processing personal data in the varying circumstances, and must correctly link each basis to the purpose of each processing. 

The Fairness principle requires that personal data should not be processed in a way that is unjustifiably detrimental, unlawfully discriminatory, unexpected or misleading but rather in a way that is reasonably expected by the data subject.[9] It is a key tool to check deception as to the nature and purposes of processing.[10] As enjoined by the UK ICO Guide, when an AI system is developed and deployed to infer data about people, it is expedient that the system is sufficiently statistically accurate and avoids discrimination. Under the NDPA, it is a data subject’s reasonable expectation that the training and deployment of an AI system’s architecture must be meticulously done to prevent the amplification of societal biases which could lead to detrimental and discriminatory outcomes against such data subject or any class of data subjects. As equally explained by the UK ICO, the fairness principle means that your AI system needs to be sufficiently statistically accurate for your purposes. AI systems should also be developed and deployed in a way that makes it easy for data subjects to exercise their rights under the NDPA.

The transparency principle as espoused by the General Data Protection Regulation (GDPR) 2018, requires that any information and communication relating to the processing of personal data should be easily accessible and easy to understand, in clear and plain language.[11] In an AI use context, the above principles form an intricate part of the other and is the foundation on which many data privacy and protection rights are built.

ii. Accountability:

Section 24(3) of the NDPA imposes on data controllers and data processors the duty of care and accountability in respect of personal data processing. Ensuring compliance with these duties lie with the controller who shall ensure adherence of employees, processors, or vendors/contractors to this obligation unless where the other party is also a controller. One of the mechanisms devised to ensure accountability in Nigeria is the filing of annual data protection audits with the regulatory authority, although this is not conclusive proof of compliance with the NDPA and should not be approached in box-ticking manner.

iii. Accuracy of Personal Data:

This is a key data privacy obligation under the NDPA which requires that only personal data that is accurate, complete and not misleading is processed.[12]  Considering the fact that personal data could be scraped from the internet for use in training AI systems, some of these personal data could lose contextual accuracy leading to a misleading output which could affect the rights of such data subject. For instance, a bank’s facial recognition technology. Individuals with good creditworthiness could be denied loans due to inaccurate predictions arising from incomplete personal data processing, restricting access to financial resources and hindering economic opportunities. We also have the possibilities of unauthorized third parties having access to a data subject’s mobile device as a result of incorrect processing of a third-party’s facial features by the device’s facial recognition technology to unlock the data subject’s device. These will breach the accuracy of processing obligation under the NDPA.  It is without peradventure that demographic data changes  creates a challenge for the accuracy of personal data, and where an AI system has already been trained using personal data, updating such personal data could create a challenge.  

iv. Data Protection Impact Assessment:

Considering the use of artificial intelligence systems especially to make inferences and assessment of individuals, the development and deployment of AI systems creates high privacy risks to the rights of data subjects in several instances. There is also the case of third-party dependencies and relationships in the development and deployment of AI systems, further exacerbating the privacy risks inherent in an AI system. Where this is the case, a data privacy impact assessment (DPIA) is mandated under the NDPA.[13] As aptly noted by the U.S National Institute of Standards and Technology, while pre-deployment AI risk assessment in a testing, staging or controlled environment may yield important insights, the true spectrum of risks will only emerge in operational, real-world settings where there may be integration with third- party tools and systems, and these may be in stark contrast to earlier envisaged risks.[14]

The above situation implies that a DPIA may need to be conducted or revisited on several occasions as new privacy risks to data subjects arise and measures to minimize risks are implemented. Where identified high risks to data subjects persist, notwithstanding measures deployed to mitigate such risks, the National Data Protection Commission shall be consulted. The NDPA does not state instances or any baseline that could aid the determination of high risks to data subjects in a privacy context, but the GDPR provides some valuable insight and provides that a DPIA will typically be required in situations where there is:

1. a systematic and extensive evaluation of personal aspects relating to natural persons which is based on automated processing, including profiling, and on which decisions are based that produce legal effects concerning the natural person or similarly significantly affect the natural person;
2. processing on a large scale of special categories of data, or of personal data relating to criminal convictions and offences; or
3. a systematic monitoring of a publicly accessible area on a large scale.[15]

Conducting a DPIA is an intensive process requiring high-level collaboration between privacy and non-privacy professionals. Some key issues to be considered during a DPIA on AI systems include limitation of data subjects exercise of their rights, possibility of identification and exposure of personal data, inability of individuals to access services or opportunities by virtue of automated profiling, discrimination, etc.[16]  The UK ICO also recommends the consideration of allocative and representational harms that processing may have on individuals during a DPIA. Allocative harms arise from the decision to allocate goods and opportunities among a group. This leads to disparities in access to financial resources, livelihood, liberty, and even survival in extreme cases.[17] Representational harm arises when algorithmic systems perpetuate social hierarchies and marginalization by reinforcing negative stereotypes, underrepresenting certain groups, and diminishing their dignity through denigration.[18] These are harms that affect individuals and reduce their capacity to access necessary services.

v. Purpose Limitation:

The purpose limitation principle under the NDPA states that all personal data processing shall only be collected for specified, explicit and legitimate purposes, and not to be processed in a way incompatible with those purposes.[19] This is a delicate principle to navigate that is linked to other principles of processing and will also be dependent on the mode of collection of personal data. For instance, the application of the purpose limitation principle to personal data collected directly from a data subject will vary from that of personal data scrapped off a website or based on other legal bases for processing.  This principle dictates that personal data collected for other purposes should not be redeployed to train an AI system unless such training is compatible with the purposes for which it was initially collected. This prohibition can be only circumvented by seeking the consent of the data subject or relying on other appropriate legal bases. To ascertain the compatibility of further processing to the original purpose, regard should be had to the relationship between the original purpose and the purpose for further processing, as well as the consequences of the further processing, among others.[20]

vi. Data Minimization:

The important question that encapsulates this principle is, “Why do we need this data?” Section 24(1)(c) of the NDPA provides that only personal data that is adequate, relevant, and limited to the minimum necessary for the purposes for which it is sought to be processed should be collected. AI systems could be built in-house by organizations or procured and installed as stand-alone applications or as part of an organization’s infrastructure with customization capacity. This makes the application of this principle vary in context. For example, at the development stage of an AI chatbot being designed to assist customers of a financial institution, is it relevant to collect information regarding the genotype of individuals to form part of the training data of such a model? Upon deployment, is it relevant and necessary for such a virtual assistant to demand access to the phonebook of a customer to be able to verify the identity of a customer?  Answers to these questions are not always in black and white and will always depend on the reason why such personal data is needed.

Irrespective of the fact that AI systems typically require vast amount  of training data for design or improvement after deployment, the NDPA mandates compliance with this obligation. The UK ICO Guide opines  that the key to compliance with this rule is that you only process the personal data you need for your purpose, and does not mean either ‘process no personal data’ or ‘if we process more, we’re going to break the law.’[21] This requires high-level collaboration between the privacy team/consultants/professionals and the AI developers/data scientists, alongside buy-in from management. The application of this principle commences at the design stage or as part of the procurement process due diligence when an organization purchases AI systems or implements AI systems operated by third parties.[22] The UK ICO recommends perturbation or adding ‘noise,’ synthetic data federated learning, converting personal data into less ‘human-readable’ formats, making inferences locally, and privacy-preserving query approaches, anonymization and pseudonymization as techniques that could be applied to the personal data processing to minimize the personal data utilized in AI systems.

At the training stage, striking a balance between data minimization and having sufficient training data for AI models is also crucial. This necessitates the identification of essential features within training datasets, ensuring models’ statistical accuracy and non-discriminatory functionality in line with the principle of fairness.[23] This is also in line with the adequacy component of the data minimization principle, which dictates that personal data should not be processed if it is insufficient for its intended purpose.

vii. Security of Personal Data:

As aptly noted by the NIST, the deployment and utilization of AI systems presents unique risks to society at large due to the complex interplay of technical aspects of these systems combined with societal factors related to how a system is designed and deployed. These factors include its interactions with other AI systems or the integration of third-party tools, the decision-making process of its operators, and the social context in which it is deployed also exacerbate these risks.[24]  Due to the above, privacy risks abound and could pose high risks to data subjects.

Sections 24(1)(f), 21(2) and 39 of the NDPA mandates the processing of personal data using appropriate technical and organizational measures that ensures  the security of personal data. The NDPA recommends the implementation of measures such as the deidentification of personal data, encryption, regular assessment of the effectiveness of measures, etc. The privacy of data subjects whose personal data is used to interact with AI systems can be threatened through threat actors employing various attack vectors such as model inversion attacks, membership inference attacks, black box attacks and white box attacks, which could also enable model inversion attacks.  Security challenges may also arise in a bid to make AI systems explainable to users and stakeholders in line with the AI explainability principle.

The adoption of appropriate security measures will be dependent on the peculiar circumstances. Proper application of data minimization principles under section 24(1)(c) of the NDPA also helps limit the size of personal data that may potentially be exposed to security risks. This principle can be complied with by having and implementing a privacy policy with state-of-the art security measures, and data breach management protocols in the event of a personal data breach. Considering the evolving nature of security attacks and risks to personal data in AI systems, it is paramount to have periodic training of personnel and keeping tabs with advancements within the field.

viii. Designation of a Data Protection/AI Governance Officer:

The NDPA mandates data controllers of major importance to designate data protection officers with expert knowledge of data protection laws and practices to ensure compliance with the NDPA and other subsidiary legislation.[25]  The NDPC recently issued its Guidance Notice on the Registration of Data Controllers and Processors of Major Importance (DCMI/DPMI). By virtue of paragraph 1(1) of the Notice, Data controllers are deemed to be of Major Importance if they maintain a filing system (analog or digital) for processing personal data, AND Process the personal data of more than 200 individuals within six months, OR Provide commercial Information and Communication Technology (ICT) services on digital devices with storage capacity belonging to others, OR Process personal data as an organization or service provider in any of these sectors: finance, communication, health, education, insurance, import/export, aviation, tourism, oil and gas, or electric power. According to the Guide, it is certain data controllers or processors that design or utilize AI systems where personal data processing is carried out in any form will be classified as DCMI  if they meet the designated criteria above at a minimum. It should be noted that there are other risks that arise from the use of AI that are not privacy based and as such an AI Governance Officer could become a necessity in the near future in Nigeria.

ix. Storage Limitation:

This principle under the NDPA dictates that personal data should not be stored beyond the period necessary to achieve the purpose for which it was processed.[26]  This principle is particularly tricky to navigate considering the nature of AI systems, which may need retraining to reflect demographic changes or update the model in line with new information or approaches. There is also the importance of maintaining a balance between the adequate functionality of AI systems and this obligation. Observing data minimization principles and employing personal data deidentification techniques aid in observing this principle. It is important to have data retention policies and consistently adapt these policies in line with the best data retention standards.

x. Exercise of Data Subjects Rights:

The NDPA bestows several rights on data subjects which can only be derogated from in limited circumstances.[27] The most applicable rights within an AI use context include the right to information, right of access to personal data,[28] right to correction,[29] right to erasure,[30] right to restriction of processing,[31] right to objection,[32] right to withdraw consent,[33] and the right not to be subjected to automated decision making.[34]  Subsumed under the right not to be subjected to automated decision-making is the right of a data subject to contest an automated decision and obtain human intervention on the part of the controller if dissatisfied.[35] For example, if through an automated process, a system concludes that a loan applicant is ineligible to take a loan, such applicant should be able to request a human review of his application if dissatisfied. Irrespective of the challenging nature of the obligation to enable an exercise of these rights without constraints or unreasonable delay, organizations that utilize these systems must have procedures in place to enable seamless exercise of these rights by data subjects. The NDPA does not prescribe a timeframe within which to respond to data subject rights requests. However,  it is prudent to designate a timeframe for that purpose. It is also prudent to document every right request and resolution of the request, and where such request is rejected, the reason should be documented properly. Where the exercise of data subjects’ rights would be difficult to facilitate, this should be documented in detail in the DPIA.

xi. Exemption of Application:

The NDPA exempts the application of the Act in several circumstances listed under Section 3(2). For example, a DPIA is not mandated by the NDPA, where processing is carried out by a competent authority for the prevention, detection, or investigation of a crime, or the prevention and control of a national public health emergency, national security, etc. The NDPC is also empowered to prescribe types of personal data and processing that may be exempted from the application of the NDPA.[36]

5. Conclusion:

It is without peradventure that the processing of personal data in an AI system falls within the ambit of the NDPA in Nigeria except in limited circumstances. Consequently, AI system developers, data controllers, and data processors utilizing AI systems are unequivocally bound to comply with the NDPA’s provisions. However, ensuring compliance presents a significant challenge due to the inherent complexities associated with AI utilization. Nonetheless, data controllers and processors are strictly  obligated to adhere to Nigerian data privacy laws throughout the entire lifecycle of any AI system, from the initial conceptualization and design phases to its deployment and operationalization. This obligation commences even before the first line of code is written by an AI developer, or an AI system is procured for organizational use. Consequently, AI developers must actively embrace data privacy by design and default approaches to mitigate potential privacy risks inherent in AI use, and thus facilitate robust compliance with the NDPA.

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INTRODUCTION

The role of the oil and gas industry as the primary contributor to Nigeria’s external reserves undeniably highlights the sector’s economic significance. It is no secret that the sector bears an overarching importance to the well-being of the Nigerian economy. Hence, the decline in investments in the oil and gas sector witnessed by the country has necessitated the drive by the Federal Government of Nigeria (“FGN”) to enhance the investment and operational environment in the sector, to attract both local and international investors.

Nigeria stands as Africa’s largest oil producer, boasting 38% of the continent’s hydrocarbon reserves[1], the country currently only attracts 5% of Africa’s overall oil and gas investments. To foster increased investment and address the challenges facing operators and investors in Nigeria’s oil and gas sector, the President of the Federal Republic of Nigeria and Minister of Petroleum Resources, Bola Ahmed Tinubu in the exercise of the powers conferred on him by Section 100 of the Nigerian Oil and Gas Industry Content Development Act, 2010 signed the Presidential Directive on Local Content Compliance Requirements (“the Directive”) on the 28^th of February 2024 to introduce positive reforms to the oil and gas sector.

Review of the Directive

Compliance with local content requirements:

Under Paragraph 1 of the Directive, the Nigerian Content Monitoring and Development Board (“NCMDB”) in its implementation of the Nigerian Oil and Gas Industry Content Development Act, 2010 (“the Act”) shall ensure that its implementation of the Act:

1. Considers the practical challenges of insufficient in-country capacity for certain services; and
2. Does not hinder investments and competitiveness in the oil and gas projects in Nigeria.

Thus, the NCMDB shall not approve a Nigerian Content Plan (“NCP”) that contains intermediary entities that do not have the essential in-country capacity to perform the services. This is to plug leakages in the industry by rejecting entities that cannot perform the services stated in the NCP.

Violation of the local content requirements:

By Paragraph 1(4) of the Directive, the approval of an NCP by the NCMDB that contains entities acting solely as intermediaries, with no demonstrable capacity to execute the project or activity, shall be considered a violation of the local content requirements.

Development of guidelines by the NCMDB:

The Directive mandates the NCMDB to develop guidelines for evaluating and confirming the capability of companies pursuing contracts for designated activities under the Act in collaboration with industry stakeholders.

Commentary:

The Directive aims at tackling the difficulties encountered in the Nigerian petroleum industry due to the rigorous enforcement of Nigerian content regulations. This enforcement has resulted in unintended outcomes such as the emergence of intermediary firms lacking the necessary expertise or capabilities to fulfil oil and gas contracts. Consequently, this has also introduced an unnecessary layer of rent-seeking entrepreneurs, leading to increased costs and tax burdens.

Furthermore, it is important to highlight that the Directive does not provide a specific definition of “Nigerian content.” However, section 106 of the Act does clarify the term thus:

“The quantum of composite value added to or created in the Nigeria economy by a systematic development of capacity and capabilities through the deliberate utilization of Nigerian human, material resources and services in the Nigerian oil and gas industry”.

Nonetheless, it is crucial to underscore that the Directive has not introduced anything distinct from the provisions of the Act concerning the Nigerian content philosophy. The sole difference lies in its designation of non-compliance with this philosophy by the

NCDMB or the operators as a violation, without explicitly specifying the penalty for such infringement. Similarly, the Act does not outline any penalties for such violations. Hence, it remains uncertain what actions the NCDMB or operators will take.

Conclusion:

The issuance of the Directive reflects a conscious effort and commitment by the Federal Government of Nigeria to cultivate an environment that not only expedites investment in the oil and gas sector but also ensures that the dividends of such investments positively affect the Nigerian economy. This Directive is viewed as a positive step forward, expected to foster a favourable operating and investment climate while eliminating redundant layers of contractors. The Directive signifies a move in the right direction towards sector reform, and is aimed at promoting genuine Nigerian indigenous participation in the oil and gas industry.

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INTRODUCTION

Global warming, or climate change, is a phenomenon that occurs naturally, but over time, human activities have tripled the amount of greenhouse gases (GHGs) released into the atmosphere. There have been contemporary intentional legal actions to reduce GHG emissions; these actions signify continuous endeavours to tackle the obstacles presented by greenhouse gas emissions and alleviate their effects on the ecosystem and community to effectively prevent climate change. This article examines several notable developments in climate action for GHG emission reduction. It also acknowledges the effect of these actions on reducing GHG emissions.

KEY DEVELOPMENTS IN GREENHOUSE GAS EMISSIONS REDUCTION CASES:

1. Vertical Climate Claims:

Vertical Climate Claims refer to actions that concern the relationship between private individuals and the government; they usually address the issue of sufficient climate policy. An eminent case is Urgenda Foundation v. The Netherlands, the first case in the world where a court has ruled that the state should limit greenhouse gas emissions for non-statutory reasons. This case sets a major precedent for vertical claims.

Urgenda Foundation, a Dutch environmental group, sued the Dutch government to require it to do more to prevent global climate change. The court in Hague ordered the Dutch state to limit GHG emissions to 25% below 1990 levels by 2020, finding the government’s existing pledge to reduce emissions by 17% insufficient to meet the state’s fair contribution towards the UN goal of keeping global temperature increases within two degrees Celsius of pre-industrial conditions.^[2] The court cited but did not directly invoke Articles 2 (right to life) & 8 (right to private life) of the European Convention on Human Rights (ECHR), among other laws, in its ruling. The Dutch government appealed the case, and Urgenda cross-appealed contesting to directly invoke Articles 2 & 8 of the ECHR. In 2018, the Hague Court of Appeal upheld the lower court ruling and directly invoked Articles 2 & 8 of the ECHR. The Dutch government appealed at the Netherlands Supreme Court, and the same was also upheld in 2019.

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