The Shift In Governance In Nigeria's Electricity Sector: Unpacking The Code Of Corporate Governance For The Nigerian Electricity Supply Industry

INTRODUCTION

The Code of Corporate Governance for the Nigerian Electricity Supply Industry (“NESI”) 2025 (The “Code”) is a set of governance standards and best practices issued by the Nigerian Electricity Regulatory Commission (the “NERC”) to regulate licensees' conduct and promote adherence to the highest standards of corporate governance in the sector.

The Code was made pursuant to section 34(2) of the Electricity Act 2023 (The “Act”) which empowers the NERC to establish or approve operating codes and safety, security, and quality standards. Section 226(1) of the Act also authorises the NERC to make regulations covering matters required by the Act or necessary for its implementation. 1 The Code forms part of broader reforms under the Electricity Act 2023, which empowers the NERC to enforce governance standards and ensure that all licensees contribute to a vibrant and sustainable electricity market

The Code applies to all persons licensed under the Electricity Act 2023 to engage in generation, distribution, transmission, system operations, supply, or trading in electricity in the NESI.

THE OBJECTIVES OF THE CODE

The Code is designed to promote accountability and transparency, foster ethical conduct, institutionalize best practices aligned with international standards and the Nigerian Code of Corporate Governance 2018, attract investment by reducing governance risks, improve service delivery through better oversight, and support the long-term sustainability of the Nigerian electricity industry. The Code is based on the principles of accountability and responsibility, fiduciary responsibility and stakeholder interests, accountability and justifiability, ethical conduct and integrity, reputation, fairness and equitable treatment, relationship with stakeholders, independence of character and judgement, transparency and clear disclosure.

PRINCIPAL PROVISIONS OF THE CODE

Board Composition, Structure and Size
The Code's provisions regarding the Board of a licensee are largely in line with the existing provisions of the Companies and Allied Matters Act 2020 (“CAMA”). The Board is responsible for the implementation of the Code within the licensee, 2 and is empowered to develop an internal Code of Conduct for the licensee that aligns with the provisions of the Code.3

The Code provides that the Board of a large licensee must be made up of at least seven (7) directors while the Board composition of smaller licensees shall be in accordance with the provisions of the CAMA which requires all companies other than small companies to have at least two (2) directors. 4 The Board of each licensee must comprise of at least two executive directors, one of which shall be the Chief Executive Officer (“CEO”) of the licensee, majority of the Board members should be Non-Executive Directors out of whom at least two should be Independent Directors in the case of large entities and at least one Independent Director for other entities.
Key Provisions on Directors and the Management Personnel of Licensees
The Code introduced some key provisions regarding directors and the management of licensees especially with respect to the type of directors, eligibility for management roles, tenure of directors, disclosures to be made by a director and limitations on multiple directorships.
1. Eligibility of Individuals for Management Positions In order to be eligible for appointment to executive management positions in a licensee, the Code provides that individuals must submit the documents listed in schedule 1 of the Code to the NERC and meet the following requirements:
  1. Provide references from their last three previous employers who will attest to their character and their suitability for the role;
  2. Provide appropriate clearance after undergoing comprehensive security checks by the relevant security agencies; and
  3. Disclose all interests and be cleared of any conflict of interests.
2. Tenure and Rotation of Directors The Code introduces specific tenure limits for directors and CEOs of licensees. Directors are to serve a maximum of three (3) terms, with each term lasting four (4) years, thereby capping their cumulative tenure at twelve (12) years. 5 In contrast, the tenure of the CEOs should be in accordance with the terms of engagement, but restricted to a maximum of ten (10) years. 6 The tenure may be broken down into two (2) terms of five (5) years each. This represents a significant shift from the provisions of the Nigerian Code of Corporate Governance 2018 (“NCCG”), which leaves the determination of tenure for the MD/CEO and executive directors to the discretion of the Board.
3. Multiple Directorships and Disclosure of Other Directorships The Code introduces a stricter governance rule that directly limits the number of concurrent Boards positions an individual can hold within the NESI. Specifically, no director shall serve on more than two (2) Boards of licensees at the same time. 7 This measure is designed to reduce the risk of conflicts of interest and strengthen Board oversight. Directors currently serving on more than two (2) Boards will need to relinquish excess appointments. This approach marks a significant departure from other regulatory frameworks. The SEC Guidelines, for instance, discourage cross-Board memberships but only prohibit them when they result in direct conflicts such as serving on Boards of competing companies 8 Similarly, the NCCG allows concurrent directorships, leaving the decision to the Board's discretion, while cautioning against appointments that could compromise confidentiality or corporate integrity. 9 The Code adopts a more prescriptive stance, not merely discouraging but explicitly limiting Board memberships across the sector. This reflects a deliberate effort to elevate governance standards and ensure that directors remain focused, independent, and free from competing obligations within the industry.
  
  In line with the Code's emphasis on transparency and accountability in Board appointments, both the Board and shareholders are required to rigorously evaluate the suitability of nominees before confirming their appointment. This evaluation must take into account the nominee's existing professional obligations and commitments to ensure they can dedicate sufficient time and attention to the role.10
  
  In furtherance to their potential appointments, prospective directors are obligated to disclose any current directorships prior to their appointment. This disclosure enables the Board to assess whether the nominee's other roles might affect their ability to contribute meaningfully to the Board's functions. The Board must make this determination before endorsing the nominee for appointment. This is in line with existing provision of the NCCG. 11 Serving directors are required to notify the Board, through the Chairman of any potential new Board appointments. This provision reinforces the Code's commitment to proactive governance and helps prevent over boarding, which can compromise a director's effectiveness and independence.
Board and Executive Performance Evaluation¹²
The Code places strong emphasis on performance evaluation as a critical component of effective corporate governance. Boards of licensees are required to conduct annual evaluations of their overall performance, including that of individual directors, the Board Chairman, Board Committees, and Committee Chairpersons. These evaluations are intended to identify areas of strength and weakness, promote accountability, and support continuous improvement.

To ensure objectivity and precision, Boards must adopt a structured evaluation process. The outcomes of these evaluations should inform decisions on directors' re-appointment, training, and restructuring where necessary. Licensees are also mandated to disclose the results of their Board evaluations in their annual reports.

The Code requires that Executive Directors, including the CEO, undergo annual performance reviews either independently by the Board or through the Regulatory Compliance and Risk Management Committee. ¹³
Shareholders and Stakeholders
The affairs of a licensee must be managed in a way that equitably balances the interests of both shareholders and other stakeholders. The Board has a duty to ensure that all shareholders are treated fairly, with particular attention to protecting the rights of minority shareholders. To foster alignment with the licensee's strategic objectives, there should be open and continuous dialogue between the Board and shareholders. In addition, Boards are expected to establish structured mechanisms for stakeholder engagement, including regular communication and feedback channels, to ensure inclusive and responsive governance. ¹⁴ The Code mandates licensees to have a website and communicate with their shareholders via their website.
Related Party Transactions¹⁵
To enhance transparency and accountability in financial dealings, the Code mandates that all transactions involving related parties must be promptly reported to the Board Audit Committee. The Committee is responsible for reviewing these transactions and providing recommendations to the Board for appropriate action. This provision is in tandem with section 11.4.7 of the NCCG, which mandates the Audit Committee to review any related party transaction. Each licensee is required to maintain a detailed and organized record of all related party transactions conducted within each financial year. These records must be supported by relevant documentation and clear explanations to ensure traceability and compliance.

The documentation of related party transactions must include key details such as the name of the related party, the nature of the relationship, and the nature and monetary value of the transaction. This requirement is designed to prevent conflicts of interest, promote financial integrity, and ensure that all dealings are subject to proper oversight.
Whistle-Blowing Mechanisms¹⁶
The Code mandates that the Board of every licensee implement robust mechanisms to enable the reporting of unethical, illegal, or improper conduct within the organization. This may include the establishment of formal whistleblowing channels e.g. hotlines and emails which should be reviewed periodically by the Audit Committee.

The Board is also obligated to protect whistle-blowers from any form of retaliation whether direct or indirect arising from their disclosures. If a whistleblower experiences adverse treatment, they have the right to file a formal complaint with the Board of the concerned licensee or the appropriate regulatory authority. Any whistle-blower who suffers any detriment because of any disclosure made, may be entitled to remedies such as reinstatement or compensation. It is important to note that these provisions align closely with the principles outlined in the NCCG, ¹⁷ reinforcing a shared commitment to ethical conduct and organizational integrity.
Mandatory Board Committees
The Code provides that the Board shall constitute committees to assist in its governance functions and duties. Amongst other committees, the Board shall set up an Audit Committee, a Regulatory Compliance and Risk Management Committee and a Governance, Remuneration and Nomination Committee. ¹⁸ This reflects NERC's commitment to robust financial oversight and governance beyond the baseline set by CAMA. The Chairman of the Board and the CEO are excluded from membership of any Board Committees.¹⁹
Regulatory Oversight Compliance Reporting
The Code significantly strengthens the regulatory oversight of the NERC by introducing mandatory compliance reporting obligations for licensees. Each licensee is required to submit annually, a Compliance Report ²⁰ to NERC, detailing the extent of its compliance with the provisions of the Code. The Board is responsible for ensuring the accuracy and reliability of this report.

All External Auditors appointed by licensees are required to report to the NERC on the extent of the licensee's compliance with the provisions of the Code.
Compliance with the Code
The principles of corporate governance specified in the Code are mandatory and binding on all licensees regulated by the NERC, and all licensees are required to indicate their degree of compliance with the Code in their Annual Compliance Report filed with the NERC. This compliance obligations reflect a more proactive regulatory posture, moving beyond voluntary adherence to enforceable standards. Failure to comply with the Code may attract regulatory sanctions, which could include financial penalties or, in severe cases, revocation of the license. Unlike traditional governance frameworks that adopt a “comply or explain” approach where non-compliance may be justified through disclosures, the Code leans toward a stricter enforcement model. This signals NERC's intent to hold licensees to higher standards of governance, transparency, and accountability.

HOW PRACTICABLE IS IMPLEMENTATION OF THE CODE FOR LICENSEES

Compliance with the Code is realistically achievable because the Code is specifically designed to reflect the operational and regulatory complexities of the Nigerian Electricity Supply Industry. It recognizes the diversity of licensees by distinguishing between small and large entities, using thresholds from CAMA 2020 to ensure that governance expectations are proportionate. This tailored approach makes it easier for smaller licensees to adopt the standards without being overwhelmed.

The Code also integrates seamlessly with existing regulatory frameworks such as the CAMA, NCCG, and the SEC Guidelines. This alignment helps reduce overlap and confusion, creating a more coherent governance environment. Its legal enforceability is backed by the Electricity Act 2023, which empowers NERC to implement and monitor compliance, giving the Code a solid foundation for practical application.

However, implementation may still face obstacles. Many licensees operate with limited financial resources, which can slow down reform efforts. Internal governance weaknesses like poor transparency, ineffective Boards, and financial mismanagement are deeply rooted and will require time and investment to correct. Smaller entities may also struggle with limited technical expertise, making it difficult to establish and maintain the systems required for full compliance. Additionally, transitioning from informal or legacy practices to formal governance structures may be met with resistance, especially where entrenched interests are involved. Despite these challenges, the Code offers a realistic pathway toward improved governance.

CONCLUSION

The Code marks a significant step forward in strengthening governance practices within Nigeria's electricity supply industry. By introducing clearer rules on Board composition, director tenure, stakeholder engagement, and regulatory compliance, the Code not only aligns NESI with international best practices but also addresses sector-specific governance gaps.

While its implementation may pose challenges particularly for smaller licensees, the Code provides a structured framework that promotes accountability, transparency, and sustainable operations. With adequate support from NERC through training and monitoring, the Code has the potential to enhance investor confidence, improve service delivery, and contribute to the long-term stability and growth of the Nigerian electricity market.

Footnotes

1 Section 1.1 of the Code

2 Section 2.3.1 (a) of the Code

3 Section 2.3.1 (b) of the Code

4 Section 271 CAMA 2020

5 Section 3.2 (h) of the Code

6 Section 7.8 of the Code

7 Section 7.9 of the Code

8 Guideline 2 (2.2) of the SEC Corporate Governance Guideline

9 Section 2.1.8 of the Nigerian Code of Corporate Governance (NCCG) 2018

10 Section 2.1.4 of the Nigerian Code of Corporate Governance (NCCG) 2018

11 Section 2.8.2 of the NCCG

12 Section 5.1 of the Code

13 Section 5.4 of the Code

14 Section 10.0 of the Code

15 Section 13.0 of the Code

16 Section 11.4 of the Code

17 Section 19 of the Nigerian Code of Corporate Governance (NCCG) 2018

18 Section 3.3 (a) of the Code

19 Section 3.3 (b) of the Code

20 Section 14.0 of the Code

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