Nigeria passed legislation that’s expected to set off the biggest shakeup of the West African nation’s chronically inadequate power industry in almost two decades.

The reforms allow the 36 state governments in Africa’s largest economy – rather than just the federal administration – to license and regulate electricity markets within their territories. Nigerian President Bola Tinubu, who took office two weeks ago, signed the law on Friday. 

“It’s the most important new electricity legislation in Nigeria for nearly 20 years,” said Folahanmi Fagbule, a deputy director at the Lagos-based Africa Finance Corp. “It provides scope for each state to compete, innovate and experiment with different approaches to licensing and regulating private sector investment in electricity.”

Former President Olusegun Obasanjo approved legislation in 2005 that enabled parts of Nigeria’s state-owned power industry to be privatized. While the government sold its generation and distribution infrastructure, poor maintenance and a lack of investment has left the population of about 200 million woefully under-served.

Although Nigeria has more than 16,000 megawatts of installed electricity-production capacity, less than 5,000 megawatts is dispatched to the grid daily, in part because of dilapidated transmission infrastructure and tariffs that don’t reflect market prices. 

State governors — including Tinubu when he ran Lagos state in the early 2000s — have long been lobbying for greater decentralization of electricity markets.

The states “can now allow different tariffs, incentives, rules, standards and conventions for energy produced and consumed within their borders,” Fagbule said. A “significant amount of investments will flow to the states with the energy demand and the best organized regulatory environment,” he said.

 [Bloomberg]