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Nigerian Energy Sector Review (2015)
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INTRODUCTION Nigeria has made a major transition from a vertically integrated, publicly-owned electricity network to a largely privately-owned unbundled electricity network, with the separation of the different segments of electricity business through a process called ‘unbundling’. The reforms have moved Nigerian power sector from a state monopoly to a competitive electricity market. Prior to the 2005 reforms, Nigeria, with a population of 165 million people, and an average generation of about 3,800 megawatts (MW), had a low per capita consumption. Thus, Nigeria embarked on the liberalisation and privatisation of electricity sector.
Since 2005, there has been considerable achievement in the power sector, with the Nigerian Electricity Regulatory Commission (NERC) having licensed more than 20,000 MW of power that could potentially come to the grid in a few years. However, the licensees are yet to make real progress in executing their projects.
Legal Framework
• ElectricityCorporationofNigeriaOrdinance(1950)• NigerDamAuthorityAct1962• NationalElectricPowerAuthorityAct,Cap256,LawsoftheFederationofNigeria (LFN)1990(asamended)• ElectricityAct,Cap106,LFN(1990)(asamended)• ConstitutionoftheFederalRepublicofNigeria1999,CAPC23,LFN(2004)• PublicEnterprises(PrivatisationandCommercialisation)Act,CAPP38,LFN(2004)• EnvironmentalImpactAssessmentAct(EIA),CapE12LFN(2004)• ElectricPowerSectorReformAct,No.6of2005(EPSRAct)• NationalEnvironmentalStandardsandRegulationsEnforcementAgency (Establishment)ActNo25of2007• ElectricPowerSectorReform(TransferofAssets,Employees,Liabilities,Rightsand Obligations)OrderNo.1of2006(SCOrder)• NationalDomesticGasSupplyandPricingRegulations• NationalDomesticGasSupplyandPricingPolicy• RoadmapforPowersectorReformof2010(Roadmap)
Public Authorities By Function
• FederalMinistryofPower:The Ministry has overall broad policy formulation.• TheNigerianElectricityRegulatoryCommission(NERC):The NERC carries out regulation and marketing of the electric/power sector.• BureauofPublicEnterprisesandNationalCouncilofPrivatization(BPE/NCP): the
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two agencies drive the reform and liberalisation of the power sector.• NigeriaElectricityLiabilityManagementCompany(NELMC):TheNELMCwascreatedas aSpecialTradewithbulkpurchaseandresalelicensetomanageexistingPPAsandnew procurement of power in the transition.• ElectricityManagementServicesLTD(EMSL):TheEMSListocarryoutconsulting services and provide shared services, such as logistics and meter testing• NationalPowerTrainingInstitute(NPTI):TheNPTIistoprovideworldclass training to support the utilities manpower• NigerianBulkElectricityTradingCompany(NBET): NBET is the bulk trader created to solve the major problem of bankability of electricity projects.• TransmissionCompanyofNigeria(TCN): handles the transmission of electricity across Nigeria.• CentralBankofNigeria:The CBN has intervened in the revenue shortfall that followed the Pre-Transition sage by setting up a stabilization facility with disbursements conditional upon, among other things, a migration from the current tariffrateofMulti-YearTariffOrder2(MYTO2)toanewmYTO2.1,whichis morecostreflective.
Sources of Energy in Nigeria
ElectricityproductioninNigeriaoverthelast40yearshasvariedfromgas-fired,oil-fired,andhydroelectricpower stations, to coal-fired stationswith hydroelectric power systems and gas-fired systems takingprecedence. This precedence is predicated on the fact that the primary fuel sources (coal, oil, water, and gas) for these power stations are readily available. Nigeria is considered as one of the energy rich country intheworld.NigeriaisratedamongthetopOilProducerinAfrica,secondinnaturalgasreserveandestimated2billionmetrictonnesofcoal,especiallytheenormouscoalreservesinEnuguarea.Infact,Nigeriahasthe10thlargestreservesofoilandgasglobally,consistingof36.2billionbarrelsofoiland1.84
trillion cubic feet of natural gas1.
Nigeria’s current realities demonstrate that there is no better time to invest in Nigeria than the present, and with Nigeria’s improving positive demographics and liberalisation of the investment environment since
the advent of democratic rule, Nigeria has become one of the major emerging markets2.Atpresent,theinstalled and available electrical capacity in the Nigerian generating stations shows that despite a total grid capacityof5924.7MW,only4586MWisavailable,i.e.,22%oftheinstalledcapacitywasunavailable.
1 Ibid.perOkala.2 AfolabiElebiju,Nigeria:OpportunityBeckons,ThisDayLawyer,June9th,2015,atPage9.
Niger
KwaraOyo
Ogun
Lagos
Ondo
Osun Ekiti Kogi
Edo
Bayelsa
Imo
Anambra
Benue
Nassarawa
Taraba
CrossRiver
Others
Ebonyi
Abia
AkwaIbomRivers
Adamawa
Plateau
Abuja
Kaduna Bauchi
Kebbi
Zamafara
Sokoto
Kastina
Kano
Jigawa Yobe
Gombe
Borno
Delta
Enugu
600MW
600MW
760MW
560MW
12
1020MW
790MW
10
1320MW
1100MW
6
66.7MW
40MW
3812MW
540MW
20
700MW
488MW
18
60MW
0MW
4
46MW
18MW
0
540MW
450MW
Table 1: Generating plants – grid stations (Source: Okoro & Madueme, 2004)3 *InactivePlant
Reforms
The federal government in 2000 adopted a holistic approach of restructuring the power
sectorandprivatisingofbusinessunitsunbundledfromNEPA4.Thereasonsforreformwere:
3 O.I.Okoro,andT.C.Madueme,SolarEnergyInvestmentsinaDevelopingEconomy,RenewableEnergy, Vol.29,2004,pp.1599-16104 O.O.Oyeneye,Socio-economicInfluencesonPoliciesofPowerDeregulation,Proc.20thNational ConferenceoftheNigerianSocietyofEngineers(ElectricalDivision),October6-7,2004,pp.1-15.
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•Limitedaccesstoinfrastructureandlowconnectionrate.
•Inadequatepowergenerationcapacity.
•Inefficientusageofcapacity.
•Lackofcapitalforinvestment.
•Ineffectiveregulation;
• High technical losses and vandalism.
•Insufficienttransmissionanddistributionfacilities.
•Inefficientuseofelectricitybyconsumers.
•Inappropriateindustryandmarketstructure.
• Unclear delineation of roles and responsibilities. The power sector privatisation reforms is
evidence of the intent of the Nigerian government to facilitate private sector-led growth.5
Thus,theobjectivesofthePowerSectorReformsare:
• The overwhelming objective of the Electric Power Policy Statement (EPPS) is to ensure that
NigeriahasanElectricitySupplyIndustry(ESI)thatcanmeettheneedsofitscitizensinthe
21stCentury.Thisrequiresafundamentalreformatalllevelsoftheindustry
•NigeriaESImustbesuchthatitisableto:meetallcurrentandprospectiveeconomically
justifiabledemandsforelectricitythroughoutthecountry,moderniseandexpandits
coverage, and support national economic and social development, including relations with
neighbouring countries
•Thepriorityistocreateefficientmarketstructures,withinclearregulatoryframeworks,
that encourage more competitive markets for electricity generation and sales (marketing),
which, at the same time, are able to attract private investors and ensure economically sound
development of the system.
TheReformsachievedthefollowing:
•UnbundledtheNigeriaElectricityPowerAuthority(NEPA)through18separatesuccessor
companies incorporated in the Power Holding Company of Nigeria (PHCN)
• Privatised the unbundled entities
• Established a regulatory agency - the Nigerian Electricity Regulating Commission (NERC)
•Establishedaruralelectrificationagencyandfund
•EstablishedElectricPowerConsumerAssistanceFund.
5 AfolabiElebiju,Nigeria:OpportunityBeckons,ThisDayLawyer,June9th,2015,atPage9.
Otherkeycomponentsoftheelectricpowersectorreformbillinclude:
•Powersof theNERC to regulate tariffs andquality service andpowers tooversee the
industry effectively.
•PowersofNERCinrelationtoanti-competitivebehaviour,includingmergersandacquisitions
licensed electricity companies.
•Institutionalandenforcementrequirementoftheregulatoryregime.
•Requirement for licensingby theNERCof the generation companies systemoperator,
transmission services, distribution companies and trading companies that will be created from
therestructuringandunbundledofNEPA
•Legislativeauthoritytoincludespecialconditionsinlicenses.
• Provision relating to public policy interest in relation to fuel supply environmental laws,
energyconservation,managementofscarcenaturalresources,promotionofefficientenergy,
promotion of renewable energy and publication of reports and statistics.
• Providing a legal basis with necessary enabling provisions for establishing, changing, enforcing,
and regulating technical rules, market rules and standards.
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COMPONENTS OF THE REFORM PROGRAMME
TheNationalElectricityPowerPolicy(NEPP)andtheElectricPowerSectorReformAct2005
(EPSR) provide for the development of Nigeria electricity market. Wholesale competition
was recommended for Nigeria to assist in monopoly control and cost insensitivity. Thus, the
reformsbrokeNEPA’smonopolyandpavedthewayfortheentryof independentpower
producers(IPPs).
The restructuring adopted a two - pronged approach for power sector revitalisation towards
a holistic reform-structural, organisational, institutional issues, i.e. (a) to foster choice and
competition and (b) to establish clear roles and responsibilities.This covered the Federal
Government’spolicydirection,monitoringandevaluationofimplementationandperformance;
theprivatesector’sparticipationinoperations;andtheRegulatoryCommission’spowerof
licensing, technical and economic regulation.
Prior to November 2013, the 10 successor companies that sent power to the national grid,
andthe11companiesthatsellpowertoconsumers,wereallownedbythegovernment.In
Nigeria, today, these companies are privately owned, and the transmission company is now
underthemanagementoftheprivatesector.ThereformentailedNEPAbeingunbundled
into seven generation companies (GenCos), one transmission company (TransysCo) and
eleven distribution companies (DisCos), an arrangement expected to encourage private
sector investment particularly in generation and distribution.
AstotheMarketReformModel,thetypeofMarketproposedentailscompetitivewholesale
market and retail competition in the long term, multi-buyer model—(hybrid during a
transitionperiod),privatesectordriven,costreflectivemarketstructure,whichencourages
full competition in the long term, and involving a market operator to be in ring-fenced semi-
autonomous entity during the transition.
BoththeNEPP&EPSRActmakeprovisionsfordevelopmentofthemarket-acompetitive
marketguaranteedbytheAct,PolicyandMarketRulesandforthecreationofanindependent
electricity regulator.
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The Nigeria Electric Power Policy (NEPP)
The National Council on Privatisation (NCP) has issued the Nigeria Electric Power Policy
(NEPP). The NEPP is premised on ensuring sustainable improvement in electricity supply
through enhanced commerciality. The objective is to create a new electricity industry that is
based on rules that are enforced by an independent regulator. The regulator will be mandated
toensure that ‘efficientoperators recoverprudentcosts’.Thiscost recovery ishingedon
efficiency.
TheNEPPwasencodedinlegislationthroughtheElectricPowerSectorReformAct2005.
WiththeEPSRAct,Nigerianpowersectorreformachievedinstitutionalisation.Thestandard
textinpolicyreformisthatuntilthereformiscodifiedinanActofParliament,thegainsof
thereformremainreversible.IntheNigerianexperience,theinstitutionalisationofproposals
oftheNEPPinanActofParliamentsecuredthereformfromtheturbulenceofpolitics.
Creation of the Power Holding Company of Nigeria PLC (PHCN)
Asof2005,NigeriahadonlythenowdefunctNEPAresponsibleforgenerating,transmittingand
distributingelectricity,inadditiontotheresponsibilityforregulatingitself.However,inJanuary2004,
thePHCNwascreated,withapruned-downmanagementteamattheheadquarters.
TheESPRAct2005translatedNEPAintothenewlyincorporatedPowerHoldingCompanyof
Nigeria (PHCN) Plc – comprising of 18 separate successor companies that took over the assets,
liabilitiesandemployeesofNEPA,andresponsibleforthegeneration(6companies),transmission
(a company) and distribution (11 companies). Nigeria now has different successor companies to the
PHCN, generating, transmitting and distributing electricity as well as an independent Commission
responsible for regulating the sector. The individual managers of the unbundled segments are
expected to enjoy some level of autonomy62, with TransCo being government owned and
managedbysystemoperators,(SO)andtransmissionoperators,(TO).
6 F.N.Okafor,ModellingtheAncillaryServicesinDeregulatedPowerNetworksofDevelopingEconomics,6thInternationalConferenceonPowerSystemOperationandPlanning(ICPSOP),May2226,CapeVerde,2005,pp.222-227.
Creation of the Nigerian Electricity Regulatory Commission (NERC)
In November 2005, the Nigerian Electricity Regulatory Commission (NERC) was inaugurated
andchargedwiththeresponsibilityoftariffsregulationandmonitoringofthequalityofservices
of the PHCN. Before the reform, tariffs in the Nigerian electricity industry were depressed by
governmentorder.TheoldNEPAwasbarredbydecreefromincreasingtariffs,evenwhen
the cost of supply of electricity had increased. The result was underproduction of electricity
and the absence of investment in the network. Ultimately, it led to inevitable collapse of the
system.Costreflectivetariffiscriticaltoanysustainablesuccesswemayhavewiththepower
sectorreform.But,theideaofcostreflectivetariffiscontroversialandpoliticallyexplosive.
TheEPSRAct2005isolatedtheNERCfromthedirectcontrolofthegovernmentbureaucracy.
Nigerianowhasacostreflectivetariff,withvoluminoustrafficinforeignandlocalinvestment
intheelectricitymarket.TheNERCisanindependentagency,anditfixesthetariffafterdue
processandconsultationwithallstakeholders;andbecausethetariffisaproductofscientific
and technical analysis and modelling, NERC is insulated from the vagaries and anxieties of
politics. The stability and credibility of the methodology for determining the Multi-Year Tariff
Order,MYTOgivesassurancetoinvestorstocontinuetocometotheNigerianelectricity
market.Aslongastheregulatorylandscaperemainsinsulatedfrompoliticalmanipulation,and
as long as the regulation of the Nigerian electricity market remains legitimate and credible,
foreignandlocalprivatesectorinvestmentswillcontinuetoflowintotheNigerianelectricity
market.OpportunitiesaboundintheNigerianelectricitymarket,asthenewownersofthe
distributioncompanies;DISCOsarecommittingthemselvestobetterservicedelivery.
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ESTABLISHMENT OFTHE ROADMAP FOR POWER SECTOR REFORM OF 2010(ROADMAP)
With the decline in electricity generation capacity in an ever increasing population, and with
no visible plan to commensurately increase generating capacity, electric power demand
increasingly overshot available supply. By year 2000, the problem sent Nigeria into electricity
supplycrisis,whichcausedtheFederalExecutiveCouncil(FEC)inyear2001toapprovethe
National Electric Power Policy (NEPP), which called for fundamental changes to ownership,
control and regulation of the power sector.
The implementation of the Nigeria Electricity Market is to be carried out through a gradual
processofincreasingcompetitiondesignedinaRoadmapdividedintofour(4)stages:
•Pre-Transitional
•TransitionalMarketStage:Characterizedmainlyascompetitionforthemarket;
•Medium-TermMarketStage:Characterizedbyfullwholesalecompetitionforthemarket
andinthemarket;and
•FinalMarketStage:Opentofullwholesalecompetitionandretailcompetition.
ThekeyfeaturesoftheContractingFrameworkaredependentonthestageoftheunbundling.
During theTransition, theVestingContracts involve the IntermediateStep tomove from
integrated utility to fully competitive market and are designed to ensure an orderly transition.
Trading Arrangements in Transition demand that all trading are through contracts, the
NBETCO[ST]willassumeexistingIPPsandeventuallysignnewPPAs,andtheNBETCOand
otherGencoswillhavevestingcontractswithrespectiveDiscos.(Thecontractswillbecome
Special Contracts on privatization).
Unbundling of PHCN
Acrosstheworld,countriesareunbundlingtheirESI.Onlythenetworkelementsofelectricitytransmission and distribution are natural monopolies. Thus, in contemporary power sectors, both electricity generation and sales/marketing of electricity are potentially competitive activities.
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Unbundlingwillleadtotechnologydevelopments.Incontemporarypowersectors,CombinedCycleGasPoweredGenerators:hasincreasedthegainsfromintroducingcompetitionintogeneration.Further,ModernComputinghasbroughtimprovementsintransmission&systemdispatch, which allows for the introduction of short-term and contract markets in bulk power. Therefore, such markets encourage the introduction of private management methods and private investment as well as fostering the privatization of existing assets the intention is that the reforms would introduce these now widely applied developments to Nigeria.
The PHCN’s incorporated successors in the unbundling process are given in Table 2.
Table 2: PHCN PLC’s Successor Companies7
7 TitusOlugbengaKoledoye,Abdul-GaniyuA.Jumah,andD.A.Phillips,THECURRENTANDFUTURECHALLENGESOFELECTRICITYMARKETINNIGERIAINTHEFACEOFDEREGULATIONPROCESS,EIE’s2ndIntl’Conf.Comp.,Energy,Net.,RoboticsandTelecom.|eieCon2012,atPages30-36
Port-Harcourt ElectricityDistribution Co. Plc.
Abuja ElectricityDistribution Co. Plc.
Benin ElectricityDistribution Co. Plc.
Ibadan ElectricityDistribution Co. Plc.
Ikeja ElectricityDistribution Co. Plc.
Eko ElectricityDistribution Co. Plc.
Yola ElectricityDistribution Co. Plc.
Jos ElectricityDistribution Co. Plc.
Kano ElectricityDistribution Co. Plc.
Kaduna ElectricityDistribution Co. Plc.
Enugu ElectricityDistribution Co. Plc.
Transmission Companies(TRANSCOs)
Distribution Companies(DISCOs)
Geregu Power Plc.
Afam Power Plc.
Sapele Power Plc.
Ughelli Power Plc.
Shiroro Power Plc.
Kainji Power Plc. Transmission CompanyOf Nigeria
Generating Companies(GENCOs)
Present And Future Electricity Generation Infrastructure Plan In Nigeria
Table 3a: Thermal Stations for Divestiture
TotalCapacityofThermalStationforDivestiture:5062MW
Niger
KwaraOyo
Ogun
LagosOndo
Osun Ekiti Kogi
Edo
Delta
Bayelsa
Imo
Anambra
Enugu
Benue
Nassarawa
Taraba
CrossRiverEbonyi
Abia
AkwaIbomRivers
Adamawa
Plateau
Abuja
Kaduna Bauchi
Kebbi
Zamafara
Sokoto
Kastina
Kano
Jigawa Yobe
Gombe
Borno
1020MW
912MW
726MW
434MW
451MW
1320MW
335MW
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Table 3b: Thermal Generating Stations
Total:InstalledCapacityofThermalGenerationStation:22,171MW
Kogi
Edo
Delta
Bayelsa
ImoCrossRiverAbia
AkwaIbomRivers
Lagos
Niger
KwaraOyo
OgunOndo
Osun Ekiti
Anambra
Enugu
Benue
Nassarawa
Taraba
Ebonyi
Adamawa
Plateau
Abuja
Kaduna Bauchi
Kebbi
Zamfara
Sokoto
Kastina
Kano
Jigawa Yobe
Gombe
Borno
338MW
338MW
20MW
225MW
480MW
451MW
300MW40MW
451MW
350MW
190MW
563MW
230MW
40MW
Table 3c: Table of Hydro-Generating Stations
TotalInstalledCapacityofHydro-GeneratingStations:5,488MWCurrentTotalGenerationInfrastructureinNigeria:27,659M
Niger
KwaraOyo
Ogun
Lagos
Ondo
Osun Ekiti Kogi
Edo
Delta
Bayelsa
Imo
Anambra
Enugu
Benue
Nassarawa
Taraba
CrossRiver
Ebonyi
Abia
AkwaIbomRivers
Adamawa
Plateau
Abuja
Kaduna Bauchi
Kebbi
Zamafara
Sokoto
Kastina
Kano
Jigawa Yobe
Gombe
Borno
2600MW
950MW
600MW
579MW
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The Pre-Transitional Stage
November 2013 marked the end of the Pre-Transitional Stage, and the beginning of another. Itwastheendoftheeraofstructuraltransition.Structurally,thetemplateofacompetitiveprivate electricity market was set. The Pre-Transitional Stage had commenced with the sale of the successor companies, and having completed the privatization process, and the next stageisTransitionalStage.WiththeMinisterofPower’sDeclaration,NigeriamovedtotheTransitional Electricity Market (TEM)—which is the stage of full bilateral trading in electricity, where market participants will transact on the basis of their contract. Trading by contract will mark the formal beginning of a competitive electricity market.
ThePost-PrivatizationEra:TransitionalElectricityMarket(TEM)Stage
This is the stage of development of the Nigerian power sector that would witness the transition from a government controlled ad administered structure to a contract based, private sector driven competitive electricity market. The liberalization and privatization of electricity sector in Nigeria marks the end of a phase in the reform of the power sector. But, it also marks the beginning of anotherphase.Itendsthephaseofstructuraltransformationofthesector,andmarksthebeginningof the phase of cultural and technical transformation.
On29 January,2015, followingtheexecutionofdocumentation forCBN-NEMSF,pursuant toSection32ofEPSRA,theNERCbyanorderdeclared,1FebruaryforthecommencementofTEMaftersatisfyingitselfthatalltheconditionshadbeensatisfied.
InFebruary2015,theCBNmadeavailableaN213billion(aboutUS$1.8billion)NigerianElectricityMarketStabilisationFacility (CBN-NEMSF)ataconcessionary interestof10%perannumonareducingbalancebasistotheNigerianpowersector.AccordingtotheCBNRegulation,thepurposeof theCBN-NEMSFwas to settleoutstandingpaymentobligationsdue toMarketParticipants,ServiceProvidersandgassuppliers thataccruedduringthe InterimRulesPeriod(InterimRulesDebtorIRPDebt),aswellasLegacyGasDebtofthePHCNgenerationcompaniesowedtogassuppliersandtheNigerianGasCompany(NGC)whichhadbeentransferredtotheElectricLiabilitymanagementCompany(NELMCO)(theLegacyGasDebt).
The Medium Term
After the TEM, the market moves to the Medium Term, when hopefully there will beadequacyofsupplyinthemarket,andthegenerationcomponentofthemarketwillbefullyderegulated, and prices will be on the basis of willing buyer willing seller.
TheFinalLongTerm
The end of structural reform is the beginning of cultural reform. The problems that crippled the electricity industry are not just technical. There are also adaptive. They are partly problems of values and governance.
Nigerian Bulk Electricity Trading Company, NBET
The NBET was created to provide the status of a credit-worthy offtaker with which the GencoscanconfidentlycontractgiventhatmanyinvestorswithinthepowermarketwerenotwillingtotakeonthecreditriskoftheDiscos(whicharepresentlynotviewedascredit
worthy).8 ItwasthussetuptopurchasepowerfromtheGencosunderPowerPurchaseAgreements (PPAs) and, in turn, to sell to the Discos under Vesting Contracts (VCs).NBETwas highly capitalised and in addition, there is the possibility ofGencos thatmeettherequirements,obtainingapartial riskguarantee fromtheWorldBankand theAfrican
DevelopmentBanksecuringthepaymentobligationsofNBETtosuchGencos9.
Independent power producers in the new Nigerian electricity market could not securefinancing, because of the lack of creditworthiness of theNigerian electricitymarket. Thecreation of the Nigerian Bulk Electricity Trading Company, NBET solved a major problem with bankability of electricity projects.
Until the creation ofNBET, project developers failed to convince investors and financialadvisors to lend them money for project development. The simple reason for the refusal was that the Nigerian electricity industry was bankrupt with huge debts arising from unpaid services and poor tariff collection. Until NERC unlocked the tariff policy from bureaucratic control, no substantial investment could be made in the Nigerian power sector. The market is ready.
14 AniekpanUkpanah,NicholasOkaforandTegaAgbosah,TheNigerianPowerSectorPrivatisationandthe DeclarationofaTransitionalElectricityMarket(2005)atPage277.15 Ibid
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TAX INCENTIVES FOR INVESTMENT IN THE POWER SECTOR IN NIGERIA
There are numerous incentives provided in various Nigerian tax laws such as the Nigerian Investment Promotion Commission Act, CapN117 LFN (2004) (theNIPCAct)andthepioneerstatusunderIndustrialDevelopment(IncomeTaxRelief)Act,CapI7 LFN (2004), (IDITRA).A pioneer certification exempts qualifying companies frompaymentofincometaxesforaperiodnotexceeding5years.Italsograntsacceleratedcapital allowances after the expiration of the tax holiday and tax exempt dividends, amongst others.
In addition, Section 80(3) of the Companies Income Tax Act, Cap C21, LFN 2004,(CITA), provides that dividend received after deduction of tax prescribed shall beregarded as ‘franked investment income’ to the recipient company and shall not be chargedto further taxaspartof theprofitsof therecipientcompany.Further,underSection80(4)ofCITA,wheretherecipientcompanyofdividendsisaforeigncompany(i.e. not registered in Nigeria) the tax withheld will represent the final tax payable by the foreign recipient company.
In2012,theFederalGovernment,withaviewtoencouragingforeigndirectinvestment,has released certain regulations providing various tax reliefs to companies in the form of theCompaniesIncomeTax(ExemptionofProfits)Order2012issuedbythePresidentwhich confers three categories of tax relief on companies doing business in Nigeria. Theseare:
1. Employment Tax Relief (ETR), which exempts a company from income tax on 5%ofitsassessableprofitsinanassessmentperiod,provided60%are employees without any form of work experience, and must have a minimum of 10 employees.
2. WorkExperienceAcquisitionProgrammeRelief(WEAPR),whichgrants exemptionfromincometaxon5%ofassessableprofits,providedthecompany retains five new employees for a minimum of two years from the year in which they were employed.
3. InfrastructureTaxRelief(ITR),whichgrantsincometaxexemptionon30%of cost incurred in providing infrastructure or facilities such as roads, water and electricity of a public nature.
Anotherincentiveavailabletoinvestorsinthepowersectoristhatavailabletoinvestorsinthepowersector.TherecentmovebytheFederalGovernmentofNigeriatoincrease
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the power generation capacity has led to the privatisation of the power sector. Most companies interested in power generation are taking advantage of Nigeria’s abundant gas reserves and are setting up gas-fired plants. Thus, companies involved in the utilisation of gas are entitled to incentives including but not limited to an initial tax-free period of three years, renewable for an additional period of two years, accelerated capital allowances and tax-free dividends during the tax period.
In addition, Section 5 of the Customs and Excise Tariffs etc, (Consolidation) ActChapterC49LawsoftheFederationofNigeria(2004),aswellasthePresidentialOrdercontainedinthe2012BudgetSpeechbywhichmachinery,equipmentandsparepartsimported into Nigeria by an industrial establishment engaged in power generation that utilises gas, are exempted from customs duties.
Also, Item 8 of Part I of the First Schedule to the Value Added Tax Act, Cap V-1,LawsofFederation,2004(VATAct)alsoprovidesthatplant,machineryandequipmentpurchased for utilisation of gas in downstream petroleum operations are exempted fromVAT.
DISPUTE RESOLUTION
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TheElectricPowerSectorReformAct,No.6of2005(EPSRAct)makesspecificprovisionsfor
proceedings of the NERC, decisions and orders of the NERC, the duty of NERC to give notice
tointerestedparties,andwhentheNERCmayconsultexpertsontechnicalquestionsorwhen
questionsoflawmaybereferredtotheHighCourt.
Inthisregard,underSection45oftheEPSRAct,theNERCisempoweredtoconductitsproceedings,
consultationsandhearingsat itsheadquartersorat anyotherplace inNigeria, and shallmake
regulations for the discharge of its functions and for the conduct of its proceedings, consultations
and hearings, including procedures for the participation of licensees, consumers, eligible customers
and other persons.
Section47requiresthattheNERCshallholdpublichearingsonmatterswhichtheCommission
determinestobeofsignificantinteresttothegeneralpublic.WheretheCommissionisrequiredto,
or otherwise decides to, hold a hearing, all persons having an interest in such a matter shall, as far
asreasonablypracticable,benotifiedofthequestionsatissueandgivenopportunitiesformaking
representations if they so wish.
IncarryingoutNERC’sfunctions,Section48ofEPSRActstatesthatwhenanymatterariseswhich
entailstheconsiderationofanyprofessionalortechnicalquestion,theNERCmayconsultsuch
personsasmaybequalifiedtoadvisethereon.
Further,Section49ofEPSRActalsostatesthat ifanyquestionof lawarisesfromanorderor
decisionoftheNERC,theNERCmay,onitsowninitiativeorattherequestofanypersondirectly
affectedbysuchorder,reservethatquestionforthedecisionoftheHighCourt,andthatwherea
questionhasbeenreservedtotheHighCourt,theNERCshallstatetheTheElectricPowerSector
ReformAct,No.6of2005(EPSRAct)makesspecificprovisionsforproceedingsoftheNERC,
decisions and orders of the NERC, the duty of NERC to give notice to interested parties, and when
theNERCmayconsultexpertsontechnicalquestionsorwhenquestionsoflawmaybereferred
to the High Court.
OfparticularimportanceisSection50oftheEPSRActwhichgivesarightofappealandre-hearing
toanypersonwhoisaggrievedby:
(a)adecisionoftheCommissionnottoissuealicence;
(b) any term or condition of a licence issued to him, or a refusal by the Commission to specify a
termorconditioninalicence;
(c)arefusalbytheCommissiontorenewalicence;
(d)anyamendmentofalicenceorarefusalbytheCommissiontoamendalicence;
(e)thecancellationofalicence;
(f)thegrantorrefusalbytheCommissiontograntanyapprovalorauthorityintermsofthisAct;
(g)theoutcomeofanyarbitrationormediationbytheCommissionofadisputebetweenlicensees;
(h)adecisionoftheCommissionwithrespecttopricesortariffs;
(i)anyotherdecisionoftheCommission;mayapplytotheCommissionforreviewofthedecision,
order or refusal.
UnderSection50(2),theNERCmay,reconsider,varyorrescinditsdecisionsbeforeissuingafinal
decision,inaccordancewithsuchproceduresastheCommissionmayestablish;providedthatsuch
revieworreconsiderationshallbecompletedwithinsixtydaysofthedateitisrequested.(f)the
grantorrefusalbytheCommissiontograntanyapprovalorauthorityintermsofthisAct;
(g)theoutcomeofanyarbitrationormediationbytheCommissionofadisputebetweenlicensees;
(h)adecisionoftheCommissionwithrespecttopricesortariffs;
(i)anyotherdecisionoftheCommission;mayapplytotheCommissionforreviewofthedecision,
order or refusal.
UnderSection50(2),theNERCmay,reconsider,varyorrescinditsdecisionsbeforeissuingafinal
decision,inaccordancewithsuchproceduresastheCommissionmayestablish;providedthatsuch
revieworreconsiderationshallbecompletedwithinsixtydaysofthedateitisrequested.
Arbitration
Nigeriaishometosomeoftheworld’smostrespectedArbitratorsandpractitioners;withanumberofarbitralbodiesrepresentedinthecountry.TheArbitration&ConciliationActandtheArbitrationLawofLagosStatearethemainstatuteswiththeLagosCourtofArbitrationattheInternationalCentreforArbitrationandADRasthepreferredchoice.
a&o
28
Nigerian Energy Sector Review (2015)
29
CONCLUSION The reform continues to target increase in the generation, transmission and distribution capacity of power in Nigeria, albeit, in stages.
Table 4: Targeted Increase in Generation, Transmission and Distribution Capacity
Inconclusion,thereareenormousinvestmentopportunitiesinNigeriainthepowersector.Nigeriastands to benefit in the form of employment opportunities; transfer of technical manpower;ResearchandDevelopment;publicrevenues;improvedservices;andreducedtariffs.
DISCLAIMER:
Thislegaloverviewisintendedtoprovideonlygeneral,nonspecificlegalinformationasatJuly2015anddoesnotpurporttogivealegalopinionoradviceonspecificfactsorsituations.YoushouldconsultandseeklegaladvicefromNigerianqualifiedlegalpractitionersbeforeengaging any matters contained in this publication.
(C)Ajumogobia&Okeke2015
20
10
20
11
4612MW
5379MW
7033MW
9769MW
11,879MW
14,218MW
20
12
20
13
Fu
ture
Mid
-Term
Goals
DistributionCapacity
Transmission Capacity 330KV / 132KV Lines
Available GenerationCapacity
Time
9059MW8653/9885MW
40,000MW
7866/8986MW
6555/7488MW
5995/7328MW
5515/7328MW
5155/6677MW
8061MW
7485MW
6900MW
6334MW
5758MW
NigerianMining Sector:
Legal & RegulatoryOverview (2015)
AJUMOGOBIA & OKEKE
www.ajumogobiaokeke.com
CONTACT US
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