Nigerian Energy Sector - ajumogobiaokeke.com · INTRODUCTION Nigeria has made a major transition...

NigerianEnergy Sector:

Legal & RegulatoryOverview (2015)

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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.

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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

30

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NigerianMining Sector:

Legal & RegulatoryOverview (2015)

AJUMOGOBIA & OKEKE

www.ajumogobiaokeke.com

CONTACT US

LAGOS2nd Floor, Sterling Towers,20 Marina,Lagos.

Tel: 234 1 2719368 - 9Fax: 234 1 2719882

234 1 4622686

[email protected]

ABUJAUAC Complex,Central Business District,Abuja.

Tel: 234- 9- 4610708

[email protected]

PORT HARCOURT1st Floor, Sapphire House39,Wogu Street,D/Line, Port Harcourt.

Tel: 234 - 84 - 361632

[email protected]

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