Friday 30 May 2014

OBTAINING ELECTRICITY GENERATION LICENCES IN NIGERIA: SOME IMPORTANT CONSIDERATIONS FOR INVESTORS


The long needed reform that is sweeping through the electricity sector in Nigeria has opened up a broad gate of investment opportunities to potential investors. As part of its Vision 20:2020, the Nigerian government has set an ambitious target of achieving 40,000MW which would attract an estimated $100 billion investment in all the phases of the power chain. Fortunately or unfortunately, 2020 is just 6 years away, and in order to achieve this target within the fixed timeframe, the input of investors is thus inevitable.

Being a highly capital intensive and technical industry, a proper understanding of the Nigerian electricity sector particularly as it relates to regulatory processes, procedures and obligations is inevitable, especially for investors seeking to invest in the generation aspect of the electricity chain.

First, it is expedient to state that section 62 of the Electricity Power Sector Reform Act, 2005 (ESPR Act) prohibits any person from engaging in the business of electricity generation (excluding captive power generation[1]) except in accordance with a licence issued under the Act. Thus, any person seeking to generate electricity for the purpose of selling it to a third party must obtain a licence, irrespective of whether the power generated would be on-grid or off-grid. Despite the grant of generation licences to the successor genco companies, investor companies could still obtain licence under section 64 of the ESPR Act as independent power producers.
Secondly, power generated for the purpose of being sold to a third party could fall under any of three categories viz: (i) On-Grid Independent Power Generation (ii) Off-Grid Independent Power Generation and (iii) Embedded Power Generation. While the on-grid and off-grid Independent Power Generation both require a generation licence, the Embedded Power Generation requires an embedded generation licence. An investor should thus be guided as to the particular generation category he or she wants to undertake and the appropriate licence to apply for. Expert advice should also be sought to appropriately determine the most beneficial option, because even though they all serve the same purpose of power generation, they have different prospects and challenges.

Thirdly, an investor company seeking to commence power generation must ensure that it is a registered Nigerian company, (or a company having a Deed of Partnership or Deed of Trust) with a ten-year business plan. It must also have a title document to a piece or parcel of land which would house the power generating plants or facilities. The company must also be a tax paying company in possession of a tax clearance certificate for the immediate past 3 years. These requirements are in addition to the other Agreements, Certificates and Documents which must be submitted to the Commission alongside Application Form. The company must also be one that is capable of holding a licence and has the capacity to operate a viable power generation business, and also must be willing to abide by the Electricity Sector Act and all NERC Codes and Regulations.

It is also important to note that it is more onerous to retain a licence than to obtain it. As a matter of fact, granting of electricity generation licences is less cumbersome as the Commission would grant a licence once it is satisfied that the Applicant’s documents are in order, that the applicant is likely to comply with the ESPR Act and other codes and regulations of the Commission, and that it is in the public interest to grant same. However, once obtained, the investor company has a duty to ensure that the licence is not suspended, cancelled or withdrawn. Factors that could lead to the suspension, cancellation or withdrawal of a licence include refusal to submit to investigations or inquiry by the Commission, failure to comply with the ESPR Act, terms and conditions for grant of the licence and other rules, regulations and codes relating to operations in the sector, bankruptcy or insolvency, failure to commission the licensed generating station within 3 years from the grant of the licence, and obtaining the licence through fraud or misrepresentation.

Also, a generation licence, upon being granted, can be amended on the application of the licensee, on the Commission’s initiative, or upon a complaint to the Commission by any consumer or eligible customer or their associations or other licensees. If it is to be amended on the application of the licensee, then such application must be made at least 9 months before the expiration of the licence. It can also be renewed or extended. If the licence is sought to be renewed, then the application for renewal must be made at least 9 months before the expiration of the licence, and if an extension is sought, then the application for extension must be made within the first five years of the initial licence term.



*Harrison Declan is with the Energy and Natural Resources practice group of Hybrid Solicitors and can be reached via harrisondeclan@hybridsolicitors.com


[1]   Captive power generation is defined in the Nigerian Electricity Regulatory Commission (Permits for Captive Power Generation) Regulations as the generation of electricity exceeding 1MW for the purpose of consumption by the generator and which is consumed by the generator itself and not sold to a third party. In such cases, only a permit to be obtained from the NERC is required.

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