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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