How to Start An Independent Power Company In Nigeria

How to Start An Independent Power Company In Nigeria

How to Start An Independent Power Company In Nigeria

With a developing population which is assessed to be exceptionally near the 200 million imprint, and the dependable guideline that 200 million individuals require on the average of 200,000MW of effective and reasonable electricity to achieve genuine financial growth; there is no repudiating the fact that quite a lot more needs to be done by to meet the energy needs of its overflowing population.

Independent power projects in Nigeria are entities of  non-public service companies working and investing in power generation offices with the end goal of power generation and deal in Nigeria. The private sector financed infrastructural developments have become the best option in developing economies. The reason being that Nigeria is supplied with oil, gas and solar resources, it faces profound infrastructural challenges that need enormous financing that must be sourced from the private sector. This test is confronted decisively in the transmission, distribution and capacity of the power generated in the sector. The Nigerian government in a bid  to increase foreign support in the electric power sector commissioned the independent power projects (IPP) to generate electricity and sell same.

The IPP in Nigeria is fundamentally controlled by the arrangements of the Electric Power Sector Reform Act and other subordinate regulations and guidelines. Power is as yet a significant issue in Nigeria. This is on the grounds that numerous businesses who can’t endure its huge challenges accuse power as the primary driver of their business failure. Interestingly, the power issue additionally shows a compensating investment opportunity especially in the zone of solar power generation. With a population of more than 170 million individuals, differing sectors, and active daylight, power generation is the best approach.

THE LEGISLATIONS REGULATING POWER BUSINESS IN NIGERIA

The legislations includes The Companies and Allied Matters Act, Laws of the Federation of Nigeria, 2004 (“the CAMA”), the Companies Regulations, 2012, Nigerian Electricity Regulation Commission’s Regulation on Feed-in Tariff for Renewable Energy Sourced Electricity in Nigeria (“Renewable Energy Regulation”), Nigerian Electricity Regulation Commission’s Regulations for the Application for License (Generation, Transmission, System Operations, Distribution and Trading) 2010 (“License Regulation”) and Electric Power Sector Reform Act, 2005 (“EPSR Act”).

The electricity business in Nigeria has structures set up to empower power projects in the nation. The electricity business is directed by industry legislations, for example, the Electric Power Sector Reform Act as will be summarily talked about.

The Electric Power Sector Reform (EPSR) that was enacted in March 2005 is the principle statutory enactment concentrated on electric power sector guideline in the nation. The Act empowers private companies to take an interest in electricity generation, transmission and distribution. It characterizes the structure of the electricity market and awards position to the independent controller made by the Act. The act set up the regulatory body of the Nigerian Electrical Regulatory Commission (NERC) which has the power to make regulations identifying with activities of the Nigerian electricity supply industry.

The EPSR Act permits the NERC to give a license for a time of 15 years and furthermore takes into account restoration. It gives the legal framework of the power sector, including the privatization of the sector that was finished up in 2013.

Under Part II, Section 25(2) of the Act it states that independent power generators will sell electrical powers to trading licenses compliant with contracts that take into consideration novation of rights and obligations of the trading licensees. The Independent power makers in doing power projects additionally offer powers and subordinate administrations to power distribution companies and qualified customers.

The Nigerian Electrical Regulatory Commission is the regulatory body accountable for granting a license to private independent power companies. The Commission has, moreover, built up a Regulation on inserted generation, which takes into account power generation plants (counting renewable energy) to be legitimately associated with and emptied through a distribution network. It gives a window to investors, networks, state and neighborhood governments to generate and sell or use power without experiencing the transmission grid.

The Nigerian Bulk Electricity Company plc (NBEC)  is the authority charged with the obligation of overseeing and regulating the electricity pool in the Nigerian electricity industry sector. The NBEC buys electricity from generating companies, for example, independent power producers by  power purchase agreements and offer to distribution companies through vesting contracts. Their key roles  are:

  • To oversee and regulate budgetary flows of the physical supplies of the network.
  • They have the need to operate the aggressive market to support proficient value disclosure for ware and capacity.
  • This authority figures and prompts on approaches for a productive arrangement of settlement and least conceivable cost motivators for keeping up the mobile network inside adequate energy, recurrence reaction and voltage resistances.

 

PROCEDURES FOR ACQUIRING POWER PRODUCING LICENSE IN NIGERIA

The Renewable Energy Regulation stipulates that applications to qualify as a Renewable Energy Generator will be made together with the applications for license to generate electricity which will state the technology and capacity size. SCHEDULE 1A of the License Regulation gives that the mandatory documents to application for creating license are;

  • Finished Application Form;
  • Certificate of Incorporation and Memorandum and Articles of Association, or Deed of Partnership or Deed of Trust;
  • Registered Title Deed to Site, or Sale Agreement, or Deed of Assignment/Gift, or evidence of submission of a title deed to a pertinent land processing agency (as relevant);
  • Tax Clearance Certificate for prompt past three (3) years;
  • Ten-year Business Plan;
  • Off-take Agreement or Arrangement;
  • Environmental Impact Assessment (EIA) Approval Certificate, or Proof of submission and acknowledgment for processing of the Report on EIA to the Ministry of Environment, or Details on how effluents and releases will be managed (whenever proposed capacity is under 10MW);
  • Fuel Supply Agreement, or a letter from a fuel provider and transporter demonstrating the incorporation of the fuel needs of the applicant in the supply plans of the fuel provider and transporter;
  • Memorandum of Understanding with or Letter of intent from Engineering Procurement Contract (EPC) Contractor (if relevant);
  • Memorandum of Understanding with or Letter of Intent from the technical accomplice (if relevant)
  • Financing Agreements or Letter to support the project from monetary institution(s);
  • Timelines for commissioning of the power plant and on the date when various limits of the plant will come into operation.

FEDERAL GOVERNMENT OF NIGERIA SUBSIDIES FOR SETTING UP A POWER PROJECT

The Federal Government of Nigeria has set-up a few motivating forces to attract foreign direct investment into the power sector and they incorporate;

  • Manufacture of transformers, meters, solar panels, control panels, switchgears, cables and other electrical related equipment are considered as pioneer products/industries. Subsequently, there is tax holiday of 5 to 7 years for investors who invest in these zones;
  • Exemption from Duty Taxes on imported equipment;
  • Capital and Investment Allowance which can be conveyed forward and utilized after tax holiday period;
  • Any organization incorporated in Nigeria is permitted to approach land rights with the end goal of its activity in any State in the nation. It is in any case, a requirement that industrial companies follow regulations on utilization of land for industrial purposes and with environmental regulations. Land lease is for the most part for a term of 99 years except if the organization stipulates a shorter span;
  • Power plants utilizing gas are evaluated under the Companies Income Tax Act at a decreased rate of 30%;
  • 100% foreign ownership of Electricity plants;
  • Repatriation of profit with a 5% retaining tax;
  • Accessibility of a politically independent, and straightforward regulatory agent for the power sector that will successfully uphold the set up regulatory framework;
  • Essential foundations for example solid transmission infrastructure that would make a level playing field for productive private sector interest in the electricity supply;
  • Actualizing a straightforward and predicated tariff change mechanism that will take care of expense of production and give satisfactory returns on investment consistently.

Read Also: GrowthAfrica Accelerator 2020 for African Entrepreneurs (Fully Funded)

ACCESSIBLE BANK FINANCING TO NEW PROJECTS AND PROCEDURES

Bank financing might be looked for from commercial banks in Nigeria or the Bank of Industry which is resolved to fund industrial and manufacturing projects. In spite of the fact that money from commercial banks might be promptly accessible, the advantage of Bank of Industry (“BOI”) account over that of commercial banks is the interest rate. While commercial banks may charge an interest rate of 30-32% BOI fund is between 5-10%. We will give a brief outline of utilization for account for both commercial banks and BOI.

Commercial banks

First stage

The applicant will open an account with the bank. The account ought to be in any event 6 months (however this can be deferred if the applicant’s field-tested strategy is impressive. The applicant will apply for loan and state the purpose of loan, amount of loan, tenure of the loan, source of loan repayment and collateral for the loan (for example legal mortgage on landed property which is registered with a Certificate of Occupancy; Debenture on assets of the organization; Bank Guarantee). The application must be addressed to the branch manager of the branch of bank which its account is domiciled and submit it at the bank for forward processing.

Second stage

The bank gets the letter and starts processing. The bank reviews the application, composes Credit Appraisal Memorandum (CAM) which features the customer’s capacity, character, collateral, condition and capital, generates the loan repayment schedule, readies the offer letter which determines the terms and conditions under which the loan will be allowed.

Third stage

The applicant executes the offer letter and meets the conditions point of reference to drawdown. The conditions point of reference to drawdown incorporates arrangement of postdated watches that spread the whole span of the tenor of the loan facility, presentation of a trustworthy guarantor, execution of guarantor’s structure and statement of personal net worth structure by the guarantor, presentation of statement of account and execution of statement of personal net worth structure by the applicant.

BOI

The nonexclusive requirements for application for BOI money are;

  • The applicant must be a Nigerian organization;
  • The organization must give in any event 20% equity to the project. Equity can be through existing plant and equipment;
  • Adequate industry knowledge, abilities and experience identified with your business field;
  • Prudent and monetarily disciplined, ready to separate personal funds from business funds;
  • Enthusiastic, vivacious and versatile even with challenges and unafraid of competition;
  • Evidence of having gone to an entrepreneurial development program;
  • A compelling working succession plan;
  • The organization size ought to characterize you as a SME;
  • The organization ought to have been in operation for at least 3 years with a decent track record of sales and profit margin
  • Clear, explicit and certain loan purpose;
  • Suitable and sensible growth plan;
  • Ready to give collateral;
  • No history of loan default;
  • Great book keeping and accounting;
  • Talented and devoted workforce;
  • Simple access to raw materials;
  • Solid demand for products from a dedicated customer base;
  • Every single essential license and permits to operate in organization’s line of business;
  • Have a place with the agricultural, manufacturing value chain or related administrations;
  • Sheltered and secure area of project site and collateral assets;
  • Dependable tested technology with long haul maintenance agreements;
  • Membership of organized private sector associations, for example, Nigerian Association of Small and Medium Enterprises (NASME), Manufacturers Association of Nigeria (MAN), Nigerian Association of Small Scale Industries (NASSI) and so forth.
  • Great corporate citizen in the know regarding personal and Corporate Income Taxes;
  • Organization’s business generates adequate cash-flow to meet loan obligations;
  • Organization’s business line is legal and reasonable;
  • Organization’s ownership and management ought to be eager to make full and accurate divulgences to BOI.
  • It might be simpler to think about getting a foreign loan to fund investment in solar power business in Nigeria.

Independent power plant projects are managed by independent power plant makers who own power plants. The NERC issues licenses to independent makers with the end goal of an expanded power generation in the nation. Independent power projects are arrangements of the Federal Government to battle power deficiency in the nation. Projects being created are supported by investors that have global power project understanding and demonstrated track records of creating power projects in Nigeria.

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