FG Considers Tax Holiday Extension for Power Sector Investors

Federation Account Allocation CommitteeMinister of Finance, Kemi Adeosun
  • FG Considers Tax Holiday Extension for Power Sector Investors

There are strong indications that the federal government is considering granting further tax holiday to investors in the power sector in its bid to help stimulate investment in the sector.

A top government source said the Minister of Finance, Mrs. Kemi Adeosun, recently set up a committee to look into the matter. The outcome of the committee meetings would guide the federal government in decision-making, the source added.

Following the 2013 divestiture of the federal government from the Power Holding Company of Nigeria (PHCN), the successor companies – distribution companies (Discos) and Generation Companies (Gencos), were granted pioneer status, which is likely to expire this year.

Pioneer status takes the form of five-year tax holiday to qualifying industries anywhere in the federation. The grant of pioneer status to an industry is aimed at enabling the industry concerned to make a reasonable level of profit within its formative years. The profit so made is expected to be ploughed back to facilitate expansion and growth of the industry.

“I am aware that the Minister of Finance has set up a committee to review the pioneer status of the power sector firms. So, we are waiting for the outcome, “the source said.

Attempts to confirm the development was unsuccessful as the minister of finance declined to respond to several text messages sent to her phone.

Since the Power Sector Reform Act was enacted in 2005, transferring public control of the Nigerian Electricity Power Authority (NEPA) to the PHCN, the federal government has made frantic efforts to attract private investors while also taking various steps towards the restructuring of the Nigerian power sector, all in a bid to establish an electricity supply that is efficient, reliable and cost-effective throughout the country. However, it has seemed like a herculean task as power supply is yet to improve was expected since the privatisation.

The National Electric System Operation (SO) puts the general National Peak Demand Forecast at about 17,000MW, conversely the highest power generation ever attained was 5,074.7MW while the recent peak energy generated is just a little over 4, 000MW.

This is paltry when compared to the national demand and easily translates to an unavailable and unstable electricity supply. This situation is rather lamentable as Nigerians still depend on imported generators for electricity as the little power generated is not sufficient for the over 170 million citizens of the country, according to a recent report by the NOI Polls.

Inadequate gas supply due to pipeline vandalism, inability of power companies to sign gas supply contracts, and large amounts of debt owed to power companies by ministries, departments and agencies (MDAs) of the three tiers of government, are also some issues affecting the sector.

But as part of efforts to address the worsening power situation in the country, the Central Bank of Nigeria (CBN) had disbursed N55,456,161,481 from its Nigerian Electricity Market Stabilisation Facility (NEMSF) to firms in the sector as at May last year. A breakdown of the amount had shown that while all the distribution companies got N8,670,234,863.76; the generating companies – N35,834,536,939; gas suppliers N10,491,710,788.66; all the service providers in the power value chain were given a total of N459,678,889.55. The amount was the fourth batch from the N213 billion stabilisation that was designed by the central bank as part of development finance intervention in the economy.

Speaking on the likelihood of granting further tax holiday to the power sector investors, the Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said what the sector requires currently is a financial bailout.

“A tax holiday only incentivises those who are making profit. These are loss-making entities right now, because they borrowed monies and borrowed in dollars as well. What the government should be doing is to look for how to bail them out rather than give them further tax holidays.

“Tax holidays are good for people who initially were profitable and all of a sudden became unprofitable, that is like Google, Facebook or MTN. Tax holidays helped them in investing more. Tax holiday is useful after the fundamentals of that industry have shown that the companies are going to be profitable. Right now, that is not the case. What these companies need is a financial bailout and interest moratorium to enable them cover their cost and invest additional capital in transforming the industry,” Rewane explained.

When Rewane was reminded that the CBN had created a special intervention fund for the sector, he said: “It is always too little and it is never enough. So, they (government) need to do something really bold.”

FG Seeks Support for ‘Green Bonds’ Projects

Meanwhile, the federal government has called for the support of Nigerians in its quest to issue a Green Bond.

The Minister of Environment, Mrs. Amina Mohammed, said this while speaking at a congratulatory dinner organised for her, on her appointment as the United Nation’s Deputy Secretary General Designate, in Lagos at the weekend.

Mohammed said the bond would be the first sovereign Green Bond in an emerging market, saying that it was about leveraging external resources to support projects in the sector.

“We have to show that we can lead the way and we would continue to be innovative and creative, so that businesses can come in. If you check the budget of the ministry of transportation, what the environment sector got might be five percent of the entire budget of the ministry of transportation.

“But the Green bonds are really about us trying to leverage funding. Whatever you do in the global compact, if you can’t make profit, it is called corporate social responsibility (CSR). Sustainable development is not CSR. It goes beyond CSR. It is about your business model. You can make profit taking care of your environment and sustainable development is all about that. For me, the Green bond is a demonstration that business matters,” she explained.

The minister had last month said the federal government plans to raise N20 billion by March this year, to help fund renewable energy projects.

“We are on track to sell the bond in the first quarter, and could have another by the end of the year,” she had explained.

The sale will also help fund an electric-vehicle commuter project in the city and tree-planting in the country’s arid north.

However, speaking about her latest UN appointment, the minister said: “For me, I see this as an opportunity for women, particular the young girls, so that they know they have to aim higher. If you work and believe, it would happen. So, for women, whenever you have the chance, act on it. President Obasanjo once said we have to invest in women.”

In his remark, the Chief Executive Officer of Access Bank Plc, Mr. Herbert Wigwe said: “This is a night of celebration and a night of fun. The United Nations has been in existence for over 68 years, so this is remarkable achievement for us. More importantly, it is the first time a Nigerian is getting to that position.

“You (Mohammed) are a special gift to all of us as Nigerians and the entire world. I say so because there is something about championing a greater tomorrow for future generations. You have done so in Nigeria. First of all, as Minister of Environment, we watched the attention you gave several of the burning issues with respect to the environment in this country. For those of us who had sustainability at the heart of what we do, you were so focused in ensuring that the Sustainable Development Goals (SDGs) are pursued.”

Others that spoke at the event were Chief Oba Otudeko, Mr. Lawyer Jaiyeola, Minister of Transport, Mr. Rotimi Amaechi, CEO of Standard Chartered Bank, Mr. Bola Adesola, and Senator Aisha Alhassan.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years experience as a foreign exchange research analyst and trader.

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