HOW TO START AN INDEPENDENT POWER COMPANY IN NIGERIA

Power generation is a significant issue in Nigeria. Nigeria’s population is over 200 million and these 200 million citizens will require on the average of about 200,000MW (Megawatts) of reliable and efficient electricity distribution. This is why there is a need to meet the growing population demands of Nigeria and this can be done by establishing an independent power company

Independent power companies are entities of non-public service companies working and investing in the power generation offices in order to ensure that more power is generated to meet the needs of the citizens. In order for the Nigerian government to increase the foreign support in the electric power sector, they commissioned independent power projects (IPP) to generate electricity and sell

An independent power company which could also be referred an independent power projects (IPP) is a privately owned plant. Adding an independent power company to the energy market adds to the completion and thereby reduces the cost of power for the consumers. Another thing to note is that new independent power companies have more readily available funds and better infrastructure those owned by the public

The legislation that is guiding the power industry in Nigeria includes

• The Companies and Allied Matters Act, Laws of the Federation of Nigeria, 2004 (the CAMA)
• 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)
• Electric Power Sector Reform Act, 2005 (EPSR Act)
• The Nigerian Bulk Electricity company

The electricity industry has structures put in place in order to ensure empowerment of power projects in the nation. It is directed by industry legislations such as the Electric Power Sector Reform Act, 2005 (EPSR Act). The Electric Power Sector Reform Act was enacted in March 2005, it is he principle statutory enactment concentrated on the electric power sector in Nigeria. This act empowers the private industries or individuals that are willing to take an interest in the generation, transmission and distribution of electricity. The ESPR Act characterizes the structure of the electricity business and awards position to the independent controller.

The Electric Power Sector Reform Act (EPSR) sets up the regulatory body of the Nigerian Electrical Regulatory Commission (NERC) which has the power to make regulations guiding the activities of the Nigerian electricity supply industry. The EPSR Act permits the NECR to give a license for a time of 15 years and furthermore take into account restoration.

The Nigerian Electrical Regulatory Commission (NERC) is the regulatory body that is accountable for granting a license to private independent power companies. This commission has built up a regulation on inserted generation, which takes into account power generation plants including renewable energy to be legitimately associated with and emptied through a distribution network. It creates a window for investors, networks, state and neighbourhood government to generate, sell and use power without experiencing transmission grid

The Nigerian Bulk Electricity Company (NBEC) is the authority charged with the obligation of overseeing and regulating the pool in the Nigerian electricity industry sector. The Nigerian Bulk Electricity Company (NBEC) buys electricity from generating companies like independent power companies through purchase agreement and offer to distribution companies through vesting contracts. They perform the following functions:

• Overseeing and regulating budgetary flows of the physical supplies of the network
• To operate the aggressive market in order to support proficient value disclosure

Establishing an independent power company in Nigeria is very lucrative with the number of population in Nigeria but before one can start one will need to go through a lot of procedures, licenses, regulations and a huge capital requirement. The independent power projects (IPP) in Nigeria is controlled by the arrangements of the Electric Power Sector Reform Act and other subordinate regulations and guidelines.  Before starting an independent company in Nigeria, you will need to

• Develop a business plan

This should be the first step to take when starting an independent power company, a business plan will ensure that adequate plans are made before starting the business. The business plan should be developed by the business owner before committing to any financial or legal requirements. A proper and well detailed business plan will include the following

1. Executive summary (This will be done after the plan is written)

• Business Overview
• Market Overview: The Opportunity & Solution
• Competition
• Financial Highlights
• Our Ask

2. The company overview

This is the introduction and description of your company. It covers the following details

• Mission and vision
• Overview of company history/capabilities
• Product description and present stage of development
• Competitive advantage (what’s different or better than competition)
• Past customers and performance (if applicable)
• Legal entity, hours of operation, location description and attributes
• Structure & Ownership
• Management Team
• Intellectual property status (if applicable)
• Commercialization strategies (if applicable – timeframe and actions to move from idea to marketplace

3. Product and services

This covers the following:

• Definition of Products or Services to be Sold
• Product Viability
• Technology

4. Industry analysis, market analysis and marketing strategy
5. Swot analysis
6. Market analysis

• Market size(Estimate of the total market size for the product or service and trends
• Quantification of the size of each market segment in terms of (Naira spent, units used, number of people, percent of income etc.)
• Competition to the business
• Market Segmentation and Demographics
• Customer Profile(Actual and potential purchasers of product or services by market segments)
• Barriers to Entry

7. Marketing/sales plan
8. Management and operations
9. Summary of risks involved
10. Professional and advisors
11. Financials

• Cash flow projection and/or existing (3 years) with breakeven analysis
• Income/Expense projection and/or existing (3 years with ratios and benchmarks to industry)
• Sources and uses of funds (funds needed, owner equity, how funds will be used/start-up cost analysis

12. Funding

• Amount of Money Sought
• Use of Proceeds

13. Project implementation schedule if any

• Register your business name

Registering your business name with the Corporate Affairs Commission (CAC) in Nigeria will allow your business to stand separately from its owners which ensures that the property of the owners and other stakeholders are not at risk. It is more recommendable to register your company as a limited liability company. The following are the requirements for registering your company as a limited liability company

1. The first step required by the applicant is to choose two suitable proposed names for the company. Where this is done, an availability check will be conducted on the CAC online portal to find out if the name is available and not already in use.
2. Choosing the type of company to be registered whether a private limited company or private unlimited company or company limited by guarantee.
3. The objectives and business of the company must be provided.
4. The registered principal address of the company.
5. The share capital and shareholding formula among shareholders will be required.
6. The particulars of a minimum of two (2) Directors will be required. A copy of their means of identification such as voter’s card, national ID, drivers’ license or international passport.
7. Particulars of the company secretary (one of the directors may also act as the Secretary of the company)
8. The applicant will be required to furnish details of the shareholders of the company. Details such as names, occupation, residential address, email address, mobile phone number and means of identification such as driver’s license, international passport or national identity card. It should be noted that the directors listed can also hold the capacity of shareholders in the company if desired.
9. The memorandum and Articles of association of the company to be registered which is advisable to be drafted professionally by a Legal Practitioner. However, the CAC has provided a generic MEMART, which any new company can be adopted.

After which a consultant will prepare the following incorporation documents. They include

1. Duly verified particulars of the director and statement of share capital known as CAC Form 1.1
2. Duly stamped Memorandum and Articles of Association
3. The individual completes all the incorporation documents with the input of an accredited lawyer to duly attest to the incorporation documents.
4. The payment of the prescribed fees will now be duly made online and the incorporation documents immediately stamped online.
5. The stamped incorporation documents will now be duly uploaded into the CAC online portal again for the final review of the commission
6. If all the incorporation documents are well completed and executed, the commission will incorporate the company and issue an incorporation number immediately online.
7. Certificate of Incorporation and the Certified True Copies of the other documents will be issued by CAC and received by the consultant or lawyer, usually in less than 48 hours after the company is duly incorporated by CAC

• Acquire the required license and documentations

The Nigerian Electrical Regulatory Commission (NERC) responsible for granting licenses to independent power companies in Nigeria. In order to qualify as a renewable energy generator and the applications for license to generate electricity, one must prepare and submit the following relevant documents for SCHEDULE 1A :

1. Finished application form
2. Certificate of incorporation, memorandum of association, articles of association, or deed of partnership or deed of trust if it is a partnership business
3. Registered title deed to site or sales agreement or deed of assignment/gift or evidence of submission of a title deed to a pertinent land processing agency
4. Tax clearance certificate for prompt past three years
5. Ten years business plan
6. Off-take agreement
7. Environmental Impact Assessment (EIA) approval certificate or proof of submission and acknowledgement for processing of the report on Environmental Impact Assessment (EIA) to the ministry of environment, or details on how effluents and release will be managed (whenever proposed capacity is under 10MW)
8. 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
9. Memorandum of understanding or letter of intent from the Engineering Procurement Contract (EPC) contractor
10. Memorandum of understanding or letter of intent from the technical accomplice
11. Timelines for commissioning of the power plant and on the date when various limits of the plant will come into operation

• Finance your business

Starting an independent power company in Nigeria requires a very huge sum of capital. And in order to fully fund the business, one may need to acquire external funding. Funding can be gotten through

1. Self-financing: This has to do with the capital provided by the owner of the business
2. Grants from government agencies: Various grants can also be gotten from the programs run by the state government or federal government
3. Loans from banks: Having a detailed business plan and registering your business name will enable you access various bank loans
4. Investors: Investors who have gone through your business plan and are assured that your furniture making business is profitable can invest millions of naira in your business
5. Family and friends: Finance can also be gotten from families and friends that are willing to support your business

• Acquire a site or location

In establishing an independent power company, you will need to acquire a spacious land for your plant. The location or site of the independent power company will be where activities related to power generation take place

• Get insurance

Working in an independent power company comes with a lot of risks such as fire, death and other risky occurrences. In order not to have losses and to also protect the lives of the employees, one must acquire insurance

• Purchase the necessary equipment and machinery

The independent power company will need certain tools and machineries in order to generate and distribute electricity. These machineries and equipment includes

1. Boilers
2. Gas turbines
3. Steam turbines
4. Plant instrument control system
5. Heat exchanger

• Hire and select employees

Personnel will also be needed in the independent power company. You have to ensure that it is the services of experienced workers you acquire. Employees that will work in your independent power company includes

• Power plant operators
• Power plant distributors
• Power plant dispatchers
• Security guards
• Those in charge of the control system
• Nuclear reactor operator
• Technicians

. Personnel can be gotten through

1. Posting about the vacancy on your website and across any social media or email marketing channels
2. Asking your business network, as well as friends and family if they know anyone suitable
3. Adding the vacancy to general recruitment websites
4. Advertising the vacancy in industry trade media or local newspapers

• Meet with those in the industry

The electricity industry involves lot of individuals and various companies, in order for you to fully grasp what the electricity business entails. You can attend conferences, forums relating to the industry and network with top owners who have been consistent in the industry

• Launch your business

After all procedures and guidelines have been carried out, the final step for you to make is to launch your business, start generating and distributing electricity through your distribution network.

FEDERAL GOVERNMENT OF NIGERIA SUBSIDY FOR ESTABLISHING A POWER PROJECT

The federal government of Nigeria has made available subsidy in order to motivate and attract foreign direct investment into the power sector. They made available

• Exemption from duty taxes on imported equipment
• Tax holiday of 5 to 7 years for individuals who invest in manufacture of transformers, meters, solar panels, control panels, switchgears, cables and other electrical related equipment that are considered as pioneer products
• Capital and investment allowance which can be conveyed forward and utilized after the tax holiday period
• Power plant utilizing gas are evaluated under the Companies Income Tax (CIT) at a decreased rate of 30%
• 100% or full 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 predicted tariff change mechanism that will take care of expense of production and give satisfactory returns on investment consistently

CONCLUSION

Starting an independent power company in Nigeria will require a huge sum of capital from investors and banks. You may be willing to go into partnership with individuals in order to boost the funds that will be available at your disposal. The Nigerian Electrical Regulatory Commission (NERC) responsible for granting licenses to independent power companies in Nigeria and once you fulfil all their criteria, you are set to start your independent power company. For more information on how to start an independent power company in Nigeria, you can contact us on 08023200801, 08075765799, Email: info@qeeva.com

About the author

Onamakinde Dare Daniel is a highly motivated accountant with knowledge in Accounting, Taxation, Management, Audit, Costing and Research. He is keen on tax matters due to its ever dynamic nature.