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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 told THISDAY
that 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 by THISDAY 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 THISDAY reminded Rewane 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.”
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