Energy

To increase sector viability,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 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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