Tax and Regulatory Issues Impacting the Payment for Imported Equipment by Renewable Energy Companies in Nigeria
Nigeria’s power sector has continued to grow, at least, in the number of participants, even if there are still concerns around the consistency and efficiency of grid power. Most of the new participants are Renewable Energy Companies (RECs), who with the available grants and concessionary funding from Government through agencies such as the Rural Electrification Agency (REA), Development Finance Institutions, and other Multilateral Development Agencies continues to drive growth in the sector.
The RECs would tell you though, that there is still a long way to go to solve the funding issue, given the size of the challenges in the Nigerian Electricity Supply Industry. The proportion of the country’s population without access to stable and reliable electricity stands at about 46% as per a report published in the Punch Newspapers in 2022. While there have been some success stories so far, there is still significant work yet to be done.
Beyond access to capital, there are other issues which impact the desired growth in the sector. At the top of the list of these other issues is tax. In this third volume of the special edition series of our Power Sector newsletters, we will be highlighting a key issue which has significant income tax and regulatory considerations for RECs in Nigeria.
Payment for imported equipment
A significant number of RECs purchase their equipment from Original Equipment Manufacturers (OEMs) offshore.
These OEMs are meant to be paid in foreign currency which is not always readily accessible through the official channels (i.e., the banking system). The RECs earn all their revenue in naira and so would have to source for foreign exchange in order to settle their obligations to the OEMs, who typically have a specified time within which they would expect to receive payment otherwise they may be unwilling to continue to do business with the RECs. Most RECs have, therefore, had to seek alternative sources of the foreign exchange
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