The Power Sector Investor (Nigerian Guide) Part C

3.0 FINANCING AND CURRENCY CONTROL

3.1 Funding Strategy

[EDITED] Power and renewable energy projects are inherently capital-intensive undertakings, necessitating robust and strategic financing approaches. The Nigerian landscape offers a variety of funding channels, each with it's own structure and requirements.

Types of Funding:

Project Finance: This method typically involves non-recourse or limited-recourse debt, where repayment is primarily dependent on the project's future cash flows. A notable example is the International Finance Corporation (IFC), a member of the World Bank Group, which has demonstrated its commitment to Nigeria's renewable energy sector through significant investments. IFC provided a $5 million investment in Husk Power Energy Systems Nigeria Limited to expand solar hybrid mini-grids in Northern Nigeria, as part of its $200 million Distributed Access through Renewable Energy Scale-up (DARES) Platform. Furthermore, Nigeria, in collaboration with a United Nations agency, has established a $500 million fund specifically for distributed renewable energy (DRE) solutions, in a bid to catalyze private sector investment in this area.
Private Equity: This involves direct investment in companies or projects, often providing growth capital. Sun King, a leading off-grid solar energy company, secured an $80 million Naira-denominated loan facility in partnership with IFC and Stanbic IBTC Bank to expand access to off-grid solar energy in Nigeria¹. This transaction exemplifies how private equity, blended with development finance, can support localized energy solutions.
Debt Financing: Loans from commercial banks, development finance institutions (DFIs), or other financial institutions constitute a significant portion of project funding. The Central Bank of Nigeria (CBN) has historically intervened in the power sector through² initiatives like the Power Sector Intervention Fund (PAIF)³. This fund allocated N300 billion, offering long-term loans (10-15 years) that could cover up to 70% of the total project cost, with an attractive annual interest rate of 7%.
Mezzanine Financing: This hybrid financing instrument combines elements of both debt and equity, often used to bridge funding gaps in capital structures. IFC's $5 million revolving debt facility to Husk Power included a $2.5 million concessional subordinated loan, which functions as a form of mezzanine finance, providing flexible capital for project rollout.
Green Bonds: These are fixed-income instruments designed to raise capital for environmentally friendly projects. Nigeria has been a pioneer in this space, issuing sovereign green bonds since 2017. The country plans a larger N300 billion ($186 million) issuance in 2025⁴, with proceeds earmarked for "Eligible Projects" that promote a transition to a low-emission economy and climate-resilient growth. These projects include investments in energy efficiency and renewable energy, aligning with Nigeria's Nationally Determined Contributions (NDCs) under the United Nations Framework Convention on Climate Change (UNFCCC).
Crowd Funding: Crowd funding involves incentivised public contribution for the realisation of a project, particularly for micro, small and medium businesses with little to no access to traditional capital. Nigeria regulates crowdfunding through the SEC in line with the Crowdfunding rules 2021. An example of crowd funding platform aimed at promoting renewable energy is Sunfunder, a clean energy and focused on scaling projects across Africa and Asia, by offering debt-based investment opportunities⁵.

It is crucial to note that each of these funding channels come with strict requirements. For instance, the CBN's Power Sector Intervention Fund has specific eligibility criteria, such as corporate registration, involvement in the electricity supply value chain, and verifiable off-taker purchase agreements for gas-to-power projects⁶. International initiatives like the International Solar Alliance (ISA) are actively working to unlock substantial investments in solar power globally, including in Nigeria, by fostering favorable policies and mobilizing capital⁷.

Despite the numerous funding channels being actively pursued, the Nigerian power sector faces severe and growing financial challenges, with accumulated debts exceeding N3 trillion and significant monthly shortfalls to generation companies. This situation highlights a disconnect as the availability of initial project financing does not automatically guarantee the operational viability and financial sustainability of projects within a sector burdened by chronic non-payment and tariff issues. Investors must not only secure capital but also meticulously assess and mitigate the risks associated with the sector's liquidity challenges, which can profoundly impact revenue collection and debt servicing. This underscores that a comprehensive financial strategy must extend beyond securing funds to ensuring a stable and predictable operational environment.

It is important to note that every country or organisation's choice of funding may be dependent on the origin and the position of the organisation entering the market.

3.2 Repatriation of Capital and Profits

Nigerian law provides a clear and robust framework that permits foreign investors to repatriate their profits and capital, a crucial factor for attracting international investment. This right is primarily protected by the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act(FEMMPA), and further guaranteed by the Nigerian Investment Promotion Commission (NIPC) Act.

The FEMMPA explicitly guarantees the right of foreign investors to repatriate their profit's, dividends, and capital. Complementing this, Section 24 of the NIPC Act further solidifies this guarantee, ensuring the unconditional transferability of funds. This includes dividends or net profits attributable to the investment, payments in respect of foreign loan servicing, and the remittance of proceeds (net of all taxes) and other obligations in the event of a sale or liquidation of the enterprise or any interest attributable to the investment.

To facilitate this repatriation, foreign investors are required to import their capital into Nigeria through an authorized dealer, typically a commercial bank, and obtain a Certificate of Capital Importation (CCI)¹. The CCI serves as indispensable evidence of the capital inflow and is mandatory for accessing the official foreign exchange market for any future repatriations. Recognizing the importance of efficiency, the Central Bank of Nigeria (CBN) has transitioned from issuing physical CCIs to electronic CCIs (e-CCIs), which are managed through an online platform to streamline the process, ease transaction tracking, and allow for easier amendment of the CCI in cases of investment transfer. It is also essential for investors to ensure that all applicable taxes, such as withholding tax on dividends, are paid before initiating any repatriation⁸.

For any foreign investment in the Nigerian power sector, securing the CCI at the precise moment of capital importation is non-negotiable. Failure to obtain this certificate will severely hinder or even prevent the legal repatriation of profits and capital through official channels, effectively trapping funds within Nigeria. This makes the initial financial transaction a critical compliance point that requires meticulous attention.

3.3 Insurance

Insurance is a vital component of risk management for power projects in Nigeria. At a minimum, companies are required to maintain Contractors' All Risks (CAR) insurance during the construction phase and Fire and Special Perils coverage during operations. Employers' liability insurance is also mandatory under Nigerian law. However, prudent investors go beyond the basics by procuring business interruption, public liability, and marine cargo insurance. Renewable energy projects involving imported equipment and remote infrastructure benefit greatly from such protection.

Political risk insurance is especially relevant for foreign investors and can be obtained through entities like the Multilateral Investment Guarantee Agency (MIGA) and Africa Trade Insurance (ATI). It covers risks such as expropriation, contract frustration, and currency inconvertibility. Additionally, the Nigerian Insurance Act requires all insurable interests in Nigeria to be insured by Nigerian-licensed insurers, though reinsurance abroad is allowed. An integrated insurance plan boosts project bankability and can unlock better financing terms.

4.0 TAX CONSIDERATIONS AND COMPLIANCE

4.1 Overview of Tax Issues

Taxation in Nigeria is multifaceted and must be carefully analyzed before investing. Companies operating in the power and renewable energy sectors are subject to various taxes, including corporate income tax (30%), value-added tax (7.5%), withholding tax, and capital gains tax. However, tax incentives are available under the Companies Income Tax Act (CITA), the Industrial Development (Income Tax Relief) Act, and the Nigerian Investment Promotion Commission (NIPC) Act.⁹ For example, renewable energy companies may qualify for pioneer status incentives, which grant a five-year tax holiday. Furthermore, companies exporting power to neighboring countries or using locally manufactured components may benefit from additional reliefs. Importantly, the Finance Act 2021 expanded tax compliance obligations and may affect the deductibility of certain costs or offshore payments. A robust tax strategy, including transfer pricing compliance and VAT planning, is essential to optimize returns.

Companies Income Tax Act (CITA) – Cap C21, LFN 2004

This is Nigeria's primary statute on corporate taxation, administered by the Federal Inland Revenue Service (FIRS). Companies operating in the power sector—whether on-grid, mini-grid, or off-grid—are generally subject to Companies Income Tax (CIT) at the rate of 30% on their assessable profits.

CITA also regulates:

Capital allowances and depreciation schedules for plant and equipment, which are relevant to energy infrastructure.
Deductions for interest on loans, subject to thin capitalization rules (restrictions on interest deductibility on related-party loans).
Minimum tax provisions that apply to companies declaring little or no profit.

CITA also outlines the criteria for Pioneer Status under the Industrial Development (Income Tax Relief) Act, which can offer a tax holiday of 3 years, renewable for 2 more years, effectively exempting qualifying companies from income tax for that period.

2. Industrial Development (Income Tax Relief) Act – Cap I17, LFN 2004

This Act provides the legislative foundation for the Pioneer Status Incentive (PSI) administered by the Nigerian Investment Promotion Commission (NIPC). Renewable energy—particularly solar, wind, hydro, and biomass—has been recognized as a pioneer industry eligible for tax holidays. Companies must:

Apply through the NIPC with detailed project documents.
Demonstrate innovation and contribute to national economic development.
Maintain separate financial records for the pioneer business to ensure accurate profit tracking.

Issues:

Delays in processing and uncertainty in qualifying criteria.
Audit and monitoring obligations during the pioneer period.
Post-pioneer tax planning is essential to avoid tax spikes once the incentive expires.

3. Value Added Tax Act (as amended by the Finance Acts)

Under the VAT Act, companies are required to charge 7.5% VAT on the supply of taxable goods and services. However, there are some exemptions and considerations for the energy sector:

Solar panels and renewable energy equipment may be exempt from VAT based on policy circulars and customs codes, although implementation has been inconsistent.
Power sales to government entities and rural electrification schemes may face delayed VAT recoveries due to delayed payments or non-remittance by counterparties.

Companies are required to register for VAT, file monthly returns, and remit collected VAT. Input VAT can be reclaimed on qualifying purchases, but only if correctly documented.

4. Withholding Tax (WHT) – Part of CITA and the Personal Income Tax Act

Withholding tax applies to payments made to contractors, consultants, suppliers, and service providers. The typical WHT rates include:

10% for dividends, interest, and rent.
5% for contracts and consultancy services.

WHT is a tax credit, not a final tax for Nigerian residents, but it is a final tax for non-residents (unless a double tax treaty applies). This becomes important for foreign EPC contractors or service providers in energy projects.

Common Issues:

Misclassification of services may lead to disputes with tax authorities.
Challenges in recovering excess WHT credit's, particularly when in a pioneer status period or loss position.
Non-resident companies must be wary of permanent establishment rules that could trigger Nigerian tax obligations.

5. Nigerian Investment Promotion Commission Act (NIPC Act)

The NIPC Act not only provides the statutory basis for foreign direct investment in Nigeria but also allows companies to:

Apply for tax holidays, investment guarantees, and foreign ownership rights.
Enjoy protections against expropriation, subject to legal remedies under international arbitration.

However, NIPC registration is mandatory before a company can fully benefit from incentives. Investors must also comply with annual performance reporting obligations under the Act.

5.0 EMPLOYMENT AND LABOUR LAW CONSIDERATIONS

Employment in Nigeria's power and renewable energy sector is principally governed by the Labor Act, Cap L1 LFN 2004, and the specific terms outlined in employment contracts. Given the technical and labor-intensive nature of the industry, employers must adhere to a framework that ensures legal compliance and promotes fair labor standards. The following are key employment and labor considerations:

1. Fair Labor Practices and Employment Contracts

All employees, particularly those engaged in construction, operations, or technical support roles, are entitled to written contracts that clearly define their terms of engagement, as required under Section 7 of the Labour Act.

Employers must uphold equitable labor practices, including non-discrimination, equal pay for equal work, and the right to freedom of association.

Contracts should outline roles, responsibilities, working hours, remuneration, leave entitlements, and dispute resolution procedures.

2. Pension, Social Security, and Statutory Contributions

Employers are mandated to comply with Nigeria's contributory pension scheme under the Pension Reform Act, 2014, making contributions to employees' Retirement Savings Accounts.

Other statutory contributions include the Employee Compensation Fund (under the Employee's Compensation Act, 2010) for workplace injury benefits, the National Housing Fund contributions, and the Industrial Training Fund (ITF) payments for employee training and development.

3. Employee Exit, Severance, and Terminal Benefits

Termination of employment must comply with statutory notice periods and be based on justifiable grounds. Severance pay, redundancy benefits, and end-of-service entitlements must also be addressed in the employment contract or applicable collective agreements.

Employers are advised to conduct due process during dismissals to avoid liability for unfair termination claims.

4. Mechanism for the Resolution of Employee Disputes

All labor and employment-related disputes fall under the exclusive jurisdiction of the National Industrial Court of Nigeria (NICN), in line with the provisions of the National Industrial Court Act, 2006. The NICN handles matters involving wrongful termination, union disputes, pension rights, and trade union activities.

5. Employment of Foreign Nationals (Expatriates)

Companies seeking to employ or bring in their foreign staff must obtain an Expatriate Quota from the Ministry of Interior, which specifies the number of expatriates they can employ and the permitted job designations.

Foreign employees would need the appropriate visa for their intended stay, and upon arrival, they must register with the Nigerian Immigration Service (NIS) and obtain a Combined Expatriate Residence Permit and Aliens Card (CERPAC).

A levy is payable by companies employing expatriates, and the NIS is responsible for its enforcement.

6.0 POSSIBILITY OF PPP

Public-Private Partnerships (PPPs) are not only possible but actively encouraged in Nigeria's power and renewable energy sector. The Nigerian government, recognizing the huge infrastructure deficit and funding limitations in the energy industry, has opened key segments of the power value chain—especially generation, transmission (under service contracts), and distribution (at state level)—to private sector participation. PPPs are commonly structured for projects like rural electrification, grid extension, mini-grids, solar farms, and transmission line upgrades. Agencies such as the Infrastructure Concession Regulatory Commission (ICRC)¹⁰ and state-level PPP offices facilitate these collaborations.¹¹

Investors can also engage through the Rural Electrification Agency (REA), which administers initiatives like the Nigeria Electrification Project (NEP), often backed by the World Bank and AfDB. However, for PPPs to be effective, investors must navigate bureaucratic processes, conduct thorough due diligence, and secure robust agreements that include risk allocation, performance standards, and dispute resolution mechanisms.

Case Study

The Abia state PPP is a worthy example of the use of PPP to finance power companies in Nigeria. The Aba IPP is unique as it is the only electricity company in Nigeria that is fully vertically integrated with embedded generation and distribution capabilities. This model ensures the Aba IPP can supply power directly to it's immediate community, prioritizing local needs and distributing surplus power to Nigeria's national power grid. This ground-breaking approach ensures constant power supply in the ring-fenced area and addresses the challenges associated with the national power grid. Furthermore, the integrated structure fosters value creation through improved cost management at various stages in the energy value chain: generation, distribution, and collection.

The Aba IPP is equipped with renowned world class infrastructure including three GE LM6000 Gas turbines, with a capacity to produce up to 47MW each. The power plant is also equipped with a 27km gas pipeline to ensure consistent fuel supply, three rehabilitated distribution substations, five new additional substations and 140km of 33kV/11kV lines using fibre optic cables for seamless data communication.

7.0 POLITICAL LANDSCAPE AND CORRUPTION

7.1 Political Landscape

The political environment in Nigeria is dynamic and significantly impacts the energy sector. Frequent changes in leadership—at both federal and state levels—can lead to policy shifts, delays in approvals, or the abrupt restructuring of energy programs. Political interference in tariff setting, especially at the federal level, has historically disrupted revenue flows, making the financial viability of power projects uncertain.

The decentralization of electricity regulation under the Electricity Act 2023 has shifted power to the states, creating both opportunities and confusion, particularly where state and federal interests conflict. Investors must therefore carefully monitor political developments, establish strong stakeholder relationships, and, where possible, involve state actors in early project design. Building resilience into project frameworks—through legal safeguards and political risk insurance—is advisable.

7.2 Corruption issues

Corruption remains a significant challenge in Nigeria's power sector, particularly in public procurement, licensing, and contract enforcement. While Nigeria has introduced several anti-corruption reforms, including the implementation of the Public Procurement Act and the establishment of the ICPC and EFCC, enforcement remains uneven. Investors may encounter informal payment requests, opaque bidding processes, or favoritism in the awarding of concessions.

Moreover, legal disputes involving government contracts can be protracted or politically influenced, undermining investor confidence. To mitigate these risks, companies should adopt strict anti-bribery compliance programs, conduct enhanced due diligence on all local partners and government counterparts, and seek legal protections such as arbitration clauses, sovereign guarantees, and stabilization agreements. Working with multilaterals or DFIs can also help enhance transparency and enforce accountability.

8.0 CONCLUSION

Nigeria's power and renewable energy sector offers significant untapped potential for foreign investors. With a large and growing population, rising energy demand, and abundant renewable resources particularly solar and hydro, the country presents both a strategic market and an opportunity for long-term, sustainable returns.

This guide has outlined the key legal and regulatory considerations that foreign investors must understand before entering the Nigerian electricity space. From incorporation and licensing, to funding strategies, joint ventures, and land acquisition, it also considers the steps and issues to consider while setting up a company in the sector like repatriation of funds and taxation, and the post incorporation factors like labour and environmental standards. It is clear that success in this sector depends on careful navigation of the Nigerian legal landscape and regulatory environment. Importantly, the enactment of the Electricity Act 2023 marks a major step forward in sector reform—encouraging decentralization, private investment, and state-level participation in electricity generation and distribution.

Nigeria's government has also continued to show commitment to improving the ease of doing business and attracting foreign direct investment through various incentives, PPP opportunities, and investment protection frameworks. However, challenges such as inconsistent policy enforcement, regulatory overlap, and infrastructure gaps still exist and must be addressed with informed risk management and local partnerships.

For foreign investors, the opportunities far outweigh the challenges—especially when backed by strategic planning, proper legal due diligence, and engagement with experienced local counsel. Investors who position themselves early, with a long-term view, stand to benefit immensely from Nigeria's ongoing energy transition and infrastructure modernization.

In summary, the Nigerian power sector is open for business, and with the right legal and commercial approach, foreign investors can play a transformative role while achieving meaningful and profitable participation in Africa's largest economy¹².

CHECKLIST FOR THE POWER AND RENEWABLE ENERGY SECTOR IN NIGERIA

Pre-Entry Research & Planning

Conduct market feasibility studies and identify project location(s)
Determine project type (utility-scale, embedded, captive, mini-grid,etc.)
Determine the business model (generation, distribution, embedded, off-grid, etc.)
Engage a local legal/consulting team
Prepare business plan and financing model

Company Setup & Regulatory Compliance

Incorporate company with CAC
Register with FIRS and obtain TIN
Register for VAT and other applicable taxes
Apply for Business Permit and Expatriate Quota (if required)
Register with NIPC
Prepare and submit a Local Content Development Plan
Register with the Nigerian Content Development and Monitoring Board (NCDMB)
Prioritize local staff, materials, and contractors
Apply for Pioneer Status with NIPC
Explore access to CBN Green Funds, BOI Renewable Energy Fund and other means of Financing (if applicable)
Register eligibility for carbon credits or green bonds (if applicable)

Licensing and Approvals

Apply for appropriate NERC license (e.g., Generation License, Off-grid Permit)
Register with the Rural Electrification Agency (REA) (if applicable)
Apply for Captive Power Generation Permit (if generating >1 MW for internal use)
Conduct Environmental Impact Assessment (EIA)
Submit EIA to the FMEnv or relevant state authority
Comply with environmental regulations and obtain necessary permits
Acquire land and obtain land use approvals
Begin Right of Way(if laying transmission/distribution lines)

Project Development & Implementation

Finalize funding agreements and contracts
Commence civil and electrical works
Begin community/stakeholder engagement
Ensure ongoing compliance with NERC/REA and environmental standards
Set up grid connection or off-grid distribution infrastructure

Operations & Scaling

Commission the project
Begin power generation and/or distribution
Monitor for regulatory compliance
Explore opportunities for expansion, additional capacity, or financing

Footnotes

1 Akintaro S, 'Sun King Secures $80 Million Loan to Power 4 Million Nigerian Homes ' (Nairametrics, 15 May 2025) < https://nairametrics.com/2025/05/15/sun-king-secures-80-million-loan-to-power-4-million-nigerian-homes/> accessed 22 May 2025

2 Ibid

3 CBN, 'Power and Airline Intervention Facility(Paif)' (Power and Airline Intervention Facility | Central Bank of Nigeria, 2010) <https://www.cbn.gov.ng/DFD/energy/paif.html> accessed 22 May 2025

4 Patrick-Okwoli L, 'Nigeria to Float N300BN in Green Bonds in 2025' (Businessday NG, 7 May 2025) < https://businessday.ng/business-economy/article/nigeria-to-float-n300bn-in-green-bonds-in-2025/> accessed 22 May 2025

5 'SunFunder: Pioneering Climate Investments in Africa' (Unfccc.int, 2023) < https://unfccc.int/climate-action/un-global-climate-action-awards/financing-for-climate-friendly-investment/sunfunder> accessed 28 May 2025

6 Ibid.

7 Ibid.

8 Gotring WD, 'Implementation of the Electronic Certification of Capital Importation (ECCI) (TED/FEM/FPC/GEN/01/012)' (CBN, 17 September 2017) < https://www.cbn.gov.ng/out/2017/ccd/re%20implementation%20of%20ecci.pdf> accessed 22 May 2025

9 Section 30 NIPC Act.

10 Established under ICRC Act 2005

11 ICRC Act 2005, Explanatory Memorandum

12 All work done by the team herein stated. Reference made to other websites and AI not noted here for the purpose of information gathering and editing ONLY.

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