We stated in the last edition of this piece, that according to the most recent annual Africa Progress Panel (APP) panel report, economic governance had improved considerably over the past decade and monetary policy had helped to reduce inflation over the past couple of years. We had also mentioned the fact that the APP panel consists of ten distinguished individuals led by Kofi Annan, former Secretary- General of the United Nations. Many other speakers at the Africa Rising Conference also shared the same view regarding better economic governance in Africa.
The Nigerian Investment Promotion Commission (NIPC) on its part, also recently stated that Nigeria’s net returns on investments remains among the best globally at between 35% and 45% net on investment returns.
We had also confirmed that there were indeed some difficulties, particularly regulatory challenges, doing business in Nigeria and pointed to the 137th position Nigeria currently occupies, out of 189 countries assessed in connection with the difficulty or otherwise of doing business in them. We conclude our thoughts on the issue, this week.
Ease of Enterprise and Enterprise Pull
In the words of Mohammed Bin Rashid, Ruler of Dubai, talent flows naturally to countries that create an environment for economic growth; make life easy for enterprise; attract and welcome investment; and nurture a culture of achievement.
Additional to the views expressed by Mohammed Bin Rashid are views generally expressed by prospective investors that they have serious concerns about investing in a country where the legal and regulatory regime are either not clear or change quite often. For most prospective investors, they want a measure of clarity and certainty because even their financiers are unlikely to find transactions in a sector where a lot is changing too quickly, too often, bankable.
Specifically, Frank Alexander, Bennett Jones LLP, Canada had once stated that prospective investors are typically concerned about three main aspects of the legal and contractual regime when they enter into contracts with host governments. These three main aspects namely: the right to monetize, stability and the enforceability of international arbitration which are applicable in the power industry too. Particularly issues around stability of the legal, regulatory and contractual regime.
It is, therefore, in the writer’s view, important for Nigeria to improve on its ranking in connection with the ease to which businesses can be done and as far as the Nigerian Electricity Supply Industry (NESI) is concerned.
There are several people looking to do business in the NESI, particularly in the renewable energy space and they believe that not enough is being done by the Ministry of Power, the Nigerian Electricity Regulatory Commission and the Nigerian Bulk Electricity Trading Plc. in terms of attracting investors into that space. Many would argue that there is a Renewable Feed-in-Tariff (“Refits”) which is probably the highest in the world and should suffice in attracting investors in that space.
However, there are broader issues such as the development of clear rules, bankable template documents and the provision of same to the would-be investors who have all been complaining. Additionally, prospective investors in the power sector have argued that the sector is not quite ripe for a set of procurement rules which could prevent several interested persons from participating in the sector. Well, the jury is still out on whether the Procurement Guidelines are a step in the right direction at this time or not.
Many prospective investors also query the seeming lack of cohesion between the Department of Petroleum Resources/ Ministry of Petroleum Resources and NERC and some have even argued that the same body should regulate the NESI and NERC because at times there just appears to be no real cohesion. However, there is no gainsaying the fact the Presidency is doing a lot to properly help align gas and power. Hence, the setting up of a working group to align gas and power related issues.
Although, it is the writer’s view, that NERC is blazing the trail in efficiently regulating the electric power sector in Nigeria, but must not fall into the trap of over-regulating the sector by not duplicating the role of varying regulations or introducing ‘unworkable’ regulations.
NERC also has to continuously ensure that thorough analyses is done and the pros and cons of every regulation, guideline or such other similar instruments are considered prior to issuing same. Additionally, sufficient public participation is recommended prior to issuing regulations in the power sector; particularly regulations that may be sensitive or likely to seem controversial. Although, NERC has been quite interactive with stakeholders it does still need to do much more in that regard.
Conclusion
It is pertinent that everyone from the Presidency to the Ministries of Power and Petroleum Resources work towards improving the ease with which business is done in the electric power sector in Nigeria. This is very crucial because as it becomes easier to do business in Nigeria, more businesses are likely to set up in Nigeria particularly when you consider the demand versus supply gap.
When jobs are created, then there is a positive correlation with economic growth and development. Furthermore, vices and criminality reduce and quality of life generally soars especially where there are strong local content laws/ rules which encourage the employment of Nigerians and a structured and well run capacity development program.
Ayodele Oni ([email protected]), a solicitor, specializes in international energy (oil, gas & power) investment law and has a mini MBA in power & electricity. You can follow me on twitter @ayodelegoni.
