Framework for investment: Legislation is designed to support the local economy and promote private participation in key sectors

With the commencement of the sixth republic, the Nigerian president, President Goodluck Ebele Jonathan, introduced a transformation agenda in which he promised to achieve the Vision 20:2020 goals developed by the Yar’Adua/Jonathan administration.

President Jonathan’s Transformation Agenda seeks to revolutionise the Nigerian economy by reforming the key sectors in the country, particularly the oil and gas industry, the electric power sector, infrastructural development and foreign investment. Accordingly, the administration has placed emphasis on the enactment and implementation of laws that will ensure the achievement of its agenda.

THE PETROLEUM INDUSTRY BILL: Oil was first discovered in Oloibiri (now Bayelsa State) in 1956. Subsequently, in 1958, Nigeria began producing crude oil on a commercial basis. To regulate activities and operations in the Nigerian oil and gas industry, the Petroleum Act was enacted in 1969.

Although other laws and regulations have been enacted to control the operations of the industry, the Petroleum Act remains the major governing legislation. The federal government constituted the Oil and Gas Reform Implementation Committee (OGIC), which developed the Petroleum Industry Bill (PIB) in 2008, in order to provide a comprehensive legal framework for the industry as a whole.

The PIB is an all-encompassing bill that seeks to establish a legal and regulatory framework for the upstream and downstream operations of the industry, as well as regulate the activities of all stakeholders. In the event that the PIB is enacted, it will repeal 16 of the laws currently governing the industry.

The PIB makes provisions for the sustainable use of Nigeria’s petroleum resources, a progressive fiscal regime, revenue management and transparency, and Nigerian content and environmental issues. It is expected to redefine Nigeria’s relationship with international oil companies (IOCs) and other investors, which will be expected to create higher taxes and royalties.

In view of the recent developments in the industry, the PIB has been placed on the front burner as a potential remedy to current loopholes in the sector.

This is particularly due to the fact that the PIB aims at promoting transparency and the autonomy of the existing government agencies such as the Petroleum Product Pricing Regulatory Authority and the Nigerian National Petroleum Company, through the incorporation of these bodies. In addition, the procedure and criteria for licensing in Nigeria place restrictions on the discretion earlier given to the minister of petroleum resources under the Petroleum Act with a view to minimising any possibility of graft, nepotism and favouritism in the licensing process.

The PIB has, however, been criticised by IOCs for prescribing prohibitive fees and taxes, which sends ominous signals to prospective foreign investors. The IOCs have also argued that the Nigerian content and community participation obligations imposed by the PIB to meet the pressing needs of Nigerians in oil producing areas would ultimately affect foreign companies and their operations.

POWER REFORMS: The electric power sector in Nigeria has been overwhelmed with a number of issues which include: lack of metering; low capacity generation of power; lack of maintenance of facilities, which has over time resulted in decay, corruption and leakages; poor distribution; non-collection of electricity tariffs; and lack of investment in the sector, all of which have adversely affected the economy.

To address the anomalies in this sector, the National Council for Privatisation (NCP) inaugurated the Electric Power Sector Reform Implementation Committee in 1999 to recommend measures for reforms in the electric power sector, based on the policy goals of liberalisation, competition and private sector-led growth. This led to the enactment of the Electric Power Sector Reform Act in 2005 (ESPRA).

The ESPRA makes provisions for the privatisation of the National Electric Power Authority (NEPA), which at the time was the government enterprise that had a monopoly on the electric power sector and was solely responsible for electricity generation, transmission and distribution. The ESPRA provides for the formation of the Power Holding Company of Nigeria (PHCN), which will acquire all the functions, assets, liabilities and staff of the NEPA in order to develop a competitive electricity market.

In accordance with the provisions of the ESPRA, PHCN was unbundled into 18 successor companies – six generation companies, one power transmission company and 11 electricity distribution companies. The Bureau of Public Enterprises (BPE) and the NCP in 2010 commenced the process of privatising the successor companies of PHCN.

The ESPRA also established the Nigerian Electricity Regulatory Commission (NERC). The commission is vested with responsibility for creating, promoting and preserving an efficient industry and market structure, thereby ensuring the optimal utilisation of resources for the provision of electricity services; maximising access to electricity by promoting and facilitating consumer connections to rural and urban areas; ensuring that prices charged by licensees are fair to consumers and are sufficient to allow licensees to finance their activities and to allow for reasonable earnings for efficient operations; ensuring the safety, security, reliability and quality of service in the production and delivery of electricity to consumers; promoting competition and private sector participation when and where feasible; and licensing and regulating persons engaged in the generation, transmission, system operation, distribution and trading of electricity.

In line with its responsibility of ensuring fair pricing in the industry, the NERC has introduced the Multi-Year Tariff Order (MYTO), which is a regular review of the tariffs payable for electricity supply designed to address the inefficiency of pricing. Although the MYTO 1 implemented in 2008 was expected to last until 2013, the NERC has already introduced MYTO 2, which was scheduled to be implemented in January 2012. However, the revised tariff structure was delayed by six months and came into force in June 2012.

It is pertinent to mention that the ESPRA seeks to ensure rural electrification by making provisions for the establishment of the Rural Electrification Agency and the Rural Electrification Fund, to ensure that electricity is supplied to rural areas. Also, to protect the interests of indigent Nigerians, the ESPRA makes provision for the establishment of the Power Consumer Assistance Fund that will be utilised in subsiding electricity tariffs for underprivileged Nigerians. However, the ESPRA does not define who will be regarded as an “underprivileged Nigerian” and thus creates a loophole for graft and abuse of office by empowering the minister of power and steel to determine on whose behalf electricity tariff subsidies will be paid.

FOREIGN INVESTMENT: Generally, a foreign investor can freely invest and participate in the operation of any enterprise in Nigeria except those in the negative list, such as production of arms and ammunition and service uniforms, narcotic drugs and psychotropic substances, etc. Investors can choose to operate through foreign direct investment or in joint ventures with Nigerians (individuals or corporate bodies).

The principal laws on foreign investments are the Companies and Allied Matters Act (CAMA) Cap C20 LFN 2004; the Nigerian Investment Promotion Commission Act Cap N117 LFN 2004; the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act Cap F34 LFN 2004; and the Immigration Act Cap I1 LFN 2004.

COMPANIES & ALLIED MATTERS ACT: CAMA is the principal law regulating the incorporation of companies. The administration of CAMA is undertaken by the Corporate Affairs Commission (CAC), the functions of which include:

• The regulation and supervision of the formation, incorporation, registration, management and winding up of companies;

• The maintenance of companies’ registry and offices in all the states of the federation; and

• The investigation into the affairs of any company in the interest of shareholders and the public.

CAMA provides that a foreigner or foreign company may operate alone or join in forming a company with Nigerians, subject to the provisions of any law regulating the rights and capacity of foreigners in trade or business in Nigeria. CAMA also provides that every foreign company intending to carry on business in Nigeria must take all steps necessary to obtain incorporation as a separate entity in Nigeria and until so incorporated, the foreign company shall not have a place of business in the country for any purpose other than receipt of notices and other documents, as matters preliminary to incorporation under the act.

Exempted investors are those categories of investors who apply to the federal government for an exemption from the requirement to register locally. These categories are those invited to Nigeria by or with the approval of the federal government to execute any specified loan project; companies owned by foreign governments that are in Nigeria for the execution of specified individual loan projects; foreign government-owned companies engaged solely in export promotion activities; and engineering consultants and technical experts engaged in any contract with any of the governments of the federation or any of their agencies or with anybody provided the contract has been approved by the federal government.

FOREIGN EXCHANGE (MONITORING & MISC.

PROVISIONS) ACT: The Foreign Exchange Act allows a foreigner to invest in any enterprise or security by importing foreign currency or capital into Nigeria.

However, such importation must be done through a bank licensed by the central bank (authorised dealers), pursuant to the provisions of the Banks and Other Financial Institutions Act.

Once capital or foreign currency is imported into Nigeria, the relevant authorised dealer will issue a certificate of capital importation (CCI) to the foreign investor within 24 hours, as evidence of capital importation. The presentation of a CCI allows the foreign investor to repatriate any profit or dividend realised from its investment in the country. Therefore, the provisions of the Foreign Exchange Act guarantee and protect foreign investors’ rights to invest in and repatriate profits realised from investments in Nigeria.

INVESTMENT PROMOTION COMMISSION ACT: undefined The purpose of the Nigerian Investment Promotion Commission Act is to encourage and promote investment. This act provides that a non-Nigerian may invest and participate in the operation of any enterprise in Nigeria upon registration with the Nigerian Investment Promotion Commission.

The commission is required by the act to provide assistance and guidance to an enterprise and also act as a liaison between the enterprise and the government departments, agencies and other such public authorities. The commission serves as a one-stop shop coordinating all investment promotion activities.

In consultation with appropriate government agencies, the commission shall also negotiate specific incentive packages for the promotion of investment and identified strategic or major investments. Pioneer status is one such incentive; it offers a tax holiday to qualified or eligible industries anywhere in the federation or a seven-year tax holiday in respect of industries located in economically disadvantaged local government areas. Pioneer status is granted to enable the enterprise concerned make a reasonable level of profit within its formative years.

Additionally, the Companies Income Tax Act has been amended to encourage potential and existing investors and entrepreneurs. It offers investors relief in respect of interest on foreign loans, bank loans for agriculture and for manufacture of goods for export.

The act encourages foreign investments in that it guarantees unconditional transferability of funds through an authorised dealer in freely convertible currency, dividends or profits (net of taxes) attributable to the investments, payments in respect of loan servicing where a foreign loan has been obtained, 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. The act also protects investors by providing that no enterprise shall be nationalised or expropriated by any government of the federation and that no person who owns (wholly or in part) the capital of any enterprise shall be compelled by law to surrender his interest in the capital to any other person.

IMMIGRATION ACT: Nigerian law requires that every non-Nigerian who wishes to enter and/or reside and work in Nigeria and every company that employs or intends to employ non-Nigerians must comply with the regulations made under the Immigration Act. The Nigeria Immigration Service administers the act.

BUSINESS PERMITS: In accordance with Nigerian law, foreigners are prohibited from doing business in the country without a business permit. A business permit is the permanent authorisation for the local operation of businesses with foreign investments as a branch or as a subsidiary of an overseas company.

EXPATRIATE QUOTAS: Expatriate quotas must be obtained for workers of a company who are foreigners. An expatriate quota is the official permit to a company conveying permission to employ individual foreigners to specifically approved job designations, and also specifying the duration of such employment.

Expatriate quota approval is obtained from the Immigration Department (ID) of the Federal Ministry of Interior. The employment of expatriate staff is viewed by the government as a means for ensuring the transfer of technology to Nigerian citizens. Thus, it is usual for quota applications to be supported by a detailed training (understudy) programme for the Nigerian staff of the company.

The expatriate quota forms the basis of work permits for expatriate individuals employed (whose qualifications must fulfil the criteria established for the particular quota position). Expatriate quota positions are usually granted for two to three years subject to renewal, except in cases where companies qualify for and are granted not more than one permanent until reviewed (PUR) quota (i.e. position). The PUR is usually obtained for top management positions such as the managing director or general manager.

RESIDENCE & TEMPORARY WORK PERMITS: undefined Expatriates who intend to work and reside in Nigeria for a period exceeding three months require residence permits, which are obtainable from the ID. This permit is referred to as the Combined Expatriate Residence Permit and Alien Card (CERPAC).

All foreigners (except Economic Community of West African States citizens, diplomats and children below the age of 15 years) working or living in Nigeria must have CERPAC cards. While the residence permit entitles a foreigner and his dependants to reside in Nigeria, the alien registration certificate is essentially a movement chart under the CERPAC initiative that was fully introduced in 2002.

Furthermore, where an expatriate is invited by a company to provide specialised skilled services such as after-sales installation, maintenance, repairs of machines and equipment, etc., for a period not exceeding three months, a temporary work permit will be issued by the ID.

MONTHLY RETURNS: It is a requirement that the company should file monthly returns at the ID. The monthly return is a monthly summary of expatriates living and working in Nigeria and the utilisation of approved expatriate quotas.

THE PENSION REGIME: The legislature passed a new Pension Reform Act in 2004 stipulating that all employers with a minimum of five employees should establish a pension scheme to be managed by pension fund administrators.

The total minimum contribution should not be less than 15% of the monthly emoluments of the employee (comprising 7.5% each from the employer and employee). Employers are also to provide life assurance policies for employees for a minimum of three times the total annual employee pay.

THE INDUSTRIAL TRAINING FUND: Employers with at least 25 employees are also required to pay a levy of 1% of the total Nigerian and non-Nigerian payroll remuneration as industrial training levy. The industrial training fund council may make a refund of up to 60% of the amount paid by the employer if satisfied the training programme of the employer is adequate.

FOREIGN INVESTORS & PROPERTY LAW: The principal law governing landholdings is the Land Use Act (LUA), Cap L5 LFN 2004. The LUA vests the title to land in urban areas in every state, on trust, in the governor of the state (or the president in respect of land in the federal capital territory), subject to the provisions of the LUA. Title to land in nonurban areas is vested in the local government.

Essentially the LUA means that it is no longer possible to have freehold title to land in Nigeria. The only title to land available is a leasehold title evidenced by a certificate of occupancy, which is prima facie evidence of title. The LUA prohibits any form of transfer without the prior consent of the governor. The process of obtaining the consent of the governor in some states can be cumbersome. In Lagos State, for example, this is especially true.

However, Lagos State and some other states have taken steps to improve the administrative structure in an effort to eliminate bottlenecks and speed up the process of obtaining consent. In addition to obtaining consent, an allottee or purchaser of land is required to pay stamp duties, capital gains tax, registration fees and other prescribed levies. Obtaining the governor’s consent is a condition precedent to registration of the instrument of transfer. There is currently an ongoing debate to either amend or repeal the LUA. LEGAL FRAMEWORK FOR THE BUILD-OPERATE-TRANSFER SCHEME: The ongoing demand for basic infrastructure in Nigeria has proved to be beyond the means available to the government. Therefore, private sector participation is seen as a necessary and effective recourse to meet these needs.

In the past few years important laws on private sector participation in the development and maintenance of public infrastructure have been passed. The Infrastructure Concession Regulatory Commission Act 2005 (ICRC Act) was enacted to provide a legal framework for private sector financing of infrastructure development in Nigeria. All federal government agencies are now permitted to enter into contractual arrangements or grant concessions to duly pre-qualified project promoters on projects that are financially viable, subject to the approval of the Federal Executive Council, along with assurance given by the federal government to the investment community of the legality and enforceability of concessions consummated in accordance with the ICRC Act.

The Lagos State Roads, Bridges and Highway Infrastructure (Private Sector Participation) Development Board Law, Law No. 3 of 2005 established the Lagos State Roads, Bridges and Highway Infrastructure ( Private Sector Participation) Development Board, a body which is empowered to grant concessions to investors for the provision of highway or road infrastructure and enter into concession agreements and project agreements for the same purpose.

The concession agreement may cover any contract for the construction, maintenance, operation or management of a highway, bridge or road or associated facilities for an agreed period of time. Examples of such agreements include (i) design-build-operate-transfer; (ii) build-own-operate-transfer; (iii) rehabilitate-operate-transfer; (iv) joint development agreements; or (v) operation and maintenance.

Examples of investment opportunities in infrastructure development in Lagos State include development of the Eko Atlantic City project in Lagos and the ongoing redevelopment of the Lekki-Epe road, which is a build-operate-transfer arrangement currently being undertaken by the Lekki Concession company.

OBG would like to thank Ajumogobia & Okeke for their contribution to THE REPORT Nigeria 2012