Energy Transitioning In Nigeria: Will This Process Increase Foreign Investment?

By Oyetola Muyiwa Atoyebi, SAN, FCIArb. (UK).

If Nigerian legal policymakers can be intentional about the transitioning of energy from non-renewable to renewable energy resources, foreign investments could be increased in Nigeria.

INTRODUCTION

We could talk of energy to denote “vitality” or “vigour” in doing something. We could also talk of energy in Physics as being represented by Joule, a derived unit of energy, work and heat. However, in general terms, it seems energy is better understood when it is domestically used such as in domestic cooking, charging our phones or fueling our motor vehicles as opposed to when it is scientifically explained. It is observed that the term is not yet given a clear and certain definition in law. It suffices to say that we are more concerned with the practical applications of energy than with its legal definition. It is in the context of the energy uses that this work proceeds.

This disquisition is centred on how energy transitioning (a shift from non-renewable to renewable resources) may increase foreign investments in Nigeria.

TYPES OF ENERGY

These may be seen as forms of energy resources. There are two types: Renewable and Non-renewable resources of energy-producing power for the uses of individuals and companies. Renewable energy sources include the sun, sea, and wind. While Non-renewable energy sources are found in coal mines, gas wells and oil wells. These resources are energy-producing substances.

1. Renewable energy: Refers to the type of energy that comes from processes that are constantly replenished. They include sunlight, wind and sea (hydroelectric). The advantages of renewable energy include; no emission of carbon dioxide and carbon monoxide, both of which are produced by fossil-fuel related substances injurious to the body and atmosphere. They do not cause greenhouse effect which could lead to climate change. They are constantly replenishable. They are always available, et cetera.

While the disadvantages include; their uses may depend on time and weather. Recourse to mix energy (combination of renewable and non-renewable resources of energy), for example, diesel may be used to power the windmill (blade) which translates linear motion of wind to rotational motion using adjustable vanes called sails. It requires a lot of funding and infrastructural facilities put in place to maintain in Nigeria.

1. Non-renewable: It refers to a substance that is converted by process into usable energy. Examples are fossil fuel which is derived from hydrocarbon deposits such as coal, petroleum, natural gas and, to some extent, peat; these fuels are non-renewable. Non-renewable energy resources are predominantly used sources of energy in Nigeria, as they are abundant in some regions in Nigeria. The disadvantages of non-renewable include; the emissions therefrom generate greenhouse gas carbon dioxide. The emission from them is injurious to the body organs and the Nigerian environment.[1]

Energy Commission of Nigeria Act is an extant enactment of the National Assembly which vests the responsibility of coordinating and general surveillance over the systematic development of the various energy resources in Nigeria on the Energy Commission of Nigeria.[2]

The Government agencies, professionals and organizations involved in the determination and regulation of the uses of Energy resources in Nigeria include the following: Minister of Petroleum, Minister of Power and Steel, Minister of Science and Technology, Minister of Solar Energy of Nigeria, Nigeria Coal Corporation, National Electric Power Authority (changed into PHCN and now Electricity Distributions Company PLC).[3] The Energy Commission of Nigeria consists of the departments: Energy Information (including Library and Computer Services), Energy Planning and Analyses (including Energy Efficiency Demand Management and Conservative, Rural Energy, Alternative and New and Renewable Energy).[4]

ENERGY TRANSITION

The Energy Commission of Nigeria has the power: “to prepare, after consultation with such agencies of government whose functions relate to the field of energy development or supply as the Commission considers appropriate, periodic master plans for the balanced and coordinated development of energy in Nigeria and such plans shall include- (i) recommendations for the exploitation of new sources of energy as and when considered necessary;…”[5]

Thus, it is the Commission that can exploit the transition of energy resources from non-renewable to renewable. Energy transition is therefore a change of energy systems from fossil fuel-based resources to renewable energy resources. The World Economic Forum (WEF) defines it as an effective energy transition thus: “A timely change towards a more inclusive, sustainable, affordable and secure energy system that provides solutions to global energy-related challenges, while creating value for business and society, without compromising the balance of the energy triangle.”[6]

It must be stated that energy transition in Nigeria can only be achieved if driven by government policymakers. Thus, it is believed, will make the country to be attractive to foreign investors. What follows are the factors that prevent foreign investors from establishing their Investments in Nigeria.

FACTORS PREVENTING FOREIGN INVESTMENT

1. Lack of stable electricity in Nigeria: No serious-minded foreign investor will establish a business where citizens scarcely enjoy electrical power for five hours a day. Some investments require stable electric power to run and a lack of stable energy to run such investments is inimical to the business success.
2. Exposure to inimical substances from non-renewable energy: Some foreign industries make recourse to highly diesel-powered generators to carry on their businesses in Nigeria. The emissions from these may not be bearable to foreign investors who value and know the aftermath of such exposure. Exhaust, for example, essentially produced by different domestic generators, contains nothing less than 40 toxic air contaminants. These include many known related cancer-causing substances, such as benzene, arsenic, and formaldehyde. In Nigeria, diesel emissions from domestic generators are arguably more than those being emitted by buses and/or workplaces. These pose greater health challenges to humans generally and not only the investors.

• Expenses Incurred: Foreign investors expend a lot of proceeds which could have been used to promote the objects of the companies in the purchase of fossil-fuel related energy resources. If they were stable power from clean energy sources, such expenses would not have been incurred and they decide that Nigeria does not have a friendly economic environment.

1. Inadequate legal framework or regulations: In assessing the effect of legislative reforms on the control of domestic generator emissions and other vehicular gases that pose threat to the air quality standards, the writers posited: “Since air quality standards and objectives are designed to protect public health, there is therefore, a need for appropriate air pollution regulations to guarantee these standards and objectives. Proposed legislation on air pollution at the National Assembly should include the introduction of regulations, which are shaped by scientific and expert consensus on the definition of the problem…[7] on the use of renewable energy to attract foreign investors.

Possibility in the Increase of foreign investments if there is a shift

If Nigerian legal policymakers can be intentional about the transitioning of energy from non-renewable to renewable energy resources, foreign investments could be increased in Nigeria. This may be possible by:

1. Resorting to the system of energy mix in which renewable and nonrenewable resources can be used side-by-side in Nigeria, will help promote foreign investments as most foreign investors will have the choice to choose from either duo.
2. Renewable Energy sources will bring viable solutions to electricity, health care education and affordable internet, especially in some rural areas in Nigeria where people do not have access to electricity. Over 759 million people do not have access to electricity in the world[8] but sunlight is everywhere. This will even help some foreign entrepreneurs to establish businesses in remote areas in Nigeria which have been abandoned by lack of access to electricity.
3. Renewable Energy will create new job opportunities as foreign companies that have specialists in the operation of renewable energy resources will have to partner with the government of Nigeria, and Nigeria will be a field for foreign investors to thrive. For example in the solar energy sector. Also, Nigerians will be forced to acquire in this new area so as to be gainfully employed.
4. Energy transitioning will always assist in economic incentives and reduce the number of small and medium-sized enterprises that are shutting down. Since Nigeria has been able to attract foreign investors and specialists in solar and wind energy, Nigerian SMEs will partner with them to maximize profits.
5. Renewable Energy is in line with the Sustainable Development Goals, part of which includes environmental sanitation and helps to achieve sustainable economic growth. If this is done, it is hoped that foreign investors will have no fear when they set up their businesses in Nigeria.
6. Nigeria may also join the number of developed countries that have prioritized energy transitioning and thereby attract foreign investments. According to WEF Energy Transition Index of 2021, Sweden, Norway and Denmark are leading in transition and Europe is leading in the continent.

ADVANTAGES OF FOREIGN DIRECT INVESTMENTS IN NIGERIA

Foreign Direct Investment (FDI) occurs when an individual or business owns at least 10% of a foreign company. When investors own less than 10%, the International Monetary Fund (IMF) defines it simply as part of a stock portfolio.  Whereas a 10% ownership in a company doesn’t give an individual investor a controlling interest in a foreign company, it does allow influence over the company’s management, operations, and overall policies.

FDI is critical for developing and emerging market countries. Companies in developing countries need multinational funding and expertise to expand, give structure, and guide their international sales. These foreign companies need private investments in infrastructure, energy, and water in order to increase jobs and salaries.

For Nigeria as a Country, a developing economy at that, there’s every need for Foreign Investments. The advantages that Nigeria stands to gain from these include but are not limited to:

JOB CREATION

The creation of jobs is the most obvious advantage of FDI, one of the most important reasons why a nation (especially a developing one) will look to attract foreign direct investment. FDI boosts the manufacturing and services sector which results in the creation of jobs and helps to reduce unemployment rates in the country. Increased employment translates to higher incomes and equips the population with more buying powers, boosting the overall economy of a country.

HUMAN CAPITAL DEVELOPMENT

Human capital involves the knowledge and competence of a workforce. Skills that employees gain through training and experience can boost the education and human capital of a specific country. Through a ripple effect, it can train human resources in other sectors and companies. This will be one of the benefits that flow with Foreign Direct Investment in Nigeria. Nationals have the chance to work in these establishments and gain experience.

IMPROVED CAPITAL FLOW

The inflow of capital is particularly beneficial for countries with limited domestic resources, as well as for nations with restricted opportunities to raise funds in global capital markets.

With the coming of Investors comes large cash flow. This will aid the economy.

CLIMATE

The United Nations has also promoted the use of FDI around the globe to help combat climate change. This is done through energy transition establishments which canvasses and aids movement from the use of fossil fuels such as oil, natural gas and coal, to an energy mix that is more efficient and less carbon-intensive. This will mean that Nigeria is also contributing to the fight for a better climate, especially with the “Nigerian Decade of Gas” project.

CONCLUSION

For a smooth and seamless transition from the use of fossil fuels to cleaner sources of Energy in Nigeria, we recommend the following:

1. Investment in Physical infrastructure to aid the transition. This may come in the form of obtaining the needed equipment and facilities for the transition.
2. Updating available infrastructure to the best possible standard to ensure maximum output.

• The government could use the instrument of tax exemptions and incentives to woo new investors and retain old ones. This will lead to the influx of more Investors.

1. There should be an investment in Research to look for cleaner sources of energy. 

AUTHOR: Oyetola Muyiwa Atoyebi, SAN, FCIArb. (UK).

Mr. Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm) where he also doubles as the Team Lead of the Firm’s Emerging Areas of Law Practice.

Mr. Atoyebi has expertise in and a vast knowledge of Energy & Environmental Law and this has seen him advise and represent his vast clientele in a myriad of high level transactions.  He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of a Senior Advocate of Nigeria.

He can be reached at atoyebi@omaplex.com.ng

CONTRIBUTOR: Love Elizabeth Ebekhile.

Love is a member of the Corporate/Commercial Team at OMAPLEX Law Firm. She also holds commendable legal expertise in Energy Law.

She can be reached at love.ebekhile@omaplex.com.ng.

[1] Section 20 of the Constitution of Federal Republic of Nigeria provides that: The State shall protect and improve the environment and safeguard the water, air and land, forest and wild life of Nigeria”

[2] See section 1(1) of Energy Commission of Nigeria Act

[3] See sections 2 and 3 of Energy Commission of Nigeria Act.

[4] See Section 1(2)a and b of Energy Commission of Nigeria Act.

[5] See Section 5(d)(i) of the of Energy Commission of Nigeria Act.

[6] See Eric Koons “The Global Energy Transition: How the World Sees it” Energy Tracker Asia, pub 14^th Feb, 2022. Accessed on 11^th Aug, 2022.

[7]    Solomon O. Giwa, Collins N. Nwaokocha, Hezekiah O. Adeyemi, (2019) “Noise and emission characterization of off-grid diesel-powered generators in Nigeria”, Management of Environmental Quality: An International Journal, https://doi.org/10.1108/MEQ-07-2018-0120

[8]   See Eric Koons “The Global Energy Transition: How the World Sees it” Energy Tracker Asia, pub 14^th Feb, 2022. Accessed on 11^th Aug, 2022.