Shell Advises Nigeria to Heavily Tax Petrol, Diesel Generators


All On, which is a seeded company of Shell, has advised Nigeria to initiate and implement a graduated and weighty tax system on the production, assemblage and importation of power generating sets that use diesel and petrol.

This, it stated would buoy growth of off-grid renewable energy power sources in the country. All On also asked the country to set a timeline of three years to kick out generators in the country and transit from using such fossil fuel generating sets to clean energy sources such as solar.

In a new report titled: ‘Strategic Fiscal Incentives to Unlock the Off-Grid Clean Energy Sector in Nigeria: Opportunities and Recommendations,’ the firm argued that raising duties on petrol and diesel generators would enable the growth of clean energy sources mostly in off-grid communities.

All On, however, stated that industries located in off-grid communities could be exempted from the proposed regulation provided they are able to satisfy certain conditions which could include taking into account of the location of the industry in comparison to available grid power or the viability of renewable energy in the particular context.

The report, it explained was to stimulate the growth of the clean off-grid energy sector by designing strategic incentives to promote the sector. It noted that it identified existing regulations in the sector as well as made recommendations on how they could become significantly improved on to guarantee the growth of the sector.

It added: “To discourage the importation, production and assembly of diesel/petrol generators and encourage the use of clean energy and energy efficient off-grid equipment, we recommend that the import duty levied on wholly petrol and diesel generators be increased by an additional 2.5 per cent every two years from the start date of the regulation imposing the additional levy.”

It further said: “We propose that the regulation provides for a transition period of three years to facilitate the switch from diesel/petrol generators to clean energy sources for off-grid electricity generation.

“The importation of generators may also be discouraged by the introduction of additional levies in the form of Import Adjustment Tax (IAT). Currently, IAT ranging from 15 per cent to 35 per cent is applicable to varying categories of generating sets. However, we propose that the IAT rate be increased to 50 per cent.”

“Industries using this equipment can however be exempted from these duties and taxes where certain conditions are met. The conditions can take account of the location of the industry in comparison to available grid power/gas or the viability of renewable energy in the particular context,” it added while stating that the proposed increase in import duties on generators will not apply to generate sets powered by clean energy sources such as gas, solar, wind and hybrid generating sets.

All On also explained that it wanted Nigeria to introduce Value Added Tax (VAT) exemptions on qualified goods and services deployed for generating off-grid energy.

“We recommend that all renewable energy equipment used in the generation of off-grid electricity should be exempted from the payment of import duties,” it stated while listing such equipment to include any capacity of Photovoltaic (PV) panels for power generation; control systems for PV panels and renewable energy powered generators working with direct current; hydroelectric generators; static DC to alternating current (AC) converters for PV systems; inverter batteries; DC electronic equipment for use with PV panels, wind and hydro generators; materials used in building equipment for renewable energy use; measuring instruments related to renewable energy variables, such as: temperature gauges, pressure gauges, solar radiation meters; as well as smart meters.

To implement this, it suggested that the minister of finance could by a gazette, exempt certain these items from VAT, adding that some of these incentives have been used to encourage the development of other sectors in Nigeria such as the gas sector.

On its proposed changes, it said: “We recommend complete import duty exemption on the importation of machinery and equipment for use in the generation of off-grid power using renewable energy sources. Beneficiaries of the incentive: wholly commercial companies; dual-purpose entities; self-generating energy producers.”

To arrive at its recommendations, All On revealed that it reviewed the major energy-related policies in Nigeria, from 2001 till date, including legislation and regulations relevant to the industry, and considered some of the government’s strategies for promoting off-grid energy, from which it identified the fiscal incentives currently available to the sector, proposed additional fiscal incentives for the sector as well as the implementation strategy.

“This framework proposes incentives which are specific to the clean energy sector. Although clean energy covers the utilisation of gas, this report does not seek to provide incentives for the gas industry as there are specific laws and regulations which provide sufficient incentives for the gas industry,” it explained.