The Power Sector Investor (Nigerian Guide) Part B

2.0 LEGAL AND REGULATORY COMPLIANCE

2.1 BUSINESS STRUCTURE

2.1.1 Legal Incorporation Requirements

For a foreign company to tap into the expansive Nigerian power sector, there are several compliance requirements to be taken into consideration, one of which involves registration with the CAC. The CAMA¹ provides that every foreign company operating in Nigeria or amassing profit from Nigeria must be incorporated and registered in Nigeria². The Electricity Act, the governing statute for the Power and Energy sector also emphasises the requirement of registration with the appropriate body, in this case, the CAC, before relevant licenses would be granted to any company who intends to commence business in Power and Renewable Energy³. For foreign companies, specifically, the NIPC Act also plays a pivotal part in structuring their entry into the Nigerian business market and in safeguarding their investments.

Why is Registration Essential?

First of all, the CAMA directs that no company must contravene the provisions for registration and any act that is carried out by a company in contravention is void . Therefore, a foreign company that operates outside its incorporated entity in Nigeria is in contravention of the provisions of the Companies and Allied Matters Act, which regulates the affairs of companies in Nigeria, and any action taken by the company within this contravention is void and has attached consequences, such as members of the company facing prosecution time and the payment of penalties as prescribed by the Commission. Furthermore, the benefits attached to registration are immeasurable. Registration offers you recognition and legitimacy with the government of the Federal Republic of Nigeria, and only a recognised entity would be qualified for incentives such as a presentable corporate personality for the receipt of grant and funding, and generally, a successful entry into the Nigerian market.

Case Study

The crypto exchange, Binance is a case study of a company that faced prosecution from the Nigerian government for their failure to register and submit filings with relevant authorities. They were alleged to fund terrorism and money laundering activities within the country and eventually fined Eighty One Billion Dollars ($81,000,000,000.00)⁴.

2.1.2 Share Capital Requirements

Companies seeking to operate in Nigeria must adhere to statutory and, in some cases, sector-specific minimum share capital thresholds. This requirement serves as an indicator of the financial capacity and seriousness of the company's promoters.

CAMA 2020 provides that for a private company, the minimum issued share capital must not be less than N100,000, while for a public company, it is N2,000,000. These figures represent the minimum capital that a company must issue to it's shareholders, and it is important to note that this amount does not necessarily need to be held in cash immediately but can be paid over time by the shareholders.

While the Corporate Affairs Commission (CAC) Guidelines provide a detailed table of minimum share capital requirements for various industries, such as financial services, banking, insurance, and aviation, there is no explicit separate category for the "power and renewable energy sector" beyond the general CAMA thresholds. However, a critical distinction applies to companies with foreign participation. The Ministry of Interior's revised Handbook on Expatriate Quota Administration and NIPC Regulations have significantly increased the minimum share capital requirement for such entities to N100,000,000 (One Hundred Million Naira), with a call for enforcement on the 4th of June, 2024. Companies that were revealed to be non-compliant could face compulsory winding up. Also, note that it is not a requirement that the share capital has to be paid up but it is essential that the same is issued to prevent exposure to regulatory penalties and liabilities when tax becomes payable.

The higher minimum imposed on foreign companies signals a governmental expectation of a more substantial financial commitment from foreign participants, aiming to attract serious investors and potentially deter speculative ventures. Foreign companies must therefore meticulously plan for this higher capital requirement.

2.1.3 MoUs and Shareholding Agreements

Clear contractual agreements among project stakeholders are indispensable for ensuring clarity, defining responsibilities, and effectively managing risk in the complex environment of power and renewable energy projects.

A Memorandum of Understanding (MoUs) serves as a crucial preliminary document in the Nigerian business environment. They enable parties to formalize their intent to collaborate while retaining a degree of flexibility in their arrangements. MoUs facilitate early engagement, allowing stakeholders to align expectations and undertake strategic planning before committing to more detailed and legally binding operational agreements.

Case Study

An illustrative example is the MoU signed between the Ambad Industries & Manufacturers' Association (AIMA) and Kaduna Electric, which included an agreement for a 5MW solar plant and broader industrial cooperation. These agreements typically outline the purpose and objectives of the collaboration, the scope of activities, and the roles and responsibilities of each party.

MoUs, while often non-binding in their entirety, function as strategic pre-contractual frameworks for complex projects, particularly those with long development cycles. The emphasis on their "crucial" role in formalizing intent and acting as a "foundation document" before more definitive agreements indicates their strategic importance. For multi-stakeholder power projects, MoUs enable parties to establish a structured framework for preliminary discussions, due diligence, and resource allocation without immediately incurring the full legal and financial obligations of a definitive contract. This flexibility is vital for navigating the early, often uncertain, phases of large-scale energy infrastructure development.

Shareholding Agreements (SHAs), in contrast, are legally binding contracts that govern the relationship among shareholders in a company. They meticulously detail equity contributions, voting rights, board representation, dividend policies, and exit strategies. Both MoUs and SHAs commonly include provisions for governance structures, resource sharing, confidentiality, and intellectual property rights. Furthermore, they often incorporate detailed dispute resolution mechanisms, frequently referencing the Arbitration and Conciliation Act for clarity and enforceability.

The inclusion of key optional sections in MoUs, such as those pertaining to exclusivity, marketing and branding, data protection, foreign exchange provisions, local content requirements, and critically, dispute resolution and intellectual property, indicates that even preliminary agreements are designed to anticipate and address potential areas of conflict or risk. For power projects involving technology transfer, cross-border transactions, or significant local content, explicitly outlining these aspects in early-stage agreements can prevent future disputes, protect proprietary assets, and ensure compliance with local regulations. This proactive approach to contractual clarity serves to de-risk the project from its inception, fostering a more secure investment environment.

2.1.4 Technical Expertise

Investors in the Nigerian energy sector are expected to possess a diverse and highly specialized set of technical competencies. These include electrical and mechanical engineering skills for the design, installation, and maintenance of generation assets—whether solar, hydro, biomass, or gas-based systems—as well as civil and structural engineering for project infrastructure. Renewable energy developers must also be proficient in solar PV system integration, energy storage systems, and smart-grid solutions. Expertise in grid interconnection, power quality management, and SCADA systems is crucial for projects involving transmission or distribution.

Beyond engineering, companies should have capabilities in energy project finance, regulatory compliance, environmental impact assessment, and community engagement. Operation and maintenance (O&M) skills—often overlooked—are critical to ensure long-term performance and bankability of assets. A lack of this technical expertise has caused several projects in Nigeria to underperform or fail outright, making it a non-negotiable requirement for entry.

2.1.5 CAC vs. FTZ

Developers in the power and renewable energy sector in Nigeria have a strategic choice regarding their registration pathway: either under the regular Corporate Affairs Commission (CAC) framework or within a Free Trade Zone (FTZ) or Economic Zone, such as the Lekki Free Trade Zone (LFTZ). This choice carries significant implications for operational requirements, tax obligations, and foreign exchange regulations.

CAC Registration (Limited Liability Company): This is the conventional route for most businesses in Nigeria. It provides legal recognition across the entire country, allowing operations in any location, and is governed by CAMA 2020. Companies registered under CAC are subject to all applicable federal and state taxes and regulations.

Free Trade Zone (FTZ) Registration: Established under the Nigerian Export Processing Zones Authority Act (NEPZA Act), FTZs are specially designated geographical areas designed to attract foreign direct investment and stimulate economic growth by offering a range of incentives.

Advantages of FTZ Registration:

• Tax Incentives: Companies operating within FTZs enjoy substantial tax exemptions, leading to significant reductions in operational costs and enhance profitability.
• Ease of Doing Business: FTZs are designed as "one-stop centers," which streamline regulatory procedures and approvals, allowing companies to obtain necessary permits and licenses more efficiently than outside the zones.
• 100% Foreign Ownership: A key advantage for international investors is the permission for full foreign ownership within FTZs, providing greater control over their ventures compared to some general Nigerian business sectors.
• Free Capital and Profit Repatriation: Enterprises in FTZs are explicitly permitted to repatriate dividends and other earnings in cash or kind without ceilings, and are exempted from certain foreign exchange regulations imposed by the Central Bank of Nigeria (CBN).
• Access to Strategic Markets: FTZs often provide preferential access to global supply chains and are strategically located near important transportation hubs, facilitating international trade and logistics.
• Availability of Land and Facilities: Many FTZs offer readily available land and built-up facilities at competitive prices, which can minimize the initial capital outlay required for establishing operations.
• Speedy Licensing: Sectoral licenses and other necessary authorizations can often be obtained more quickly due to the centralized and efficient processes managed by the Zone Authority.

Disadvantages of FTZ Registration:

• Geographical Restriction: Operations are generally confined to the boundaries of the Free Trade Zone. While some FTZs may permit limited sales (e.g., up to 25% of production) into the domestic customs territory, such sales are typically subject to valid permits and applicable duties.
• Higher Initial Capital Commitment: Despite the long-term benefits, establishing a business within an FTZ often requires a higher initial capital outlay compared to standard CAC registration. The minimum share capital for a Free Zone Enterprise (FZE) can be USD100,000, with the FZE's overall value expected to be not less than USD 500,000.
• Specific Investment Thresholds: Certain zones may impose specific investment limits or minimums that companies must meet to qualify for FTZ benefits.

The choice between standard CAC registration and FTZ registration requires a careful consideration of the company's fundamental strategic decision and specific business model. For projects focused on manufacturing components for export, or large-scale generation for specific industrial off-takers located within a zone, an FTZ offers significant advantages due to its tax and repatriation benefits. Conversely, for projects primarily serving the national grid or widespread rural communities across Nigeria, standard CAC registration might be more appropriate, despite offering fewer tax incentives. This requires a careful cost-benefit analysis based on the project's target market, supply chain, and long-term objectives.

2.1.6 Step-by-Step Incorporation Process

Companies seeking to operate in Nigeria must complete a structured and increasingly digitized registration process through the Corporate Affairs Commission (CAC). This process is designed to be efficient and transparent, guiding applicants from name reservation to the issuance of the Certificate of Incorporation.

The key steps involved in the CAC incorporation process are as follows:

1. Conducting a name search through the portal to verify the availability of their proposed company names. It is advisable to provide at least two alternative names in case the primary choice is unavailable.
2. Digital copies of all essential incorporation documents must be prepared and uploaded to the portal. These typically include:
   1. Detailed information of all proposed directors and shareholders, including their names, addresses, identification documents, passport photographs, and contact information.
   2. The Memorandum and Articles of Association (MEMART) of the company.
   3. Proof of the registered office address in Nigeria.
   4. Upon submission of necessary documentation, the portal will display the applicable registration fees, which vary based on the company type (e.g., Private Limited Company, Public Limited Company) and the declared share capital.
   5. After payment, applicants can monitor the progress of their registration to ensure prompt responses to any queries or requests for additional information from the CAC to avoid delays in the process.
   6. When the application is approved, the CAC will issue the Certificate of Incorporation, along with a Status Report and the approved Memorandum and Articles of Association.

Incorporation Timeline and Costs

The process for company incorporation with the Corporate Affairs Commission (CAC) is relatively swift, typically taking between 7 to 14 working days for completion. The costs associated with incorporation vary depending on the chosen business structure and the declared share capital.

2.1.7 Landholding Requirements

Securing appropriate land access is an indispensable prerequisite for the successful siting and development of power infrastructure and renewable energy facilities in Nigeria. The legal framework governing land ownership and acquisition is primarily centralized by the Land Use Act of 1978 (LUA).

The LUA vests control of all land within a state's territory in the Governor of that state, who holds it in trust for the people. Consequently, individuals and corporate entities in Nigeria do not possess absolute ownership of land but rather "rights of occupancy" for specified periods, typically 99 years. All transactions involving land that already has a Certificate of Occupancy, or new grants, require the Governor's Consent to be legally valid and recognized by the state. Furthermore, large-scale projects, particularly those with significant environmental footprints, may be subject to Environmental Impact Assessment (EIA) compliance regulations⁵, which must be factored into the land acquisition process.

Can Foreigners Own Land in Nigeria?

Foreigners are generally prohibited from directly acquiring interests in land from Nigerians without specific written approval from the Commissioner (Governor). However, a company incorporated under the Companies and Allied Matters Act (CAMA) in Nigeria is recognized as a Nigerian legal personality⁶. This means that foreign investors can effectively acquire and hold land indirectly through their Nigerian subsidiary, as such a locally incorporated company can apply for and hold rights of occupancy.

While leasehold agreements for long terms, such as 99 years, are common for foreign entities, specific regulations may limit the interest acquired by an alien in land-related transactions to a term not exceeding 25 years, including any option to renew, with the term commencing within one month of obtaining the Governor's approval. This suggests that direct acquisition by foreign entities (if permitted) might be subject to stricter duration limits compared to land held by a locally incorporated entity.

Purchase of Land for Electricity Projects

The Electricity Act⁷ establishes the procedure for acquisition of land and land access rights for electricity projects," including provisions for "Rights of Way", in accordance with the LUA and any other regulatory authority, streamlining land acquisition for power projects, especially for projects that would entail the inclusion of transmission and distribution lines, with an aim to construct, operate, and maintain power facilities on another's property, including unobstructed access for maintenance and repairs.

The "right of occupancy" system, established by the Land Use Act 1978, fundamentally centralizes land control under the state governor. This means that land acquisition for power projects is not a simple purchase but a grant of rights from the state, subject to significant government discretion and bureaucratic processes, including the mandatory "Governor's Consent" for transactions. This centralized control can lead to delays and necessitates thorough due diligence to ensure the validity of land titles and to navigate the administrative procedures effectively.

2.2 KEY INSTITUTIONS AND REGULATORY BODIES

1. Nigerian Electricity Regulatory Commission (NERC): Regulates the power sector by issuing licenses, approving tariffs, and overseeing compliance for on-grid, embedded, and mini-grid projects.
2. Rural Electrification Agency (REA): Responsible for rural electrification through both grid extension and off-grid renewable power deployment. It implements major programs such as the Nigeria Electrification Project (NEP) and Energizing Education Programme (EEP).
3. Nigerian Bulk Electricity Trading Company (NBET): Functions as a government-backed power offtake for grid-connected projects. NBET signs power purchase agreements (PPAs) with IPPs, including those developing large-scale solar plants.
4. Case Studies: Successful Power & Renewable Energy Projects in Nigeria:

The implementation of innovative energy projects across Nigeria showcases the diverse approaches being used to improve electricity access, enhance sustainability, and attract investment. Below are expanded case studies of key initiatives:

2.3 LICENCES AND PERMITS REGULATIONS

1. NERC Licenses

The NERC License and Operating Fees Regulations 2010 provides for the following licenses to be obtained by companies in the electricity supply industry:

1. Generation licenses
2. Transmission licenses
3. System operation license
4. Distribution licenses
5. Trading licenses

The procedure for the application of the said licenses as provided under The NERC Application for License Regulations 2010 include:

1. An application must be submitted which would be addressed to the Chairman of the Commission and the said application must be signed by the applicant or his representative and should be in prescribed form containing all the information listed in the form as provided in the schedule to the Regulations.⁸
2. The applicant upon submission would pay a non processing fee application fee as provided by the License and Operating Fees Regulations 2010.⁹
3. Upon receipt of the application, the commission would send an acknowledgement of receipt to the applicant stating the date of the receipt.¹⁰
4. The commission within a period of one month upon receipt of the application and upon a review may ask the applicant to furnish additional information. The applicant has 60 days to furnish the said additional information otherwise the application would lapse and any application which has lapsed cannot be reactivated.¹¹
5. If the Commission finds the Application to be complete, it shall pass a Resolution that the Application has been duly made. Within 30 days of the passing of the Resolution, the Commission shall notify the Applicant in writing that the Application has been duly made, and request that the applicant publish the Statutory Public Notice.¹²
6. The Applicant shall issue the Statutory Public Notice which shall be published in two daily newspapers.¹³
7. The Regulations provide for a time period for objections from the public and possible hearing of the said objections.¹⁴
8. After due considerations, the Commission may grant or refuse to grant the license.¹⁵

Every foreign company in Nigeria is required to apply for and secure sector-specific permits and licenses before commencing business activities. For instance, for technology transfer, the NOTAP Act provides that all technology transfer agreements between Nigerian companies and foreign partners are required to be registered with the NOTAP also, a company that wishes to provide logistics services must be licensed by the Nigerian Postal Service (NIPOST). It should be noted that a license to operate may not always confer permission to advertise. A foreign company must ensure it obtains the requisite advertising permit before advertising to it's consumer.

B. Environmental Standards

Compliance with environmental standards is mandatory for all energy projects in Nigeria and is increasingly scrutinized, especially for renewable energy ventures. The National Environmental Standards and Regulations Enforcement Agency (NESREA) enforces federal environmental laws, while state environmental agencies also play a role. Projects with significant environmental or social impact are required to obtain Environmental Impact Assessment (EIA) certification, in line with the Environmental Impact Assessment Act. Renewable energy projects are not exempt—solar farms, for instance, must assess impact on land use and biodiversity. Internationally funded projects may also need to meet stricter standards such as the IFC Performance Standards or the Equator Principles. Failure to comply can result in fines, closure orders, or withdrawal of financing. Therefore, hiring experienced E&S consultants early in the project lifecycle is essential to meet both Nigerian and international benchmarks.

2.4 FOREIGN OWNERSHIP AND RESTRICTIONS

Although foreign investors are permitted to own 100% equity in Nigerian companies,¹⁶ partnering with competent local firms or individuals is strategically important. In some contexts—especially PPPs, government tenders, or projects seeking incentives—having a Nigerian partner with strong local knowledge, regulatory relationships, or community ties is indispensable. Additionally, Nigeria's local content laws, such as those implemented through the Nigerian Electricity Regulatory Commission (NERC) and the Nigerian Content Development and Monitoring Board (NCDMB), require certain thresholds of Nigerian participation in employment, procurement, and subcontracting. A local partner can also facilitate smoother navigation of the land acquisition process, help manage socio-political risks, and support project localization. However, due diligence is crucial to avoid politically exposed or incompetent partners who may damage a project's integrity or financing prospects.

Footnotes

1 Section 78 of the CAMA, Section 863(1) of the CAMA.

2 See also Section 14 of the NIPC on the registration of a company with foreign participation.

3 Part IV of the Electricity Act, 2023.

4 Eboh C, 'Nigeria Suing Binance for $81.5 Billion in Economic Losses and Back Tax By Camillus Eboh' (Reuters.com, 2025) < https://www.reuters.com/world/africa/nigeria-seeks-815-bln-economic-losses-back-tax-against-binance-court-document-2025-02-19/> accessed 4 June 2025

5 Echefu N and Akpofure E, 'Regulatory Background and Procedural Framework' <https://www.iaia.org/pdf/case-studies/EIANigeria.pdf> accessed 22 May 2025

6 Section 42 of the CAMA, 2020.

7 Part XII, Section 118 of the Electricity Act 2023

8 Clauses 3 , 4 and 5 of The NERC Application for License Regulations.

9 Ibid, Clause 6

10 Ibid, Clause 7

11 Ibid, Clause 8

12 Ibid, Clause 9

13 Ibid, Clause 10

14 Ibid, Clause 11.

15 Ibid, Clause 12.

16 Section 17, NIPC Act.

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