Financing an Energy Project in Nigeria: Key Legal Issues Investors Should Resolve Before Committing Capital
An energy project may have a compelling business case, promising revenue projections and strong investor interest. Yet, a single unresolved regulatory approval, defective land interest or poorly structured power purchase agreement can undermine the entire investment.
Consider a developer seeking finance for a solar power plant. The proposed site appears suitable, equipment suppliers are ready, and a prospective buyer has expressed interest in purchasing the electricity generated. The developer approaches investors with a financial model showing attractive returns.
But who has the legal right to develop the site?
Which regulator has jurisdiction?
Is the project authorised to generate and supply electricity in the proposed market?
Is the proposed buyer contractually committed to purchasing the power?
Can the lender enforce its security if the project defaults?
These are not questions to postpone until construction begins. They are fundamental financing questions.
In Nigeria, energy project financing requires an assessment of the legal rights, regulatory permissions, contractual arrangements and security structures that support the investment. The precise requirements depend on whether the project involves electricity generation, transmission, distribution, renewable energy, petroleum operations, gas infrastructure or a public-private partnership.
For investors, developers, lenders and project sponsors, the objective is clear: establish that the project is legally viable, commercially bankable and capable of protecting invested capital before funds are committed.
1. CONFIRM THE PROJECT STRUCTURE AND LEGAL CAPACITY OF THE PARTIES
Before financing discussions advance, investors should understand exactly which entity owns, develops, operates and receives revenue from the project.
Energy projects are frequently structured through a special-purpose vehicle (SPV), a company established to undertake a defined project. The SPV may enter into financing arrangements, own project assets, execute construction contracts and receive revenue under project agreements.
However, incorporating a company does not automatically authorise it to conduct regulated energy activities.
Investors should review the SPV’s incorporation documents, ownership structure, constitutional powers, beneficial ownership information, board and shareholder approvals, existing liabilities and material contracts. They should also confirm that the relevant parties have the authority to execute the proposed transaction.
Where a foreign investor is involved, additional questions may arise concerning foreign participation, investment registration, exchange-control and repatriation arrangements, tax exposure, and any sector-specific ownership restrictions.
The structure should clearly distinguish the project’s assets and obligations from those of its sponsors, while recognising any guarantees, shareholder support obligations or cross-default arrangements that may connect them.
The financing objective: ensure that the correct entity owns or controls the necessary project rights, can enter into the transaction and is not exposed to undisclosed liabilities that threaten the investment.
2. VERIFY LICENSING AND REGULATORY APPROVALS
Regulatory compliance is one of the most important considerations in Nigerian energy project finance.
The Electricity Act 2023 establishes the framework for electricity generation, transmission, distribution, supply and trading, while allowing states to develop and regulate intrastate electricity markets. NERC continues to oversee matters within its federal jurisdiction, including relevant interstate and national-grid activities. State electricity regulators exercise jurisdiction over intrastate markets where regulatory authority has been established and transferred.
Consequently, investors should not assume that every electricity project is regulated exclusively by NERC. The location, operational model, connection arrangements and geographical scope of the proposed activity must be examined.
Depending on the project, relevant permissions may include electricity licences, permits, registrations, authorisations, grid-connection approvals and other sector-specific consents. Renewable energy projects may also require additional approvals depending on their technology, land use, infrastructure and operating model.
For oil and gas projects, the Petroleum Industry Act 2021 and applicable regulations may govern relevant upstream, midstream or downstream activities, with the Nigerian Upstream Petroleum Regulatory Commission and the Nigerian Midstream and Downstream Petroleum Regulatory Authority exercising their respective statutory responsibilities.
Investors should establish:
• Which regulator has jurisdiction over the project.
• Which licences, permits and approvals are required.
• Whether the relevant approvals have been obtained and remain valid.
• Whether any conditions must be satisfied before construction, commissioning or commercial operation.
• Whether a change in ownership, control, financing or project structure could trigger a consent or notification requirement.
The applicable requirements must be confirmed against the project’s specific circumstances and current regulatory instruments.
A financing agreement cannot cure the absence of an essential operating authorisation. Where a licence or approval is outstanding, the transaction should identify how that issue will be resolved and whether the funding should remain conditional until it is addressed.
3. ESTABLISH SECURE LAND RIGHTS AND ACCESS TO PROJECT INFRASTRUCTURE
Energy infrastructure is only as secure as the legal rights supporting its location and operation.
A project may require land for generating facilities, substations, battery storage, gas processing installations, pipelines, access roads, transmission corridors or other supporting infrastructure. The developer must demonstrate that it has legally sufficient rights to use the relevant land throughout the project’s anticipated life.
The review should examine the root of title, survey plans, applicable land records, existing encumbrances, competing claims, litigation, easements, rights of way and any necessary governmental consents.
Under the Land Use Act, landholding and transfers are subject to a statutory framework that includes the role of the relevant governor or local government, depending on the classification and circumstances of the land. The need for consent, registration and other formalities must be assessed for the particular transaction.
Investors should also consider whether the project depends on access across third-party land or on rights to connect to an existing network. A valid interest in the project site does not necessarily confer rights over adjoining land or transmission infrastructure.
Where the land or associated assets will secure a loan, counsel should assess whether the proposed security can validly be created, perfected and enforced, taking account of the nature of the interest and applicable statutory requirements.
The financing objective: secure durable, enforceable rights to occupy, access, construct, operate and maintain the project and its associated infrastructure.
4. SCRUTINIZE THE POWER PURCHASE AGREEMENT AND REVENUE MODEL
A technically sound project may still be commercially unbankable if its expected revenue is not supported by enforceable contractual arrangements.
For electricity projects, the power purchase agreement (PPA) commonly establishes the commercial relationship between the generator and the purchaser. Depending on the project, other arrangements may govern electricity supply, network access, wheeling, metering, settlement, fuel supply or energy services.
Investors should examine the PPA’s duration, pricing mechanism, payment terms, billing and metering arrangements, delivery obligations, curtailment provisions, performance standards, termination rights, dispute resolution procedure and allocation of regulatory or change-in-law risks.
The purchaser’s creditworthiness is equally important. A long-term contract with a financially weak buyer may provide less protection than its headline terms suggest.
Where relevant, the parties should consider whether payment security, guarantees, letters of credit, escrow arrangements or other credit-support mechanisms are commercially and legally appropriate.
The analysis should also establish what happens if the project cannot deliver power, the buyer fails to pay, network constraints prevent delivery, or a party terminates the contract before the anticipated financing has been repaid.
For projects relying on government counterparties, concessions or public-sector support, investors should verify the contracting authority’s legal capacity, applicable approval and procurement requirements, enforceability of payment commitments and the precise scope of any guarantee or support instrument.
The key question is not merely whether a PPA exists. It is whether the project’s revenue arrangements are sufficiently reliable to support its debt obligations and expected investment returns.
5. ASSESS ENVIRONMENTAL, PLANNING AND COMMUNITY OBLIGATIONS
Environmental and social issues can directly affect construction schedules, operating costs, regulatory compliance and project reputation.
The Environmental Impact Assessment Act provides for environmental assessment in circumstances covered by its provisions. Projects on the applicable mandatory study list cannot proceed without the relevant statutory process and decision. Other projects may also require environmental assessment or approvals depending on their characteristics and applicable laws.
Before committing capital, investors should determine whether the proposed development requires an environmental impact assessment, environmental permits, planning approvals, waste-management arrangements, emissions controls or other environmental authorisations.
For petroleum and gas developments, the applicable environmental, safety, decommissioning and sector-specific obligations should be identified. Renewable energy projects should not automatically be treated as exempt from environmental or land-related requirements merely because they generate low-carbon electricity.
The due diligence should also address community engagement, land acquisition, compensation where applicable, occupational health and safety, labour compliance, resettlement exposure and potential disputes.
Where the project depends on environmental approval or another material authorisation, the financing structure should specify how the relevant condition will be satisfied and what happens if approval is delayed, granted subject to material conditions or refused.
Failure to assess these issues early may lead to construction delays, additional expenditure, enforcement action or disputes that weaken the project’s financial position.
6. STRUCTURE THE FINANCING AND SECURITY PACKAGE PROPERLY
Energy projects may be financed through sponsor equity, shareholder loans, commercial bank facilities, development finance, institutional investment, bonds or a combination of funding sources.
The financing structure should match the project’s development stage, cash-flow profile, risk allocation and expected operating life.
In a debt-financed transaction, lenders commonly require security over some combination of eligible project assets, receivables, bank accounts, shares in the project company, contractual rights and insurance proceeds. The precise package depends on the asset, the applicable law, existing financing arrangements and the parties’ commercial agreement.
The legal review should determine whether the proposed security can be validly granted, whether prior-ranking interests exist, what consents are required, how the security must be perfected and what remedies would be available following default.
For a Nigerian company, relevant considerations may include registration of registrable company charges under the Companies and Allied Matters Act 2020 and applicable procedures, alongside any other registrations, notices, consents or perfection steps required for the particular asset or security interest.
Investors should not assume that a signed security agreement automatically gives the lender an effective priority interest against third parties.
Cross-border financing also requires attention to currency denomination, applicable foreign-exchange arrangements, tax implications, governing law, dispute resolution and the practical enforcement of rights against assets located in Nigeria.
The transaction documents should address events of default, cure periods, enforcement, lender step-in rights where appropriate, restrictions on asset disposal, mandatory prepayment and the consequences of licence suspension or termination.
7. IDENTIFY CONSTRUCTION, SUPPLY AND OPERATIONAL RISKS
An energy project may depend on multiple contractors and suppliers, each responsible for a critical stage of delivery.
Investors should examine engineering, procurement and construction (EPC) contracts, equipment supply agreements, operation and maintenance contracts, fuel supply agreements, grid-connection arrangements and insurance policies where applicable.
Key issues include completion milestones, cost overruns, delay damages, performance guarantees, testing and commissioning, warranties, defects, maintenance obligations and termination rights.
The contracts should also allocate responsibility for importation, logistics, customs requirements, local regulatory compliance and supply-chain disruption where relevant.
If the financing model assumes that a plant will reach commercial operation on a particular date, the legal documents should provide meaningful remedies for material delay or underperformance, subject to negotiated limitations and applicable law.
A project with substantial debt may become financially distressed if construction costs rise, commissioning is delayed or the equipment fails to meet performance expectations.
Legal due diligence should therefore be integrated with technical, financial, environmental and insurance reviews. None should operate in isolation.
8. CHECK CAPITAL-RAISING, TAX AND PUBLIC-PRIVATE PARTNERSHIP REQUIREMENTS
The source of capital can introduce additional legal obligations.
Where financing involves an offer of securities to the public, a regulated investment product, an investment fund or another capital-market activity, the Investments and Securities Act 2025 and applicable Securities and Exchange Commission rules must be considered. The precise requirements depend on the structure, participants and nature of the offer. Not every private investment or bilateral financing arrangement is subject to the same regulatory process.
For a public infrastructure project structured as a federal public-private partnership, the Infrastructure Concession Regulatory Commission Act 2005 and applicable procurement and PPP requirements may also be relevant. The legal review should establish whether the proposed concession or contract has followed the required approval and procurement framework and whether the public counterparty has authority to undertake its obligations.
Tax due diligence should assess the project’s applicable tax obligations, incentives where available, withholding-tax exposure, VAT treatment, capital allowances and the tax consequences of financing arrangements. Any claimed tax incentive should be verified against the applicable legislation and eligibility conditions rather than assumed from a financial projection.
For foreign investors and lenders, currency arrangements, remittance mechanics and the enforceability of payment obligations should be assessed alongside the project’s tax and financing structure.
COMMON MISTAKES INVESTORS SHOULD AVOID
Several recurring errors can undermine an otherwise attractive transaction:
• Relying on a presentation instead of verified documents. Financial projections and sponsor assurances are not substitutes for evidence of title, licences, contracts and approvals.
• Treating incorporation as regulatory approval. A registered company may still lack permission to conduct the proposed activity.
• Accepting revenue projections without reviewing the underlying contracts. Expected demand does not automatically create an enforceable payment obligation.
• Ignoring the location-specific regulatory framework. Electricity regulation may depend on whether the activity is intrastate, interstate or connected to the national grid.
• Assuming security is enforceable because it has been signed. Perfection, priority, consent and enforcement requirements must be checked.
• Leaving material approvals until after funding. Unresolved conditions can delay disbursement or leave investors exposed to a project that cannot proceed as planned.
A PRACTICAL PRE-INVESTMENT LEGAL DUE DILIGENCE CHECKLIST
Before committing material capital, investors should obtain and review the following, as applicable especially as concern their Area and Key evidence:
1. Corporate structure – Incorporation records, ownership details, board and shareholder approvals
2. Regulatory status – Licences, permits, registrations, approvals and compliance records.
3. Land and infrastructure – Title documents, Searches, Leases, Easements and Access rights.
4. Revenue arrangements – PPA, supply agreements, network agreements and payment security.
5. Financing and security – Facility documents, security instruments, consents and perfection evidence.
6. Construction and operations – EPC, equipment supply, maintenance, fuel and insurance contracts
7. Environmental and social – Assessments, permits, community obligations and compliance records.
8.Disputes and liabilities – Litigation searches, material claims, existing encumbrances and defaults
9.Tax and capital raising – Tax analysis, applicable incentives and securities-law review.
10. Government participation – Concession documents, procurement records and required approvals.
The checklist should be tailored to the technology, project stage, location, funding structure and risk profile.
WHEN SHOULD INVESTORS SEEK LEGAL ADVICE?
Legal advice is particularly important before signing binding investment documents, paying a substantial deposit, disbursing a loan or accepting project rights as security.
Early legal involvement can help identify fatal defects, distinguish remediable issues from unacceptable risks, structure conditions precedent, negotiate protective contractual provisions and coordinate legal due diligence with technical and financial advisers.
For developers, this process can also improve investment readiness by organising project documentation and addressing deficiencies before approaching lenders or institutional investors.
CONCLUSION: MAKE LEGAL CERTAINTY PART OF THE INVESTMENT DECISION
Financing an energy project in Nigeria requires more than confidence in projected demand or anticipated returns. It requires evidence that the project can legally operate, access the necessary land and infrastructure, generate enforceable revenue, meet its obligations and protect the interests of those providing capital.
The most effective approach is to address these questions before the transaction becomes commercially or financially difficult to unwind.
For investors, lenders and project sponsors, legal due diligence is not simply a transaction cost. It is a means of identifying risk, improving bankability and making better-informed capital-allocation decisions.
Considering an energy investment or preparing a project for financing? Obtain transaction-specific legal advice before committing capital. A structured review of the project’s regulatory position, contracts, land rights, financing documents and security arrangements can help identify material issues and establish a clearer path towards investment.