Energy transition presents many twists and turns to the extant energy industry in Nigeria. This is so because a transition presupposes the phasing out of fossil fuels or, in a broader context, the phasing- out of carbon dioxide. Most companies in the energy sector (particularly the upstream oil and gas industry) deal with and burn fossil fuels, resulting in carbon dioxide. Hence, to properly phase out fossil fuels, remodeling or adopting a corporate restructuring option to include renewables in the traditional energy business is essential. This article examines the role corporate restructuring plays in Nigeria’s energy transition with particular emphasis on Nigerian laws.
Corporate restructuring is the broad name for a business strategy enterprise undertaken by a company to achieve its objectives. Usually, the aim may be to optimize the business for profit. Besides optimizing profit, a company may restructure to diversify to other industries. The corporate restructuring may be internal and/or external. Internal corporate restructuring occurs when a company looks inward instead of outward for its business optimization. Some examples of internal corporate restructuring include arrangement on sale and arrangement on compromise, to name a few. However, external corporate restructuring includes mergers and acquisitions, takeovers, etc.
The decarbonization movements have led to some industry shifts that are accentuating the role corporate restructuring plays in the energy transition. In 2022, Shell announced its acquisition of a Nigerian solar energy company. It also noted that this acquisition aligns with its carbon emission reduction objectives.
In 2021, the Nigerian Climate Change Act 2021 was enacted and signed into law. The law seeks to reduce Nigeria’s greenhouse gas (“GHG”) emissions and ensure that Nigeria achieves net zero by 2060. The law seeks to impose greenhouse gas emission targets on the Nigerian economy’s defined sectors and to introduce carbon taxes to attain this objective. Although the modalities for implementing the GHG targets and the carbon taxes are yet to be determined, its prospective implementation, while fostering Nigeria’s decarbonization, may also disrupt the current practices of existing fossil fuel companies in Nigeria. For example, fossil fuel companies in Nigeria would have to reduce their GHG emission to a target level or risk the imposition of taxes.
In anticipation of a possible implementation of the Act, existing oil and gas companies in Nigeria may explore the privileges afforded by corporate restructuring options in diversifying their businesses to renewables or decide to invest in CCS technologies. Such diversification would enable them to build capacity and perhaps develop a working business model for using renewable energy in Nigeria. In addition, such diversification would help to mitigate any possible risk arising from the implementation of the Climate Change Act.
With a prospective increase in M&A deals in Nigeria due to the energy transition, it is essential to state that there are varying sectoral and general regulations regulating corporate restructuring in Nigeria. The application of the laws is, however, dependent on the corporate restricting option adopted. Some of the existing laws (relating to the oil and gas industry) include:
a. The Investment and Securities Act;
b. The Federal Competition and Consumer Protection Act 2018;
c. The Petroleum Industry Act 2021 and its extant regulations and guidelines; and
d. Companies and Allied Matters Act 2020
As Nigeria seeks to attain its net zero goal by 2060, exploration and production companies who still desire to participate in the Nigerian environment may decide to explore the opportunities presented by corporate restructuring devices. Such companies may decide to scale up their gas businesses or diversify their businesses to include renewables to prepare for the possible risks inherent in implementing the Climate Change Act. Adopting any preferred corporate restructuring option is no doubt dependent on the strategic business objective of the company. However, it is essential to note that some legal nuances may arise where one corporate restructuring option prefers the other. International oil and gas companies in Nigeria need to seek local legal assistance in structuring deals relating to their preferred structuring option.
