By Oliver Azi

In the world of financing, large-scale infrastructure and industrial projects can be financed through project financing, which combines debt and equity that is mostly backed by the project’s cash flows. Projects involving power plants, toll roads, pipelines, and other capital-intensive infrastructure frequently use this kind of funding.

According to Investopedia,”project finance is the funding of long-term infrastructure, industrial projects, and public services using a non-recourse or limited recourse financial structure. The debt and equity used to finance the project are paid back from the cash flow generated by the project”. This definitive context of project financing set the course for this work as it is succinct and captures a substantive perspective with regards to project financing.

Project financing in Nigeria is supported by a robust legal framework that encompasses various laws, regulations, and institutions. This framework ensures the proper structuring, implementation, and management of large-scale projects. Below are the key elements of the legal framework for project financing in Nigeria:

Companies and Allied Matters Act (CAMA) 2020
Being the major law that regulates companies’ creation and regulation, CAMA 2020 is the principal legislation governing company formation, management, and operations in Nigeria. Particularly, the provision of section 18 provides for the incorporation of companies, including Special Purpose Vehicles (SPVs) often used in project financing.

The provision of section 119 further mandates the disclosure of beneficial ownership, enhancing transparency. This is to ensure that project companies are properly constituted and managed in accordance with Nigerian law.
Banks and Other Financial Institutions Act (BOFIA) 2020
The Bank and Other Financial Institutions Act 2020 (Herein referred to as BOFIA 2020) is the major law that regulates the activities of banks and other financial institutions in Nigeria. The provision of section 3 provides the regulatory framework for bank licensing and operations. It further stipulates in section 33 empowers the Central Bank of Nigeria (CBN) to supervise and regulate the activities of banks to ensure financial stability. This ensures that financial institutions involved in project financing operate within a sound regulatory environment.

Investment and Securities Act (ISA) 2007
The Investment and Securities Act (Herein referred to as “ISA”) governs the securities market in Nigeria and establishes the Securities and Exchange Commission (SEC) as the primary regulator. By the provision of section 13 it provides that the Securities and Exchange Commission is to regulate investments and securities to protect investors. Furthermore, the provision of section 67 governs public offers of securities, including bonds and other instruments used in project financing. This is to facilitate the issuance of securities to raise capital for projects, ensuring investor protection and market integrity.

Infrastructure Concession Regulatory Commission (ICRC) Act 2005
The Infrastructure and Concession Regulatory Commission Act (Herein referred to as “ICRC Act”) is a major law that deals with project financing, it establishes the Infrastructure Concession Regulatory Commission, which oversees public-private partnerships (PPPs) and concessions. The provision of section 1 establishes the ICRC to regulate and monitor the implementation of PPP projects. It further provides in Section 2 that the ICRC to issue guidelines and standards for PPP agreements.

This law provides a regulatory framework for PPPs, promoting private sector participation in infrastructure development. Hence, a major law that deals with project financing.

Public Procurement Act 2007
This Act, the Public Procurement Act 2007, governs the procurement process for public sector projects in Nigeria. The provision of section 4 establishes the Bureau of Public Procurement (BPP) to regulate public procurement processes. It provides in section 17 that transparency and competitiveness in the procurement process is necessary. This is to ensure that public sector projects are procured in a transparent and competitive manner, reducing the risk of corruption and ensuring value for money.

Nigeria Sovereign Investment Authority (NSIA) Act 2011
Furthermore, there is the Nigeria Sovereign Investment Authority which is also known as “The NSIA Act”, it establishes the Nigeria Sovereign Investment Authority, which manages Nigeria’s sovereign wealth fund. The provision of section 4 establishes the NSIA to invest in infrastructure projects and other assets.

Also, the provision of Section 24 mandates the NSIA to invest in strategic infrastructure projects that promote economic development. This law provides an additional source of funding for infrastructure projects through sovereign wealth investments.

Foreign Exchange (Monitoring and Miscellaneous Provisions) Act 1995
In project financing deal, the Foreign Exchange Act plays a crucial role. This Act regulates foreign exchange transactions in Nigeria. The provision of section 4 establishes the Autonomous Foreign Exchange Market for the conduct of foreign exchange transactions.

The provision of section 15 further Provides for the repatriation of foreign capital, including profits and dividends. This law facilitates foreign investment in project financing by ensuring the free flow of capital and protecting investor interests.

National Environmental Standards and Regulations Enforcement Agency (NESREA) Act 2007
Since project financing deals with large scale infrastructure, the environment is often considered. The act here is the National Environmental Standards and Regulations Enforcement Agency (Herein referred to as the “NESREA Act”) This Act establishes NESREA to enforce environmental standards and regulations in Nigeria. The provision of Section 7 empowers NESREA to enforce compliance with environmental regulations and guidelines.

Furthermore, section 27 mandates environmental impact assessments (EIAs) for projects with potential environmental impact. This is to ensure that projects comply with environmental standards, mitigating negative environmental impacts.

Institutional Framework for Project Financing

Whilst the Central Bank of Nigeria (CBN) regulates financial institutions, ensuring monetary and financial stability. It plays a key role in regulating the banking sector, which is crucial for project financing.

The Securities and Exchange Commission (SEC) on the other hand oversees the securities market, ensuring that project financing instruments like bonds are issued in a transparent and regulated environment. Furthermore, the Infrastructure Concession Regulatory Commission (ICRC) regulates PPPs and concessions, promoting private sector investment in infrastructure projects.

The Bureau of Public Procurement (BPP) ensures that public procurement processes for projects are transparent and competitive. While the Nigeria Sovereign Investment Authority (NSIA) invests in strategic infrastructure projects, providing additional funding sources for project financing.

With regards to environmental consideration, the National Environmental Standards and Regulations Enforcement Agency (NESREA) enforce environmental regulations, ensuring that projects comply with environmental standards.