National Security and Investment Act implications for energy companies

Scope of this note

The National Security and Investment Act 2021 (NSI Act) came into force on 4 January 2022 and established a new, stand-alone statutory regime for government scrutiny of, and intervention in, acquisitions and investments for the purposes of protecting national security. The regime has implications for companies across the energy sector, including those involved in energy network operation, electricity generation, oil and gas transportation and processing or fuel supply. This practice note explores the implications of the NSI Act for companies operating in the energy sector in the UK.

Background and overview of the NSI Act

The NSI Act was introduced to update the UK government’s powers to review transactions on national security grounds. The NSI Act follows an initial consultation launched by the Department for Business and Industrial Strategy (BEIS) in October 2017 (see BEIS: National Security and Infrastructure Investment Review) and a White Paper issued in June 2018 (see BEIS: National Security and Investment: A consultation on proposed legislative reforms).

In the 2017 consultation, among other things, certain types of oil, gas and electricity production, transportation and supply infrastructure, as well as certain nuclear activities, were included in a list of what the government considered to be “essential functions” that could be used in any future mandatory national security notification regime.

The government has stated that the NSI Act is necessary as its previous powers did not reflect the national security threats the UK now faces. In this regard, the government has referred to technological, economic and geopolitical changes. It has suggested that its previous powers did not do enough to prevent a small number of determined hostile actors from evading scrutiny and acquiring critical businesses or assets under the radar (see BEIS: National Security and Investment: Sectors in Scope of the Mandatory Regime, page 10).

As well as long-term trends, the government has noted that the COVID-19 pandemic has added to the challenges. In addition, the government has said that the NSI Act is intended to bring the UK more into line with its closest allies, many of which had strengthened their screening regimes.

Following the 2018 White Paper, the government amended its powers under the Enterprise Act 2002 to provide for lower thresholds for national security intervention in six sectors: military/dual-use technologies, quantum technology, computing hardware, artificial intelligence, cryptographic authentication and advanced materials. These changes were made in two tranches in 2018 and 2020. They were always intended as short-term measures before more comprehensive reforms were brought forward.

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