The PenCom Dangote Forbearance: Key Legal Issues

On May 13, 2026, the National Pension Commission (“PenCom”) granted a regulatory forbearance allowing pension funds to invest in the Dangote Petroleum Refinery IPO via a Circular (the “Dangote Forbearance Circular”). Without this forbearance, such investment would not have been possible because, under the existing PenCom regulations, a company must have made taxable profits in at least three of the preceding five years and paid dividends or issued bonus shares in at least one of those years to qualify to receive investments of retirement savings by a PFA.[1]

The Dangote Forbearance therefore raises several legal issues and bears consequences for employees, PenCom, as well as the PFAs, which require careful assessment.

I. The Transparency of Administrative Rulemaking

First, it is important to identify who initiated the request for a forbearance. The Circular states that the PenCom reviewed a request for a special dispensation that would permit Pension Fund Administrators (PFAs) to invest pension fund assets in the IPO but does not mention who sought the special dispensation. The question of “who” is crucial for accountability and legal assessment.

For instance, if the Dangote Refinery applied, that application raises the legal question as to whether a non-regulated entity can seek regulatory forbearance from PenCom. If it was the PFAs, then one must consider how this request impacts their fiduciary duty to contributors under the extant laws. PFAs have a fiduciary duty to ensure investments are prudent, and the lack of a profit history elevates risk. If the Presidency initiated the request for forbearance, it is vital that PenCom clearly communicates the identity of the applicant in the Dangote Forbearance Circular, in line with acceptable standards of transparency and administrative rulemaking.

 II. Corporate Personality and the Reputational Proxy Risk

Secondly, the rationale provided by PenCom in the Circular appears questionable. In Paragraph 2.0 of the Dangote Forbearance Circular, PenCom relies on the historical performance and established market pedigree of Dangote Industries Limited (DIL) as part of the justification for granting the forbearance.

The issue with this rationale is that the financial strength of a parent company or a majority shareholder does not translate into any enforceable protection for an equity investment held at the subsidiary level. Under the bedrock principle of separate corporate personality, each corporate entity is treated as legally distinct. Absent exceptional circumstances warranting veil piercing, the obligations and liabilities of Dangote Industries Limited do not ordinarily extend to the refinery vehicle. Accordingly, there exists no legal mechanism compelling DIL to absorb losses or guarantee returns to equity holders.

Against this backdrop, the invocation of DIL’s historical track record as a proxy for investment safety raises questions of regulatory logic. Public institutions such as PenCom are under a continuing duty to exercise discretion in a manner that is rational, evidence-based, and capable of withstanding judicial scrutiny. A risk assessment model that substitutes corporate reputation at the group level for legally enforceable asset protection at the investment level risks crossing the threshold into arbitrariness.

III. Capital Distortion and Promoters' Liquidity Events

More importantly, an IPO does not automatically inject fresh capital into a company’s operations if it is structured as an offer for sale; it merely allows existing shareholders to liquidate their positions. The promoters of the refinery are essentially seeking a liquidity event less than three years after the refinery commenced operations and before achieving multi-year audited profitability. A liquidity event allows promoters to pay down debt and strengthen the broader group balance sheet, but from a pension fund regulation standpoint, using workers' retirement pools to facilitate this exit may be fundamentally flawed and potentially exposes pension fund contributions to significant risks. If the refinery struggles under its massive debt load, those pensioners could bear the brunt of the losses. Thus, this forbearance not only distorts standard investment risk principles, but it also raises real concerns about who ultimately bears accountability if the investment does not pay off.

IV. Sovereign Risk and the Constitutional Limits of "Domestic" Classifications

Furthermore, it appears that the Dangote Forbearance Circular treats the upcoming Initial Public Offering (IPO) of the Dangote Refinery as a domestic investment, using an administrative notice to waive standard asset-maturity gates. The regulatory assumption is that because the refinery physically sits within the Lekki Free Trade Zone in Lagos, it constitutes an insulated local deployment of Nigerian wealth. However, an objective look at the asset’s underlying economic architecture reveals a stark currency and macroeconomic mismatch that essentially converts local pension funds into an un-hedged shock absorber for global volatility. Thus, if a regulator treats a highly-leveraged, dollar-dependent asset as a standard domestic equity without the required statutory cross-border safeguards, a profound case of constitutional and administrative overreach can be legitimately established. 

Other Legal Ramifications

A number of other legal issues are worthy of careful assessment:

1.    Can PenCom legally justify the forbearance by simply citing economic platitudes like "strategic importance and growth potential" without publishing a mathematically sound rigorous risk-modelling rationale ? 

 2.    Can PenCom legally issue the Dangote Forbearance Circular under the extant laws? 

3.    To what extent can the Dangote Forbearance Circular operate as a shield for Pension Fund Managers? 

4.    To what extent can another refinery or business seek for a PenCom forbearance and how does this potentially undermine the discipline of pension fund investment?

Key Takeaways

Our assessment suggests that the answers to these foundational queries are uniformly in the negative. Therefore, retirement savings contributors, employees, and organized labor unions may need to carefully assess the legal ramifications of the Dangote Forbearance Circular in light of the provisions of the law. 

For PFAs entering this equity window, it is imperative to put robust legal mechanisms in place to mitigate the risk of fiduciary liability. Because regulatory approval may not erase a trustee's personal duty of care, any successful lawsuit by contributors for breach of trust will likely target the PFA directly. Consequently, the PFA’s corporate shareholders' funds may be directly exposed to court-ordered restitution to make the pension pool whole if the underlying asset faces financial distress.

This publication is provided by Balogun Harold for general informational purposes only and does not constitute legal advice. Specific circumstances may require tailored legal analysis.

[1] See Section 6.2.7.1 (iii) of the Revised Regulation on Investment of Pension Fund Assets.