New act alert; foreign investments in Swedish energy assets may be screened and prohibited

On 1 November a committee appointed by the Swedish government published its final report (SOU 2021:87) regarding a Swedish mechanism for screening of foreign direct investments (“FDIs”) in inter alia corporations providing essential services or security-sensitive activities. In the report, the committee proposes a new act on notification and screening of FDIs that could pose a risk to Sweden’s security, public order or activities of importance for vital societal functions in Sweden. The act is proposed to apply to all foreign investors, including investors from countries within the EU.

Pursuant to the new act, the Inspectorate for Strategic Products (the “ISP”) shall review applications from foreign persons or entities looking to invest into activities within certain protected areas. Such FDIs may be prohibited by the ISP if it is necessary in regards to Sweden’s security or public order. In its assessment, the ISP shall take into account the nature and scope of the activity and circumstances related to the investor, such as if the investor in any way is controlled by the government of another nation.

The activities where foreign investments are subject to screening pursuant to the act are (i) essential services or infrastructure that are vital to society’s basic needs or safety, (ii) security-sensitive activities set out in the Swedish Protective Security Act, (iii) activities that prospect for, extract, enrich or sell critical raw materials, (iv) activities whose principal purpose is the processing of sensitive personal data or location data, (v) activities related to emerging technologies, (vi) activities that manufacture or develop dual-use products, and (vii) activities that manufacture or develop military equipment.

What is to be considered as an essential service is to be more precisely defined in administrative provisions issued by the Swedish Civil Contingencies Agency (the “MSB”). However, according to the MSB’s current guidelines regarding vital societal functions, activities within the production or distribution of electricity shall be considered as such a vital societal functions. Therefore, it is likely that investments in entities active within production or distribution of electricity would be subject to the screening process in the new act.

The proposal sets out a two-stage screening process. In the first step, the ISP shall within 25 working days from a complete application decide to either take no further action or initiate an examination of the investment. If the ISP decides to examine the investment further, the general rule states that the authority must make a final decision within three months to either approve or prohibit the investment. The ISP is entitled to approve the investment subject to certain conditions.

The committee proposes that the new act shall enter into force on 1 January 2023 and apply to investments implemented after 1 February 2023.