REVIEW OF THE NIGERIAN OIL AND GAS INDUSTRY CONTENT DEVELOPMENT ACT 2010.

Background

The passage into law of the Nigerian oil and Gas Industry Content Development Bill in April 2010 by acting President GoodLuck Jonathan signified the domestication of the Oil and Gas Industry through local value additions. Prior to this, there was the introduction of the Local Content Policy in 2006 by the administration of former President Olusegun Obasanjo which was geared towards ensuring a change in the policy thrust of the nation’s oil and gas industry through indigenous participation in a sector dominated mostly by non-Nigerians.

The thrust of the Federal Government’s local content policy was the promotion of a framework for which local competencies in the Oil and Gas Sector were developed through the active involvement of Nigerians using local resources. The Obasanjo administration considered the implementation of the content policy as a means of discouraging capital flight in the Oil and Gas Industry. This policy however crystallized into a proposed legislation in the form of the Nigerian Content Development Bill in 2003, which also formed the framework for the Nigerian Oil and Gas Industry Content Development Bill in 2009, initiated by Senator Lee Maeba. Prior to this, the Nigerian Government local content policy implementation had been administered by guidelines issued and enforced by the regulatory agencies of the Federal Government of Nigeria such as the Department of Petroleum Resources (DPR) and the Nigerian Content Division of the Nigerian National Petroleum Corporation (NNPC).

Critical issues under the Act

Generally, the tenor of the Act is to increase indigenous participation in the Oil and Gas industry by prescribing minimum thresholds for the use of local services and materials and to promote transfer of technology and skill to Nigerians in the industry. The Act generally places obligations on upstream oil companies as regards, fiscal, labour and community issues. The Act also provides for the establishment of a Nigeria Content Development and Monitoring Board (NCDMB) with the responsibility to implement the provisions of the Act, make procedural guidelines and monitor compliance by operators within the oil industry.

First and Exclusive provisions

The Act makes clear provisions for First and Exclusive considerations. While the former provides that Nigerian independent operators shall have First consideration in the award of oil blocks, lifting licenses etc and in all projects for which contracts are to be awarded in the Nigerian Oil and Gas Industry, the Latter provides that Nigerian indigenous service companies which demonstrate ownership of equipment, Nigerian personnel and capacity shall be given exclusive consideration in the allocation process. Furthermore, operators are to show how the first consideration for goods, services, employment, and training are to be

applied. This provision is meant to check a situation where jobs are given to unqualified personnel just because they are Nigerians, when it would be more appropriate to give such jobs to qualified foreigners who can satisfactorily execute the jobs.

Submission of a Local Content Plan

A significant requirement of the Act is the submission of a Nigerian Content Plan by an operator for all projects to be carried out in the Nigerian Oil and Gas Industry. This shall contain a detailed plan on how the operator or its alliance partner intends to ensure the use of locally manufactured goods where such goods meet the specifications of the industry.

An operator or project promoter may retain a maximum of 5% of management positions as may be approved by the Local Content monitoring Board as expatriate positions to take care of investor interests. Section 14 of the Act requires that operators consider Nigerian content when evaluating bids and provides that where bids are otherwise equal (in terms of price or quality), the bid with the highest level of Nigerian content be selected.

Bid Evaluation process

Section 16 of the Act gives Nigerian indigenous companies (that is, 100 percent Nigerian- owned companies) a 10 percent price advantage over the bids of other companies. By implication, the bid of such an indigenous company would not fail or be disqualified solely on the basis that it is not the lowest bidder if the value of its bid does not exceed that of the lowest bidder by more than 10 percent.

Banking, Insurance and Legal Provisions

The Act provides that every multinational oil company operating in Nigeria must domicile a minimum of 10% of its annual profit in Nigerian banks. By the same token, multinational oil companies operating in Nigeria shall contract their legal and insurance services to Nigerian Law firms and Insurance companies. Nigerian insurance companies must also do all aspects of insurance in the oil and gas sector except in the opinion of the Nigerian Insurance Commission, the capacity of Nigerian companies have been exhausted. Nigerian companies must also handle all legal services and every company doing project in a community must establish a presence in that community.

Labour Clause Provision

Another significant aspect of the Act is the provision of a “ Labour Clause “ which stipulates that all Projects or Contracts with an implementation cost of over $100,000,000 must contain a “Labour Clause” mandating use of a minimum percentage of Nigerian labour in specific cadres as may be stipulated by the Board. In the same vein, the Act also provides for expatriate professional employees engaged in engineering or other professional services in the oil industry to be registered with the relevant Nigerian professional bodies. The Act

further provides that all operators and companies operating in the Nigerian oil and gas industry shall employ only Nigerians in their junior and intermediate cadre or any other corresponding grades designated by the operator or company.

Creation of a Special Fund

The Act provides for the creation of a special fund into, which 1% of the value of every contract awarded in Nigeria’s oil and gas sector shall be paid for the purpose of building capacity and capability in the sector. This provision is meant to take care of funding local capacity building to ensure that greater percentage of the projects in the industry are done in Nigeria by Nigerians. Also at least 50% of the asset of any company seeking to execute oil and gas contracts in the country must be domiciled in Nigeria. This is to ensure that a large chunk of the payment for such contracts is retained in Nigeria.

Pitfalls of the Act

Although the overall objective of the Act is to ensure indigenous participation in Nigeria’s Oil and Gas industry, there are however loopholes in the Act which may lead to circumvention of its general objectives. One of such is the fact that there are no prescribed parameters for shareholding in meeting the local content provisions prescribed under the Act. Secondly, the definition of a Nigerian company is only by reference to 51% equity shares as prescribed by the CAMA. This creates a gap which may be sidestepped by operators.

The penal sanctions for non-compliance under the Act are insufficient to prevent breach. The sanctions prescribed need to be further strengthened.

Another issue is that while it appears that some operators are complying with the provisions of the Act, they are actually surreptitiously using suppliers and contractors who flout the expatriate quota guidelines by employing expatriates without approval. The enforcement and monitoring powers of the Nigeria Content Development and Monitoring Board need to be strengthened to enable it effectively monitor the sector.

Conclusion

The passing into law of the Nigerian Oil and Gas Industry Content Development Bill is a step in the right direction. However, the critical issue remains that of monitoring and enforcement or else the overall benefits of the law will not be felt by Nigerians. It is therefore hoped that the Local Content Act will create jobs, build indigenous technical expertise, stimulate other sectors of the economy and ultimately increase Nigeria’s gross domestic product.