Nigeria a former British colony had an Independence date that was proclaimed on the discovery of oil in 1956. The Nigerian oil and gas industry has been developing since the discovery of Crude Oil by the Shell group at Oloibiri. Although this specific area of the economy was to a great extent dominated by International Oil Companies ranging from exploration to production, refining and trading until 1990 when Nigeria Companies began taking an interest because of the implementation of the Nigerian Content Directives issued by the Nigerian National Petroleum Corporation (NNPC).
However, the aim to increase indigenous interest and participation in the Oil and Gas industry prompted the enactment of the Nigerian Oil and Gas Industry Content Development (NOGIC) Act (hereinafter referred to as ‘Local Content Act’ or ‘the Act’), which was enacted in 2010.
Local Content
The Local Content Act defines local content as “the quantum of composite value added to or created in Nigeria through utilization of Nigerian resources and services in the petroleum industry resulting in the development of indigenous capability without compromising quality, health, safety and environmental standards”.
The sole purpose of the Local Content is to increase Nigerian participation in the oil and gas industry by prescribing minimum thresholds for the use of local services and materials for the promotion of technology and skill to the Nigerian labour in the oil and gas industry.
The Local Content Act is a vital instrument that empowers Nigerian Companies to contribute tremendously towards the development of the Nigerian economy by encouraging value addition, job opportunities, and furthermore the award of different oil contracts and undertakings.
For the purpose of the Local Content Act, Nigerian Company was defined in Section 106 of the Act as “a company formed and registered in Nigeria in accordance with the provisions of the Companies and Allied Matters Act with not less than 51% equity shares by Nigerians”
The general obligations applicable to operators, participants and activities taking place in the oil and gas industryare contained in Sections 3, 7 and 11 of the Local Content Act.
However, in fulfilling this objective, Section4 of the Local Content Act established The Nigerian Content Development and Monitoring Board (hereinafter referred to as ‘the Board’ or ‘NCDMB’), which is vested with the responsibility “to make procedure that will guide, monitor compliance by operators, coordinate and implement the provisions of the Act within the industry. The Local Content Board is empowered to execute its duties under the Act to ensure that all provisions contained in the Act are complied with.
Who is an Operator?
The Local Content Act defined Operatorsin Section 106 of the Local Content Act as;
” Nigeria National Petroleum Company (NNPC), its subsidiaries and joint venture partners and any Nigerian, foreign or international oil and Gas Company operating in the Nigerian oil and gas industry under any petroleum arrangement”.
The above definition clearly is wide enough to accommodate any international or Nigerian company that is operating in the oil and gas industry in Nigeria.
The Act stated the requirement of any company or organisation that intends to operate in the Oil and Gas Industry in the Section 2 of the Local Content Act, which states that;
“all regulatory authorities, operators, contractors, subcontractors, alliance partners and other entities involved in any project, operation, activity or transaction in the Nigerian oil and gas industry shall consider Nigerian content as an important element of their overall project development and management philosophy for project execution”.
While the Local Content policy objectives imposed on transaction and projects are set out in Section 3 of the Local Content Act as follows;
(1) Nigerian independent operators shall be given first consideration in the award of oil blocks, oil field licences, oil lifting licences and in all projects for which contract is to be awarded in the Nigerian oil and gas industry subject to the fulfilment of such conditions as may be specified by the Minister.
(2) There shall be exclusive consideration to Nigerian indigenous service companies which demonstrate ownership of equipment, Nigerian personnel and capacity to execute such work to bid on land and swamp operating areas of the Nigerian oil and gas industry for contracts and services contained in the Schedule to this Act.
(3) Compliance with the provisions of this Act and promotion of Nigerian content development shall be a major criterion for award of licences, permits and any other interest in bidding for Oil exploration, production, transportation and development or any other operations in Nigerian Oil and Gas industry.
All of the above requirements and conditions for operating in the Nigerian oil & gas industry as stipulated and contained in the Act have created several benefits and advantages for indigenous or local companies operating in the industry.
Furthermore, the operators are required to deliver a plan which demonstrates compliance with the Act when bidding for not only licenses or blocks but for any project or activity ranging from Front End Engineering Design (FEED) and detailed engineering services; Fabrication and Construction; Materials and Procurement; Well and Drilling Services/ Petroleum Technology; Exploration, Subsurface, Petroleum Engineering and Seismic others in the oil and gas industry. Upon a favorable review and assessment of the plan by the board, a Certificate of Authorization will be issued to the Operators to proceed with the plan.
This requirement is backed up by Section 7 of the Act which states as follows;
In the bidding for any license, permit or interest and before carrying out any project in the Nigerian oil and gas industry, an operator shall submit a Nigerian Content Plan (“plan”) to the Board demonstrating compliance with the Nigerian content requirements of this Bill
In addition to this requirement, the operators are expected to submit in the content plan showing how the consideration is to be applied to goods, employment, service or trainings, research and development plans, technical plans, legal plans and financial services plans.
The Local Content Act also in Section 41(2) states that “International or multinational companies working through their Nigerian subsidiaries shall demonstrate that a minimum of 50% of the equipment deployed for execution of work are owned by the Nigerian subsidiaries”.
The above section of the Act implies that every International and multinational company in Nigeria must show that 50% of the equipment intended to be used to operate or for a project in Nigeria are owned by their Nigerian subsidiaries who will apparently execute the project.
Several international and multinational companies have started to comply with the provisions of the Act, while the board has continued to play a significant role in ensuring the strict compliance with the Local Contact Act by all companies participating in the oil & gas sector.
In conclusion, the Local Content Act is one of the most successful economic policy of the Federal government in recent time.Note that the Local Content Act does not try to bar foreigners from taking an interest in the Nigerian oil and gasindustry, but subject to the fulfillment of conditions that may be specified, Nigerian operators and Nigerian service companies are considered first in the award of oil blocks, license and works in the oil and gas sector before foreigners. The Act welcomes foreigners to be operators, shareholders, investors and partners in the industry, as long as they conform with the provisions of the Act.
Finally, the Local Content Act and relevant regulations have made it mandatory for any foreign-owned company seeking to carry out operations in the upstream sector of the economy to do so by involving Nigerians in the formation of the company.
BY: RESOLUTION LAW FIRM
info@resolutionlawng.com
