LOCAL CONTENT IN NIGERIA OIL AND GAS INDUSTRY
NIGERIAN LOCAL CONTENT REQUIREMENTS
Nigeria a former British colony had an Independence date that was heralded on the discovery of oil in 1956. The Nigerian oil and gas industry has been growing since the discovery of Crude Oil by the Shell group at Oloibiri. Although this particular sector of the economy was largely dominated by International Companies until 1990 when Nigeria Companies started participating as a result of the implementation of the Nigerian Content Directives issued by the Nigerian National Petroleum Corporation (NNPC).
However, the aim to increase Nigerians participation in the Oil and Gas industry led to the enactment of the Nigerian Oil and Gas Industry Content Development (NOGIC) Act (hereinafter referred to as ‘Local Content Act’ or ‘the Act’), which received Presidential assent in April 2010.
This article undertakes the Local content requirements in Nigeria Oil and Gas Industry.
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”.
Local Content has been described as the development of local skills, oil and gas technology transfer, and use of local manpower and local manufacturing.
The dawn of the local content policy arose as a result of the realization that the multinational or international companies had significant dominance in the petroleum sector.
The Local Content Act is a pivotal mechanism that enables Nigerian Companies to contribute enormously towards the growth of the Nigerian economy by encouraging value addition, job opportunities, and also the award of various oil contracts and projects.
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 objective of the Local Content Act as stated in Sections 3, 7 and 11 of the Local Content Act is to promote the use of local materials and services for the development of the Oil and Gas Industry. However, in fulfilling this objective, Section4 of the Local Content Act established The Nigerian Content Development and Monitoring Board (hereinafter referred to as ‘Local Content Board’ or ‘NCDMB’). The Local Content Board is charged it with the responsibility “to make procedure that will guide, monitor, coordinate and implement the provisions of the Act”. The Local Content Board monitors the activities of the operators, all alliance partners and contractors.
Who is an Operator or Partner?
The Local Content Act defined what operator and partner mean in Section 106 of the Local Content Act. It stated that “Operator” means the 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. While a “Partner” means any foreign company working on any project in a partnership or as a major contractor to an operator.
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”.
Section 3 of the Local Content Act further provide as follows
(1) Nigerian independent operators shall be given first consideration in the award of oil blocks, oil field licences, and 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 as contained in the Act have created several benefits and advantages for indigenous or local companies operating in the industry.
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 NCDMB has continued to play a policing role to ensure strict compliance with the Local Contact Act by all companies participating in the oil & gas sector.
The Local Content Act is one of the most successful economic policy of the federal government in recent time. It is important to note that the Local Content Act does not seek to exclude foreigners from participating in the Nigerian oil & gas industry. The Act welcomes foreigners to be operators, shareholders, stakeholders, partners in the Nigerian oil & gas industry, as long as they comply 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 Nigerian(s) in the formation of the company.
By Oil & Gas Law Team at Resolution Law Firm.
The Firm regularly advises both the local and multinational companies operating in the Nigerian oil & gas industry.