Oil and gas industry indigenous content development law revisited

The impact of the Nigerian Oil and Gas Industry Content Development Act, 2010 (“the Act”) on indigenous participants in the Nigerian Oil and Gas Industry, and on the larger economy especially, remains dismal when compared to the size of the entire oil and gas industry itself.

The above development has resulted in the on-going legislative initiatives to amend the Act to achieve more optimal development in the competitive capacity of indigenous participants in the Oil and Gas Industry. The Amendment initiatives also seek to block the inimical loopholes that are currently exploited to undermine the principal objectives of the Act.

Some highlights of the provisions of the Act with some of the proposed Amendments to the provisions of the Act are provided in this paper to enable you have a better appreciation and understanding of this subject.

New Definition – Nigerian Indigenous Company

The Nigerian Oil and Gas Industry Content Development Bill (“the Amendment Bill”) seeks to now describe a Nigerian Company under the Act to be a Nigerian resident incorporated company with its entire shareholders, directors and asset owners made up solely of persons who are of Nigerian descent. This is in contrast with the description in the Act which describes a Nigerian Company as a company incorporated in Nigeria with not less than 51% equity shares held by persons who are of Nigerian descent.

First Consideration and Exclusivity

The Bill reinstates the provisions of the Act which requires first consideration to be given to Nigerian indigenous operators in the award of Oil Block Licences, Oil Field Licences, Oil Lifting Licences and in all other contract awarding aspects of the Nigerian Oil and Gas Industry.

Exclusive consideration is also granted to Nigerian owned indigenous service companies with demonstrable ownership of equipment, qualified personnel and capacity to execute work on land and swamp operating areas of the Nigerian Oil and Gas Industry. Such indigenous exclusiveness is also reserved for Insurance, Reinsurance, Legal and the employment of junior and intermediate cadre employees.

Indigenous Content Plan

All commercial participants in the Nigerian Oil and Gas Industry are now contemplated in the Amendment Bill to submit a Nigerian Indigenous Content Plan (“the Plan”) which Plan must fulfil the minimum Nigerian Oil and Gas Indigenous content requirements, some of which are enumerated above. The Plan is therefore no longer restricted only to Operators in the Oil and Gas Industry; especially as the Bill has expanded the meaning of “Operator” to include all Oil and Gas participants.

Also, all Indigenous Content Plans must be pre-qualified and pre-approved by the Nigerian Content Development and Monitoring Board (“the Board”) using the first consideration, exclusivity and other indigenous content development criteria before any commercial award can occur in the Nigerian Oil and Gas Industry.

Content Development Fund

In the Act, a sum equal to One Per Cent (1%) of every contract awarded in the upstream of the Oil and Gas Industry must be deducted at source and paid into the Nigerian Content Development Fund (“the Fund”).

In the Amendment Bill to the Act, it is further proposed that not more than 10% of the contributions in the Fund should be spent by the Board on its general and administrative operations. Seventy per cent (70%) of the Fund is to be disbursed to qualified Nigerian Indigenous companies for these companies to undertake in-country capacity development in the oil and gas industry.

Conclusion

Some of the key content development provisions in the Act and in the Amendment Bill, which delegates government indigenous manpower development responsibilities to Oil and Gas Practitioners, who are also required to pay taxes to government, are an illogical long-term strategy. Lopsided legislation by itself will not enable real, competitive, indigenous manpower development in the Oil and Gas Industry, and in the larger economy.

The proposal to disburse seventy per cent (70%) of the Fund to private indigenous companies, instead of to specialised government established and funded vocational schools and institutions, will be counterproductive, encourage fraud and corruption.

OSEROGHO&ASSOCIATES