LOCAL CONTENT IN THE NIGERIAN OIL AND GAS INDUSTRY: IMPACTS, CHALLENGES AND PROJECTIONS
Undoubtedly, it is trite to say that the fulcrum of the Nigerian economy has been well forged in the oil and gas industry for decades. However, the oil and gas sector being the mainstay of Nigeria’s economy, required significant indigenous participation in the industry for the country’s economic sustainability to edge out foreign control over their natural resources. Therefore, an implementation framework which would effectively advocate for local content development and participation is essential. On the 22nd of April 2010, the Federal Government of Nigeria enacted the Nigerian Oil and Gas Industry Content Development 2010 Act (NOGICD) to promote indigenous participation and develop local oil and gas industry capacity. As captured in its long title, the Act provides for Nigerian content development in the Nigerian oil and gas industry; provides for the Nigerian content plan, supervision, coordination, monitoring and implementation of Nigerian content; and related matters. This study looks at the NOGICD Act, its impacts, challenges and projections.
Impacts, Challenges and Projections of the NOGICD
Despite the birth of the NOGICD Act with its binding force, the reality of its enforcement is relatively short-lived, being bereft of challenges. Moreover, Nigeria remains attached with the unappealing rank of being one of the world’s foremost producers of crude oil and the leading importers of refined petroleum products, thereby giving room for foreign domination by the international oil companies. Howbeit, for an industry that contributes 80% of Nigerian government revenues and 85% of its total export revenue, this is unacceptable to the Nigerian government hence, the dire need for change.
Nonetheless, thanks to the NOGICD Act, the landscape in Nigeria is gradually changing with new regulations and policies aiming to put local content development at the heart of the country’s natural resources sector, ensuring it is in line with international best practices. In addition, we can now see indigenous oil and gas companies such as Seplat and Oando competing directly with the IOCs, leading the way in promoting local content development around the regions they operate. Between 2013 and 2017, the Nigerian Content Development and Monitoring Board (NCDMB), established under the NOGICD Act, started implementing capacity development interventions. With overall 42 percent of Nigeria content in the oil and gas industry today, the federal government projects that by 2027, this would have been taken to at least 70 percent.
While the innovations introduced by the Act are laudable to encourage local content development, it has still been hampered by poor implementation occasioned by lack of statutory measurement standards, corruption, laxity of enforcement and lack of regulatory accountability. Similarly, a protectionist approach, as well as the lack of positive will and implementation strategy to aid research and development, has inhibited the potential achievements of the Act.
From Sections 1, 2 and 3 of the Act, it is clear that the NOGICD Act adopts the protectionist approach. The Act is strict on applying the Nigerian content in the industry through the protectionist approach, which only engenders local development gradually by restrictions and tax impositions on IOCs as oppos to the collaborative. It collaborates with the policy objective to synergise efforts with the IOCs to grow the local industry, and it thrives where there are the right ingredients that can spur rapid growth. In other words, to facilitate indigenous investments and participation in the industry, the government should take measures to impose a strict local content development policy which is more collaborative rather than protectionist like Brazil, Ghana, Saudi Arabia, Indonesia, Norway, and Kuwait.
In accordance, Section 59 of the NOGICDA mandates the NCDMB to undertake ‘effective monitoring of the implementation of Act. However, it is contended that the NCDMB appears to be weak and limited regarding the enforcement of the provisions of the Act. The Act fails to create regulatory accountability of the apex regulator of the Nigeria Content. While the NCDMB coordinates, implement and enforce the Nigerian Content Law in the Oil and gas industry, accountability, on the other hand, remains a mirage. Furthermore, The Board of the NCDMB is conferred with considerable monitoring and reviewing powers which it does not have adequate statutory powers for enforcement. Likewise, the NOGICDA in Section 68 states the offence of violating provisions of the Act when it states thus, “an operator, contractor or sub-contractor who carries out any project contrary to the provisions of this Act, commits an offence, and liable upon conviction to a fine of five percent of the project sum for each project in which the offence is committed or cancellation of the project.” The issue is that there is no specific provision that states how these provisions are to be enforced. For instance, it is unclear if the NCDMB can cancel an OML granted by the Federal Government of Nigeria to an operator for contravening the provision of the NOGICDA.
The Act contains four points of corruption vulnerability relating to the following: conflict of interest, broad discretionary power and, the likelihood of political influence and influence by oil and gas companies, the opacity of the oil and gas contract system in Nigeria. The provision that allows the board to accept gifts is inimical to regulatory independence and, as such, has the potential to compromise strict regulation and monitoring. The board and the Council exercise wide unchecked powers, making it susceptible to abuse. Again, the confidentiality clause may sometimes encourage corruption in the sector; hence removing confidentiality Clauses in all contracts and leaseholds to encourage transparency and public disclosure of all contracts is necessary.
Lastly, one of the core allegations that has been raised is that multinationals have continued to violate the provisions of the Nigerian Content Act through the use of expatriates, who perform job functions that Nigerians can execute. It has also been alleged that instead of resorting to the sanctions provided by the Act to enforce compliance, the Nigerian Content Development and Monitoring Board (NCDMB) instead resorts to a persuasive rather than punitive approach to get the erring multinationals to comply with the provisions of the Act.
Despite these challenges, the Act has been fundamental to promoting the development of local content, development and participation in the Nigeria oil and gas sector. Now with these challenges and inadequacies of the Local Content Act addressed in combination with the Petroleum industry Act, which will complement it, it is expected that the 2027 target for 70 percent Nigerian content will remain on course. By 2027, Nigeria expects to achieve 70% local content.