The Pros and Cons of Developing Manpower in the Nigerian Petroleum Industry through the Local Content Policy: Part 1
The Nigerian petroleum industry has been the key driver of the country’s economy for many decades, constituting more than 14 percent of Nigeria’s GDP and 95 percent of its foreign exchange earnings. 75 percent of federal revenue comes from taxes on the oil and gas sector, and oil and gas makes up more than 90 percent of the country’s exports.
THE PETROLEUM INDUSTRY AND THE NIGERIAN ECONOMY
It is estimated that $8 billion is spent annually on servicing operations within the industry and this figure is projected to hit $15 billion within the next few years. Regrettably, despite these huge sums of money spent in servicing the industry, only very little proportion of the accruable profit is available to indigenous oil servicing firms or spent in developing Nigeria’s industrial base. Majority of the amounts are paid to foreign firms for services such as Fabrication, Engineering Procurement Construction (EPC), Front End Engineering Design (FEED), conceptual designs and seismic studies.
Historically, Nigerians have had very little share of the country’s oil wealth and there was an urgent need to reverse this trend in the wake of her return to democracy in 1999. To address this anomaly, the Federal Government of Nigeria in early 2000 introduced the Local Content (LC) policy in the oil and gas industry, christened ‘Nigerian Content’ (NC). It was primarily aimed at enhancing increased participation of local indigenous firms and was targeted as a tool for transforming the industry through the development of in-country capacity and indigenous capabilities in manpower development, facilities and infrastructure towards ensuring higher participation of local indigenous companies actively in the industry.
LOCAL CONTENT (NIGERIAN CONTENT) UNDER THE NOGIC ACT
On the 22nd of April 2010, President Goodluck Jonathan signed into law the Nigerian Oil and Gas Industry Content Development Act, 2010 (“NOGIC Act”) which puts in place the legal and operational framework for the development of local content in the oil and gas sector of the country. Indeed, the NOGIC Act was a piece of regulation that would transform the Nigerian petroleum industry from being a foreign dominated industry to an industry where indigenous players could also partake in.
Objectives of the Act
The preamble to the Nigerian Content Act establishes the purpose of the Act, which is “to provide for the development of the Nigerian content in the Nigerian Oil and Gas industry, Nigerian content plan, Supervision, Coordination, Monitoring and implementation of Nigerian content; and for related matters”. The purpose of the Act is to entrench Nigerian Content in the Nigerian Oil and Gas industry.
DEFINITION OF NIGERIAN CONTENT AND APPLICABILITY TO THE ACT
Nigerian Content is defined in the Act as:
“the quantum of composite value added to or created in the Nigerian economy by a systematic development of capacity and capabilities through the deliberate utilization of Nigerian human, material resources and services in the Nigerian Oil and Gas industry”
The Act is to apply to all matters pertaining to Nigerian Content in respect of all operations or transaction carried out in or connected with the Nigerian Oil and Gas industry. This is irrespective of anything to the contrary contained in the petroleum Act or any other enactment or law.
THE NIGERIAN CONTENT AS A CONDITION TO PARTICIPATING IN THE NIGERIAN PETROLEUM INDUSTRY
The NOGIC Act establishes compliance with Nigerian Content as a criterion for participating in the Nigerian Petroleum Industry. To this end, section 7 provides that in bidding for any licence, permit or interest and before carrying out any project in the Nigerian oil and gas industry, an operator shall submit a Nigerian Content Plan to the Nigerian Content Development and Monitoring board (“NCDMB”) demonstrating compliance with the Nigerian content requirements of the Act. The Nigerian content requirements to which compliance must be demonstrated include the requirement to place priority to the use of domestic goods and services.
NIGERIAN CONTENT WITH RESPECT TO GOODS AND SERVICES
In consonance with its objective and definition of Nigerian content, the Act requires an operator to submit a Nigerian Content Plan (“NCP”) which shall contain a detailed plan setting out how the operator and their contractors will give first consideration to Nigerian goods and services. Sec. 12 Sec. 10(I)(a) also provides that a Nigerian Content Plan shall contain provisions intended to ensure that first consideration is given to services provided from within Nigeria and goods manufactured in Nigeria (Sec. 12; Sec. 10(I)(a) also provides that a Nigerian Content Plan shall contain provisions intended to ensure that first consideration is given to services provided from within Nigeria and goods manufactured in Nigeria). The NCP shall also contain detailed plan on how the operator or its alliance partner intend to ensure the use of locally manufactured goods where such goods meet the specifications of the industry. The implication of this is that once locally manufactured goods meet the specification of the industry, they must be used by operators and their alliance partners.
The Act further provides that where Nigerians are not employed because of their lack of training, the operator is assigned the responsibility of ensuring to the satisfaction of the board that every step is made within a reasonable time to supply such training locally or elsewhere and such effort and the procedure for its execution should be contained in the operator’s E and T plan. The operator is also mandated to submit a succession plan to the board for any position not held by Nigerians and the plan should provide for Nigerians to understudy each incumbent expatriate for a minimum period of four years and at the end of the four years period, the position should become Nigerianised (Section 31 of the Act; in the absence of sufficient checks and balances to ensure that professionalism is not sacrificed on alter of indigenization. The provision for automatic take over after four years could breed mediocrity and ineptitude).
The Act unequivocally stipulates that all contracts or projects whose total project exceed 100 million dollars should contain a “Labour clause” mandating the use of minimum percentage of Nigerian Labour in a specific cadres as may be stipulated by the Board (Section 34). Companies operating in the Nigerian Oil and Gas industry are also to employ only Nigerians in their junior and intermediate cadre or any other corresponding grades designated by the operator or company (Section 35). Similarly for every project for which a plan is submitted, an operator is mandated to carry out a programme and make expenditure, to the satisfaction of the Board for the promotion of education, attachments, training, research and development in Nigeria in relation to its work, programme and activities (Section 37).
The Board also has the responsibility of establishing, Maintaining and operating a Joint Qualification System (JQS) to constitute an industry databank of available capabilities and a consultative body to be known as Nigerian Content Consultative Forum (NCCF) to provide a platform for information sharing and collaboration in the Nigerian Oil and Gas industry with regard to upcoming projects in the Oil and Gas industry, information on available local capabilities and other policy proposals that may be relevant to Nigerian content development (Section 56 and 57).
Within sixty days of the beginning of each year, each operator is expected to submit their annual Nigerian Performance report covering all its projects and activities for the year under review (Section 60).
A fund known as the Nigerian content development fund to be funded by one percent deductions to be made at source from every contract awarded to any operator, contractor, subcontractor, alliance partners or any other entity involved in any project, operation, activity or transaction in the upstream sector of the Nigerian Oil and Gas industry is to be established for the purpose of implementing the Nigerian content monitoring development. The said fund is to be managed by the board and employed for projects, programs and activities directed at increasing Nigerian content in the oil and gas industry (Section 103 and 104).
Non compliance with any of the provisions of the Nigerian Oil and Gas industry content development Act by any operator, contractor and subcontractor is punishable with conviction and a fine of five percent of the project sum of each offending project or cancellation of the project (Section 68 of the Act).
- Africa’s growing giant: Nigeria’s new retail economy; McKinsey & Company, December 2013
- Nigeria’s renewal: Delivering inclusive growth in Africa’s largest economy; McKinsey & Company, July 2014
- Harrison Declan “The Compatibility of Nigeria’s Local Content Policies to her International Trade Obligations” Nigerian Journal of Energy and Natural Resources Law, p. 043
Ibrahim Oluwadamilola Enifeni is a 500level Law student at Lagos State University, you can reach him via firstname.lastname@example.org or LinkedIn via Ibrahim Oluwadamilola Enifeni