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A CRITICAL APPRAISAL OF THE NIGERIAN OIL AND GAS INDUSTRY CONTENT DEVELOPMENT ACT, 2010

A CRITICAL APPRAISAL OF THE NIGERIAN OIL AND GAS INDUSTRY CONTENT DEVELOPMENT ACT, 2010

CHAPTER ONE

GENERAL INTRODUCTION

  • Background of the Study

The Nigerian Petroleum Industry is the life blood of the Nation’s economy and National development. It is the mainstay of the economy pivoting other sectors and accounting for about 90% of the country’s foreign exchange earnings. The country also derives about 41% of her Gross Domestic product (GDP) and about 88% of the Federal Government Collectible revenues.[1]

However from inception, the industry has been in the tight control of the foreign expatriates and multi-national oil companies (MNOC’s). This was necessitated by the nature of contractual arrangements or contractual relationships between the State and the multi-national oil companies that operate in the country.

These concessions had certain characteristics. First of all the contract area was often very large. In several instances, it extended over the whole of the national territory. Secondly, the duration was very long, typically between 40 years to 75years.

The company was often granted extensive rights over all the mineral deposits in the area. It was exclusive owner and was free to dispose of them as it saw fit.[2]

 

Financial benefits accruing to the host States were usually minimal. In many cases the companies paid a nominal rent of 150 Dollars and a bottle of rum for a whole concession.[3]

These characteristic features were clearly inequitable and lopsided in favour of the oil companies. Though with the progression of time, concessions thrive all over the world today in a modernized form and often in different name (license, permit, lease or agreement) the Nigeria case was not much a difference. The arrangements were lopsided in favour of the multi-nationals who guise under the umbrella of ‘offshore sourcing of technical expertise’, even menial jobs were dished out by the oil and gas operating companies to their foreign operators.

Available statistics show that only $190 million dollars out of the $4.7 billion spent in the industry in 2002 remained in Nigeria, the rest were spent abroad on procurement of goods and services for the industry.[4] More recent studies also show that the Nigerian Government invests as much as US $10 billion per annum in the sector with 55 billion USD spent annually on procurement and services, less than 20% of this investment is domesticated resulting in net overflow of about 4.4 billion USD from the country through technical services executed and goods procured from abroad. Before the promulgation of the Nigerian content legislation, of the estimated $12 billion USD annual budget spent in the upstream sector of the Nigerian oil and gas industry, over 80% by value of work was carried out abroad.[5]

The Nigerian National Petroleum Corporation (NNPC) also asserts that while only 14% is invested in Nigerian content, 25% is invested in Indonesia, 50% in Norway, and 70% in Malaysia and Brazil. This is pitiable. For the greater part of the last four decades, the Nigerian oil gas industry domination by major international oil companies came with its large number of expatriate workers deployed to carry out projects in various onshore and offshore locations in the country. This situation was at a time seriously abused by IOC’s and the MNOC’s. It was soon referred to as a season of ‘slave trade’ in the industry where expatriate workers were paid thrice their Nigerian counterparts. Cleaners were brought in as Engineers and Doctors, amidst prevailing unemployment in the country and where operators were declaring huge profits without improving the working conditions of local staff.[6]

This preponderance of expatriate workers has resulted in paucity of jobs, skills development, capacity building and utilization for the indigenous workforce and in the long run, a lack of sustained national economic development. Ambily, Etekpe summarized the position thus:

“The multi-national oil companies (MNOC’s) constitute more of curses than blessings to the oil producing communities (OPC’s) of Bayelsa State in particular and those of the Niger-delta Region in general”.[7]

The domination and tight control of the industry by the MNOC’s and the total or near total absence of Nigeria (local) content has readily provoked social discord and perennial conflict. Example of such Oil and Gas conflicts includes;

  1. The Eket crisis over Unemployment of Indigenes.
  2. The Ogoni people and SPDC over Bill of Rights

Even in numeric strength, the MNOC’s is a force to contend with. Table 1 below shows the existing MNOC’s operating in the country before the local content regime

Table 1.1[8]– MNOC’s Operating in Nigeria, before 2010

S/N NAME OF COMPANYYEAR
1Shell Petroleum Development Company of Nig Ltd1937
2Tenneco Oil Company of Nigeria (Sold to NAOC)1953
3Mobile Producing Nigeria Unlimited1955
4Chevron (Formerly Gulf) Nigeria Limited1961
5Texaco Overseas Nigeria1961
6Elf Petroleum Nigeria1961
7Philip Pan Ocean Oil Corporation1962
8SAFRAP1966
9Nigeria Agip Company Ltd1972
10Agip-Energy and Natural Resources1992
11State Oil B.P Alliance1992
12ESSO Exploration /Production Ltd1992
13Texaco Outer Shelf Nigeria Ltd1992
14Shell Nigeria Exploration and Production Ltd1992
15Total Nigeria Exploration and Production Ltd1992
16Amacco Corporation Ltd1992
17Chevron Exploration and Production Ltd1992
18Bough Ashland Oil Nigeria Ltd1993
19Conoco Oil Limited2000
20Abacan Petroleum Limited2000

 

1.2 Statement of the Problem

The domination of the international oil companies (IOCs) in the Nigerian oil and gas industry and the huge amount invested in servicing expatriates has resulted into huge capital flight. The total or near total absence of local content in the petroleum industry, after almost fifty years of the country’s active involvement in the oil and gas industry has led to a wide scale discontent. Inspite of the huge financial investment made by the Nigerian government in the oil and gas industry of the economy, it has not resulted in significant benefits for most Nigerians. The local content is still very low as over 60% of the major activities example, exploration, drilling, production, Well intervention and service provision remain primarily controlled and managed by the multi-national oil companies. Only minor contracts have been awarded to local contractors.[9]

Also the environmental degradation and the disturbance of flora and fauna as a result of oil industry activities has increased the tempo of conflicts coupled with the high level of unemployment of the local contents. This trend has resulted in perennial conflicts to which the late Major Adaka Boro’s declaration of the “Niger Delta Republic” on February 23, 1966 is a catalyst.[10]

The conflicts serve as media of expressing pent-up fury and long-term frustration due to what the OPC’s (and the country at large) consider as the inequitable distribution, and mismanagement of their oil and gas resources.[11] The legislative arm has also expressed a similar disappointment over the unsatisfactory level of local content after so many years of oil and gas exploration.[12] The existing legislations has not also help this problem for example, the petroleum Act[13] and several other legislations that regulate oil industry activities, contain provisions that borders on employment and training of local contents. However these laws and/or regulations were not stringent and are loosely worded. In addition, they contain only unrealistic and unlikely penalty if they are contravened by an operator.

Nigeria, like most developing countries of the world have been groping for solutions to this lingering oil and gas problem(s) which was inadvertently created by the country’s Federalism and the nature of contractual relationships with the multi-national oil companies.[14] Previous attempts at harmonizing laws for the sector were ineffective primarily because the guidelines were ad-hoc, inconsistent and sometimes incoherent and remained more or less impotent.[15] Also, the Nigerian government has in the past made efforts to domesticate a significant portion of economic derivatives from oil and gas industry by encouraging the development and deliberate utilization of Nigeria human and material resources in the Nigerian oil and gas sector. Such efforts led to the formulation of a number of local content friendly policies in the oil and gas industry, like the establishment of the Nigerian Content Division of the Nigerian National Petroleum Corporation (NNPC) to monitor and give effect to the government’s Nigerian content policy, and the formation of the Nigerian Association of Indigenous petroleum Exploration Companies.[16]

These efforts also, never produce the desired results, local content in the petroleum industry has become a very important issue due to the fact that every country is desirous to capture the commanding height of its economy and thus assist to keep its wealth within its borders, as well as providing jobs to the ever growing population. Most African countries like Ghana and Uganda, which have lately found oil in commercial quantities, are crafting local content bills. This poses a lot of challenge to Nigeria whose discovery of oil spanned over five decades. Norway is assisting several developing countries with the indirect development of local content through an initiative called Oil for Development (OFD). The OFD initiative is predisposed to assisting developing countries, on the basis of their request.[17] Nigeria has recently queued into this line by enacting the Nigeria Oil and Gas Industry Content Development Act (NOGICDA, 2010).

1.3 Research Question

After reviewing the background of the study and statement of the problem which the study seeks to solve, it is pertinent to elucidate in specific manner the research question which the study seeks to answer. They are as follows;

  1. What are the features and nature of the existing oil and gas contractual arrangements?
  2. What is the extent of indigenous participation in the oil and gas industry, before the Act?
  • What are the extant laws enhancing local content development before NOGICDA, 2010?
  1. How can the oil and gas sector maintain independence and self –sufficiency, rather than exploring and drilling oil on the position of dependency?
  2. What is the status of the new legal regime on local content development?
  3. What are the statutory functions of the Nigerian Content Development Monitoring Board (NCDMB)?
  • To what extent are the functions of the Board aimed at ensuring the primacy of local contents?
  • What are the importances of local content development to the Nigerian Economy?
  1. What are the lessons to be learnt from local content development in other oil producing countries?

1.4 Objective of the Study

The major objectives of this study are:-

  1. To expose the nature of the existing contractual agreements in the oil and gas industry.
  2. To do an assessment on the extent of indigenous (local content) participation in the sector.

iii. To examine the extant laws bordering on Nigerian (local) content development before             NOGICDA, 2010.

  1. To explore the route to maintaining self-sufficiency and dependency in the exploration, supply and distribution of petroleum products and derivatives.
  2. To critically appraise the position of the new legal regime on content development.
  3. To identify the possible reasons for the low level of local content in the industry.

vii. To identify the statutory functions of the Nigeria content Monitoring Board under the Act.

viii. To examine the role of the Board in enhancing local content development in the industry.

  1. To do an assessment on the importance of local content development to the Nigerian
  2. To answer all research questions earlier posed.
  • To proffer solution and recommendation for the problems observed in this study.

1.5 Research Methodology

The research methodology to be used in this work is mostly doctrinal research methodology which comprise of the use of primary and secondary sources, namely; statutes, Acts, Regulations’ Enactments, Journals, Articles etc. The research also involved the use of the internet sources or materials including statistical data from the Ministry of Petroleum Resources, PTDF, and other institutes and parastatals.

1.6 Significance of the Study

This work would be of great importance to all the multi-national oil companies in Nigeria, the Ministry of Petroleum Resources (MPR) the Nigerian National Petroleum Company (NNPC), the State Governments (especially the oil producing States) which houses the primary targets of the Act. It would also be a very veritable work to law lecturers, lawyers and even judges (especially when faced with related matters).

It would be of immense significance to petroleum and energy institutions, Agencies and Ministries, and invaluable to every scholar and researcher in the field. Its significance lies in the fact that the research exposes the new legal regime on Nigerian (local) content development.

The study is anticipated to create hunger in the heart of Nigerian students and researchers in this area of law. The study exposes the need for Nigeria (local) content development in the oil and gas industry and the effects of over-reliance on foreign expatriates.

1.7 Scope of the Study

The scope of the study includes the geographical delimitation of the South-South geopolitical zone and in extension, the Niger Delta Region. It covers the oil producing states like Bayelsa, Delta, Rivers, Akwa Ibom, Cross-River and Edo State. Others include Imo State, Ondo and Abia.

The study pays particular attention to Oloibiri, Ogoni land and Efik where the oil and gas related conflicts over unemployment of indigenes and the clamour for resource control reigns supreme. Even in the Act special consideration is given to all oil producing communities as it provides that, ‘ the Board shall ensure that the operator or project promoter maintains a reasonable number of personnel from areas it has significant operations’.[18]

1.8 Limitation of the Study

Obviously every research has its own problems. Hence, this study is not an exception. In the course of this study, several problems and difficulties were encountered. Firstly, sourcing and gathering of materials whether online or in textbooks and journals was quite difficult.

Also, the incessant power outrage by the power Holding Company (PHCN) leaves nothing to be desired as it is difficult for the student researcher to write under oil lamp or poor light source rechargeable lamps.

More so, the combination of writing this work and the normal semester work poses a whole lot of challenge.

Additionally combining the activities of the Ebonyi State University (EBSU) Law Clinic, which I am actively involved and committed and carrying out this research was indeed a tasky one.

Finally, funds for the completion of this work was another limitation.

[1] . T.O. K. Audu, ‘Development of the Nigerian Content in the Oil and Gas Industry’ Petroleum Development Journal Vol. 6, No. 2(2009), Pp.18-26 P. 18 see also Aghalino O.Sam, An Appraisal of the Oil Sector Reforms, Nigeria’s Reform Program,Issues and Challenges( Ibadan: Vintage Publishers ,2010),p.4.see also D.V,Kemedi(2006).’Fueling the Violence: Non-state Armed Actors(Militia,Cults and Gangs) in the Niger Delta’[WWW document] URL https://oldweb.geog.berkley.edu/projectsResources/NDwebsite/NigerDelta/wp/10-vonkemedi.pdf(visited 2013, April 7).

[2] . Yinka Omorogbe, Oil and Gas Law in Nigeria ( Lagos: Malthouse Press Limited, 2001), P. 38

[3]. Ibid

[4]. Aliyu Adamu, ‘Local Content in the Oil and Gas Industry: A Drive to Nigerians Economic Development’. Blackwell Academic Journals vol.1,No.1 (2012),pp., 18-26,p.18.

[5]. Local Content Policy and SME Promotion: The Nigeria Oil and Gas Industry-Culled from https://Journal. CCsenet.org/4693

[6] .Kabir. A Mohammed, ‘Nigerian Content Development: The Petroleum Technology Development Fund Initiatives’,Petroleum Training Journals. Vol 6.No.2,(2009).pp.23-34 p.25 see also Aderemi Ogunbanjo,An Overview of the Nigerian Oil and Gas Industry Development Act( Lagos:Odujirin and Adeful House,2010). P.6

[7].Ambily Etekpe,The Politics and Conflicts over Oil and Gas in the Niger-Delta Region,The Bayelsa State Experience,(Port-Harcourt:Tower Gate Resources, 2007),p.11

[8].Ibid

[9]. Omenikolo, R. O., ‘Challenges Facing Nigerian Local Content in Oil and Gas Industry’, Continental Journal of Renewable Energy. Vol.1,No.1(2000),Pp.30-35.p.,31.

[10] . Ambily Etekpe, Op., cit.p.274.

[11] . Ambily Etekpe, Op. cit.,p.11

[12] . G. Etikerentse, Nigerian Petroleum Law (Lagos:Dredew Publishers, 2004) P. 221

[13] . 1969(later cap p.10 LFN 2004)

[14] . A.K. Mgbolu, Petroleum Act; With Some Basic Concepts in Oil and Gas Law in Nigeria. (Abakaliki: WillyRose & Appleseed Publishing Coy., 2012). P.VII

[15] . Aderemi Ogubanjo, Op.cit., p.22

[16]. Nigerian Content Board 2008

[17]. Oil for Development www. Norway .go.ug/embassy/development/energy…Oil for development enacting the Nigeria Oil and Gas Industry Content Development Act (Visited June22, 2013)

[18].See Section 28 (2) of the Nigeria Oil and gas Industry content Development Act.

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