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PROJECT TOPIC- REVIEW OF THE NIGERIAN LOCAL CONTENT LEGISLATION AND ITS IMPACT IN THE NIGERIAN OIL AND GAS SECTOR

PROJECT TOPIC- REVIEW OF THE NIGERIAN LOCAL CONTENT LEGISLATION AND ITS IMPACT IN THE NIGERIAN OIL AND GAS SECTOR

ABSTRACT

The discovery of oil and gas was made by foreign countries through their foreign companies in Nigeria, and since then the Nigerian oil and gas industry has been pervaded with foreign companies and citizens whereas the Nigerian content was disregarded. This led to the quest for the participation of Nigerian citizens. The oil and gas industry is an indispensable sector in the Nigerian economy, thus, it is ensured that the content of Nigeria is high in the oil and gas industry by enacting the Nigerian Oil and Gas Industry Content Development Act, this research reviews the Nigerian Oil and Gas Industry Content Development Act (Local Content Act). It discusses the impact of the Local Content Act on the oil and gas sector in Nigeria since its enactment. The researcher traces the history of oil in Nigeria in order to evaluate the agony of the sector prior to the enactment of the Act. The Act covers areas like consideration given to Nigerian operators in form of employment and training. It further discusses technology transfer; content plan required by operators; the principle of bid evaluation; research and development (R&D). Being a young Act, it has its challenges which the researcher tends to portray in the work and to proffer recommendations. This work also discussed the monitoring board established by the Act called “The Nigerian Content Monitoring Board (the board)” which ensures proper implementation of the Act. The researcher also made reference to the local content of other jurisdictions. How has this Act impacted on indigenous operators and foreign operators? How has it being implemented? How has operators responded to the requirement of the Act? What are the challenges facing its implementation? All these questions are what this work tends to answer. The researcher adopted a doctrinal methodology in the course of research. In conclusion, there is the need for the encouragement and support of the local content policy for full and unreserved implementation of the Act by relevant bodies.

CHAPTER ONE

Introduction

  • Background of Study

Local content policy is a universal concept which shows the need for nations to indigenize some part of their economy. In other words, Local content is the value added to the economic growth of a country, taking into cognisance the citizen’s welfare. Most countries realise the need for their citizens to take control of their oil and gas sector which has been monopolised by foreign companies.

Nigeria is not an exception; it has recognised the need for its nationals to take part in the activities of the oil and gas sector. In order to actualise this various laws were made to accommodate participation of Nigerians in the oil and gas sector such as the Petroleum Act; Petroleum (Drilling and Production) Regulations 1969; Industrial Training Fund Act; the Nigerian National Petroleum Corporation (NNPC) Act; Petroleum Technology Development Fund Act 1973; National Office of Technology Acquisition Act 1979; etc.

The Petroleum Act provided, amongst others, that the holder of an Oil Mining Lease must within 10 years from the grant employ at least 75% Nigerians in managerial, professional and supervisory grades. Also the NNPC had short term temporary directives in respect of local content for the oil and gas industry. These laws were not comprehensive and were more or less ineffective. Subsequently, in the year 2010, the Nigerian Oil and gas Industry Content Development Act (NOGICDA, later in this work referred to as the Act)[1] was enacted to remove the clog in the oil sector.

The main aim of this Act is to increase the level of indigenous participation in the oil and gas sector; develop technological skill; manpower development; capacity building; etc. The Act is divided into three parts thus: first, Nigerian content development in oil and gas industry which covers the obligations of oil operators as regards Nigerian Content, the regulations to be made by the minister for effective implementation of the provisions of the Act, and the benefits enjoyed by indigenous operators and employees; second, the establishment of the Nigerian Content Monitoring Board (the Board) which is to ensure the implementation of the Act; and third, the financial provisions of the Board.

It will be of interest to know that the oil and gas sector is divided into three major sectors viz: first, the upstream sector which covers the search for potential underground crude oil and natural gas fields, drilling of exploratory wells, and operating the wells that recover the crude oil and natural gas to the surface. It is commonly known as the Exploration and Production (E&P) sector. Second, the midstream sector, this involves the gathering system which is the oil and gas storage area where raw produced products are held until they can be transported via pipeline, railcar or tanker truck to the refinery, where they are tuned into marketable petroleum products.

Third, the downstream sector which refers to the refining of crude oil and the selling of natural gas and products that are derived from crude oil, such products as liquefied petroleum gas (LPG), gasoline, diesel fuel, jet fuel, fuel oils, and asphalt and petroleum coke. This sector touches the consumers directly. It is commonly known that the oil and gas industry plays a vital role in the Nigerian economy, hence the need to service the industry which attracts huge amount of money.

An estimated $8 billion is spent annually on servicing the industry in operations like fabrication, engineering procurement construction (EPC), front end engineering (FEED), conceptual designs and seismic studies.[2] This is anticipated to hit to $15 billion in the next few years.[3] Despite this amount of money spent in servicing the industry, only a little proportion accruable as profit is spent in Nigeria.

Most of the equipments are manufactured abroad leading to the repatriation of the majority of the amounts. This issue is as a result of low content; indigenous firms are not involved in most of the services carried out in the industry due to lack of requisite skills, technical expertise, manpower and production capacity and capability to compete favourably. It can also be attributed to lack of funding and corruption in the oil and gas sector.

The oil and gas sector purchases inputs (both labour and the outputs of the sectors) which are either supplied domestically or imported. Imported inputs constitute a leakage, while domestic purchases provide further benefits to the economy.[4]  Prior to the era of local content, the Nigerian oil and gas sector was highly monopolised by foreign operators or major international companies with their expatriate workers employed to carry out projects in various fields of the sector.

For instance both the upstream and downstream operations were controlled by companies like Shell, Esso, Agip, etc. This led to paucity of jobs, capacity building, skill development and in the long run, lack of sustained national economic development. This high level of foreign monopoly was encouraged by the vesting of ownership of oil on the British Crown. The British Colonialists enacted the Mineral Oils Ordinance 1948, this vested the entire property in and control of all mineral oils in, under or upon any land in Nigeria, in the Crown.

Also this legislation reserved exclusively the grant of oil exploration and production for the British subjects.[5] This continued until Nigeria gained her independence and thus vested ownership of oil on the Federal government.[6] Hence, this gave way for the government to accommodate its subjects in all sectors of the government, particularly the oil and gas sector. For more than five decades, Shell Plc, Exxon Mobile, Chevron, Total and Eni pumped about 97% of Nigeria’s output, this fell to 90% in 2006 according to figures provided by the NNPC; and it is expected to decrease further to 60% in few years if more fields are divested.[7]

Shell and Chevron sold assets that can produce three hundred (300,000) barrels per day from nine onshore and shallow-water oil leases. Report also shows that 13 other fields were sold jointly by Shell, Total and Eni since 2010, with most of them bought by smaller Nigerian companies including Seplat petroleum Development Co., First Hydrocarbon Ltd. and Neconde Energy Ltd. These Nigerian companies are taking over and building their capacity but are faced with operational difficulties and security challenges in most of the field locations such as Niger Delta.

According to data compiled by Bloomberg, Nigeria, OPEC’s[8] seventh-largest oil producer, pumped oil more than two million barrels of crude a day on August 2014. This oil output is cut by armed attacks led by the movement for the emancipation of the Niger Delta, fighting for the region’s control of oil resources. These people are to be trained and employed in various managerial and supervisory roles as provided by the Local Content Act.

 It thus, becomes imperative for the implementation of local content policy. For the enhancement of local content in the oil and gas industry two bodies are involved viz; the oil companies and the government. Also there is need to encourage the development of indigenous companies; and encourage foreign investors and participation.[9] The Act has provided ways to tackle the operational difficulties by providing for the development of local skills, technology transfer, employment and training, etc

Even where there are Nigerian owned firms in the spirit of the local content arrangement, especially in the drilling sub-sector, contracts are awarded to foreign firms or to companies which have no rigs. Where local companies are awarded some contracts, their workers are out sourced to service providers and paid pittance as wages. In most cases, the local companies are averse to unionism. This is not in the spirit and letter of the National Content Act signed into law on 22nd April, 2010. Thus the NCDMB must wake up to its responsibilities to enforce, impose sanctions and do enough monitoring.[10]

PROJECT TOPIC- REVIEW OF THE NIGERIAN LOCAL CONTENT LEGISLATION AND ITS IMPACT IN THE NIGERIAN OIL AND GAS SECTOR

1.2 Statement of the Problem

 Flowing from the above background, it will be right to point out that the dearth of local content can be attributed to low technical skills; manpower and production capacity; and capability to compete favourably. It has also been posited that low local content in the Nigerian oil and gas industry results from: deficient capitalisation arising from the tendency of Nigerian entrepreneurs to operate as one man businesses; capital and structural deficiencies associated with poor training and low managerial ability; and inability to attract funds due to lack of suitable collateral and positive corporate image.[11]

The implementation of local content faces the problem of inability of commercial banks to provide tenured loans to indigenous firms to execute projects and also inappropriate alliances and partnerships with foreign firms. It is thus, posited that these collaborations needed to be facilitated by the government and the multinational oil producing firms respectively. On the issue of technological capacity, Nathaniel C. Ozigbo stated thus;

…without the co-operation among the ‘community actors’ and the necessary institutional framework for co-ordinating their activities, it may be impossible for Nigeria’s oil and gas industry to develop the technological capacity that the country would require for the global competition of the 21st century.[13]

Despite the impressive profile of the Nigerian Petroleum Industry, the Nigerian oil and gas sector’s contribution to the national GDP has continued to decline. This has been as a result of direct consequence of the noticeable absence of indigenous participants in the industry, given that over 80% of the goods and services needed for projects were imported from foreign countries. This domination by the foreign or international oil companies has resulted into huge capital flight.[14]

 For the greater part of the last four decades, the Nigerian oil and gas industry domination by major international oil companies (IOCs) came with its large numbers 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 IOCs that it was soon referred to as a season of ‘slave labour’ in the industry where expatriate workers were paid thrice their Nigerian counterparts; 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 development.[15]

1.3 Research Questions:

     Having set out the background and statement of the problem of the impact of the Nigerian Local Content Act on the oil and gas sector in Nigeria, this research work tends to address the questions below:

  1. What constitutes the Local Content Act?
  2. How has the provisions of the Act tackled the issue of indigenous participation in the Nigerian oil and gas sector?
  3. How has the Act impacted on the oil and gas sector in Nigeria?
  4. What are the challenges of the implementation of the Act?
  5. What are the practicable recommendations that will enable the efficient implementation of the Act?

1.4 Objectives of the Study:

     In the light of the above background, statement of the problem and research questions this research work is aimed at actualizing the following objectives:

  1. Examining the major provisions of the Local Content Act.
  2. To examine how these provisions have solved the issue of indigenous participation in the Nigerian oil and gas sector.
  3. To examine the level of implementation of the Act.
  4. Examining the impact of the Act on the oil and gas sector in Nigeria.
  5. Examining the challenges facing the implementation of the Act.
  6. To examine practicable recommendations for the successful implementation.

1.5 Scope of the Study:

     From the above background; statement of the problem; etc, it is induced that this research work centres on Nigeria as the scope of the study, though reference will be made to other jurisdictions such as UK, Norway and Brazil.

1.6 Significance of the Study:

This work will help the Nigerian government with feasible framework in enacting credible policies or legislation on oil and gas sector regarding local content. It will also enlighten the oil companies on the provisions of the Local Content Act, its relevance and enable them embrace the efficient implementation of the Act. Both local and foreign operators are not exempted from benefiting this work as it will enhance their competition capacity and also increase bidding process especially for the local operators.

This will also enlighten the Small to Medium Enterprises (SMEs) on the opportunities available in the oil and gas industry. To the Nigerian content monitoring board, this will serve as a key towards the efficient implementation of the Act through the recommendation set out. Furthermore, in the legal fields it will aid Judges in the discharge of their judicial duties with diligence; legal practitioners as support on the issue concerning the said topic; and law teachers as assistance and an exposure of the local content policy while carrying out their function.

In the academic field this will be vital. To the students, this long essay will expand their knowledge of local content legislation in the oil and gas industry as lawyers in equity and also to non-law students especially the geology and petroleum students; to those interested in acquisition of knowledge, this will enlighten them on the legislation enacted on the subject matter of local content policy in the oil and gas sector.

Lastly, to the researcher, writing on this topic requires will, desire, commitment, hard work and knowledge; and will aid to improve the researcher’s knowledge and researching skill.

1.7 Limitation of Study:

     Embarking on this task was beleaguered by a number of militating factors which are to wit:

Time constraint- the few months given to start and complete this long essay by the faculty authorities is a set back to the success of this work.

Financial constraint- the cost of packaging this research work involve huge financial expenses especially as regards the sourcing of internet materials, typing the work and producing the bound copies for the use of the supervisors, the school and the researcher.

Academic Clash- consequent upon the fact that academic activities cannot be set aside; this research work was set aside pending the end of the first semester exam, incessant lectures and term paper assignments, etc

Limited Research materials- the faculty library is not fully equipped with the relevant texts including journals especially Petroleum Law materials which this research topic requires. Resort has to be made to other libraries both private and public which require extensive travelling and much money.

Health challenge- during this period, the researcher was faced with health issue which needed urgent treatment. The time spent in the hospital limited this work.

     However, with these impediments, it is the sincere expectation of the researcher that through hard work and commitment, this mission will be accomplished, in preparation to her graduation.

1.8 Research Methodology:

     This long essay is mainly doctrinal. The methodology employed in data collection by the researcher is mostly the use of primary sources such as Statutes, Secondary sources like the works of various writers on the topic and related topics, articles and internet sources. The material used were mainly from journals, internet; dictionary and law reviews.

PROJECT TOPIC- REVIEW OF THE NIGERIAN LOCAL CONTENT LEGISLATION AND ITS IMPACT IN THE NIGERIAN OIL AND GAS SECTOR

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