Overview of the Nigerian Oil and Gas Industry Content Development Act 2010

NCDMB1

NCDMB1It has been four years since the Nigerian Oil and Gas Industry Content Development Act 2010 was enacted into law. This piece looks at some of the core features of the Act as well as gives an overview of the Act’s key provisions.

Prior to the enactment of The Nigerian Oil and Gas Industry Content Development Act 2010 (popularly referred to as the Nigerian Content Act), the Nigerian oil industry was originally the exclusive preserve of the International Oil Companies (IOCs) and other expatriate companies in areas ranging from exploration and production, trading as well as service operations.

Reports in 2008 highlighted the fact that although the oil and gas industry accounted for 90% of Nigeria’s revenue, it contributed less than 38% to the Nation’s GDP. In other words, the absence of local capacity in the industry had resulted in the repatriation of the majority of the $10 billion yearly average industry spend into foreign bank accounts abroad. An expatriate workforce largely dominated the local strategic positions in the industry and most of the industry’s lucrative contracts were carried out in foreign fabrication yards, ultimately leading to adverse effects on labour creation and the growth of the domestic economy as a whole.

Attempts by previous administrations to introduce local content policies were ineffective and impotent largely as a result of the absence of an appropriate legal framework to drive such policies. The Nigerian Oil and Gas Industry Content Development Act 2010 was therefore signed into law on April 22nd 2010 and aims to increase indigenous participation in the oil and gas industry by prescribing minimum thresholds for the use of local services and materials and to promote the transfer of technology and skill to Nigerian labour in the industry.

 

General Aims and Major Provisions of the Local Content Act  

General Application

The Nigerian Content Act applies to all regulatory authorities, operators, contractors, sub-contractors and other entities involved in any project or activity in the oil and gas industry (Section 2) and takes precedence over all other existing enactments and laws in respect of all operations and transactions pertaining to Nigerian content carried out in or connected with the Nigerian oil and gas industry (Section 1). The Nigerian Content Development and Monitoring Board (NCDMB) has been established to implement the provisions of the Act, make procedural guidelines and monitor compliance by operators within the industry (Section 4). There is also provision in the Act for a Nigerian Content Development Fund which is established for the purpose of funding the implementation of Nigerian content development in the Nigeria oil and gas industry (Section 104).

 

Preference for Nigerian Companies

The Act provides that Nigerian independent operators shall be given first consideration in the award of oil blocks, oil field licenses, oil lifting licenses and all projects contracts (Section 3(1)) and also notes that there shall be exclusive consideration to Nigerian indigenous servicecompanies which demonstrate ownership of equipment, Nigerian personnel and capacity to execute contracted work (Section 3(2)). For the purposes of the Act, a Nigerian company is defined as:“A company formed and registered in Nigeria in accordance with the provisions of the Companies and Allied Matters Act with not less than 51% equity shares by Nigerians” (Section 106).

 

Minimum Level of Nigerian Content

Nigerian content is defined in section 106 of the Act as “the quantum of composite value added to or created in the Nigerian economy by a systemic development of capacity and capabilities through the deliberate utilization of Nigerian human, material resources and services in the Nigerian oil and gas industry”. Section 11(1) of the Act states that the minimum Nigerian content in any project to be executed in the Nigerian oil and gas industry shall be consistent with the level set out in the Schedule to the Act. The Schedule goes further to list various activities in the oil and gas industry and sets out the desired level of Nigerian content in accordance with various units of measurement. There is however a caveat where there is inadequate capacity domestically, as section 11(4) provides that the Minister may authorize the continued importation of any of the relevant items in the Schedule where this is the case for up to 3 years from the commencement of the Act.

 

Requirement of a Nigerian Content Plan

Section 7 of the Act provides that in the bidding for any license, permit or interest and before carrying out any project in the Nigerian oil and gas industry, an operator shall submit a NigerianContent Plan to the NCDMB demonstrating compliance with the Nigerian content requirements of the Act. Upon a favourable review and assessment of the plan by the NCDMB theoperator is then to be issued a Certificate of Authorization to proceed with the project (Section 8). The proposed contents of the Plan are contained in section 10 of the Act.

 

Preference for Bids with Nigerian Content

The Act in sections 14, 15 and 16 provides for the consideration of Nigerian content in the evaluation of bids and for advantage to be conferred on bidders on the basis of the level of Nigerian content. Where bids are within 1% of each other at commercial stage, the bid containing the highest level of Nigerian content shall be selected provided the Nigerian content in the selected bid is at least 5% higher than its closest competitor (Section 14).

Furthermore The award of contract shall not be solely based on the principle of the lowest bidder where a Nigerian indigenous company has capacity to execute such job, the company shall not be disqualified exclusively on the basis that it is not the lowest financial bidder, provided the value does not exceed the lowest bid price by 10% (Section 16).

The Act also sets up a procedure for monitoring bids for projects valued in excess of $1,000,000 by the NCDMB. Operators are required to submit to the NCDMB quarterly, for approval all advertisements for invitation to tender, prequalificationcriteria; technical bid documents, proposed bidders list etc (Sections 17-24).

 

Establishment of a Project Office Locally

Section 25 of the Act refers to the establishment of a project office within the catchment area where the project is to be located by the operator or other body submitting a Plan. While the Act refers to the establishment of a project office “where applicable”, it does confer power on the NCDMB to require that a project office is maintained.

 

Preference for Nigerian Personnel in Employment and Training

Section 28(1) of the Act provides that “Nigerians shall be given first consideration for employment and training in any project executed by any operator or project promoter in the Nigerian oil and gas industry”. The Act further requires that the Nigerian Content Plan submitted by any operator or project promoter for any project shall include and Employment and Training Plan which complies with Section 29 of the Act. The Act also obligates operators to provide training to Nigerians where Nigerians are not employed because of their lack of training and to provide a succession plan for a Nigerian to understudy an expatriate for a maximum period of 4 years (Section 30 and 31(1) respectively).

Section 32 provides that expatriate management positions are limited to 5% in respect of each project carried out by an operator as may be approved by NCDMB.Section 33 also requires that all applications for expatriate quotamust first be referred to NCDMB and approval received before applications are made to any other Government agency.The Act requires in Section 34 that a “Labour Clause” be inserted in projects orcontracts whose total budget exceeds $100 million, mandating the use of a minimum percentage of Nigerian workers as may be stipulated by NCDMB. Finally all operators and companies operating in the Nigerian oil and gas industry shall employ only Nigerians in their junior and intermediate cadre (Section 35).

 

Research and Development Requirements

Sections 36, 37, 38 and 39 deal with the R & D requirements of the Act and require operators to submit a programme for the ‘promotion of education, attachments, training,research and development in Nigeria.’

 

Technology Transfer Requirement

Section 43 of the Act provides that each operator must have a programme for the promotion of technology transfer into Nigeria in relation to its oil and gas activities. Furthermore section 44 provides that the operator is required to submit to the NCDMB annually a plan setting out a programme of planned initiatives aimed at promoting the effective transfer of technologies from the operator and alliance partners to Nigerian individuals and companies. An operator is required to fully support the transfer of technology initiative by encouraging and facilitating the formation of joint ventures, partnering and the development of licensing agreements between Nigerian and foreign contractors (Section 45).

Other provisions to ensure and improve the transfer of technology include section 48 which provides that the Minister may grant tax incentives for foreign and indigenous companies which establish facilities, factories, production units or other operations in Nigeria for purposes of carrying out production, manufacturing or for providing services and goods otherwise imported into Nigeria. Another provision is section 41(2) which states that; “international or multinational companies working through their Nigeriansubsidiaries shall demonstrate that a minimum of 50% of the equipment deployed forexecution of work are owned by the Nigerian subsidiaries”.

 

In Country Requirements

Section 53 of the Act provides that all operators, project promoters and contractors engaged in the Nigerian oil and gas industry must carry out all fabrication and welding activities in the country. Section 52(3)(f) also provides that “all operators, contractors and sub-contractors shall maintain a bank account in Nigeria in which it shall retain a minimum of 10% of its total revenue accruing from its Nigerian operations”.

 

Use of Indigenous Insurance, Legal and Financial Services

Section 49, 51 and 52 provide for the use indigenous insurance, legal and financial services respectively where practicable.

 

Submission of Content Performance Report

An operator is required to submit an annual Nigerian Content Performance Report covering all its projects and activities for the year under review to the NCDMB within sixty days of the beginning of each year (Section 60).

 

Joint Qualification System

Section 55 and 56 provide for the establishment and maintenance of a Joint Qualification System (JQS) which shall constitute an industry databank of available Nigerian content levels and capabilities.

 

Offences and Penalties

An operator, contractor or subcontractor who carries out any project contrary to the provisions of the Act, commits an offence and is liable upon conviction to a fine of 5% of the project sum for each project in which the offence is committed or cancellation of the project entirely (Section 68).

 

 *Noma Garrick is a lawyer and consultant with extensive experience in oil and gas and energy related matters.

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