The Impact of the Nigerian Content Law

By Femi Falana

It is an undeniable fact that it was the struggle of the National Union of Petroleum and Natural Gas Workers (NUPENG) and the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) as well as other patriotic forces for the indigenization of the oil and gas industry which culminated in the enactment of the Nigerian Content Act, 2010 by the Federal government. Although it was enacted eight years ago, the positive impact of the law has not been felt by Nigerian people due to ignorance of its provisions of the law and lack of commitment on the part of the Federal Government to indigenise the oil and gas industry.

In spite of the fact that oil was discovered in Nigeria over 60 years ago the federal government has not made conscious efforts to control the petroleum industry. Hence the Indigenization Decree, Petroleum Act, Petroleum Technology Development Fund Act, National Office of Technology Acquisition Act and Petroleum (Drilling and Production) Regulations have failed to give effect to local content in the oil and gas industry. According to Akin Delano, a firm of legal practitioners, “the ‘Nigerianization’ process in the lucrative upstream has been comparatively negligible. Research done in 2008 concludes that although oil and gas industry accounts for 90% of Nigeria’s revenue, it contributes less than 38% to the Nation’s G.D.P. In real terms the upstream industry has for decades functioned as an enclave economy with minimal impact on the wider industry.”

There is no doubt that the control of the oil and gas industry is part of the foreign domination of the peripheral capitalist economy of Nigeria. Hence, such foreign control has not been challenged by any government despite the duty imposed on the State by Section 16(1)(c) of the Constitution, to “manage and operate the major sectors of the economy” to the exclusion of any other person or group. Apart from setting up ad hoc committees to exercise the so called oversight functions the national assembly has refused to establish a body “for review, from time to time, the ownership and control of business enterprises operating in Nigeria…” in line with the provisions of Section 16(3) of the Constitution.

In fact, under the pretext of attracting and protecting foreign investments in Nigeria the government has allowed the IOCs to operate without complying with extant regulations. The control of the oil and gas industry by the IOCs has even reached an embarrassing situation whereby they are allowed to influence the appointment of the Minister of Petroleum Resources and the heads of the management departments of the regulatory bodies in the industry.

In other words, the operators have since become the regulators of the industry!

It was therefore not surprising when it was recently reported that President Buhari had refused to assent to the Petroleum Industry Bill. The decision of the President to withhold his assent to the bill is a major victory for the IOCs, as it has to do with new fiscal terms in favour of Nigeria, increasing local ownership of the oil and gas industry, and strict control of industrial waste and pollution of the oil producing communities.

The primary objective of the Nigerian Oil and Gas Industry Content Development Act, 2010 is to provide for the development of Nigerian Content in the Nigerian oil and gas industry, supervision, coordination, monitoring and implementation of Nigerian Content and for related matters. Accordingly, all regulatory authorities, operators, contractors, sub-contractors, alliance partners and other entities involved in any project, operation, activity or transaction in the Nigerian oil and gas industry shall consider Nigerian Content as an important element of their overall project development and management philosophy for project execution.

Specifically, Nigerian independent operators shall be given first consideration in the award of oil blocks, oil field licences, oil lifting licences and in all projects for which contract is to be awarded in the Nigerian oil and gas industry subject to the fulfilment of such conditions as may be specified by the Minister of Petroleum Resources. The Nigerian Content Monitoring Board (NCMB) shall be established as the regulatory body responsible for monitoring, coordinating and implementing the provisions of the Nigerian Local Content Act. The NCMB has also been given the mandate to certify companies to ensure compliance with the Local Content Act.

This Nigerian Local Content Act takes precedence over all other existing enactments and regulations in respect of all matters pertaining to Nigerian content in respect of all operations and transactions in the oil and gas industry and the functions of the NCD as well as all other Nigerian content regulatory bodies shall be taken over by the Board to be established under the Act. For instance, Section 2 of the Act requires Nigerian content to be considered as an important element in the overall project development and management philosophy for project execution.

Operators are mandated to comply with minimum specifications for Nigerian content as contained in the schedule to the Act. The schedule specifies certain criteria to be followed which includes the number of Nigerian man hours utilized in relation to the duration of project, tonnage, size and volume of certain goods, level of certification obtained and the total amount of local expenditure in relation to the procurement of local goods and services.

Certain services such as Directional Surveying Services, Cutting Injections/Cutting Disposal Services, Waste Disposal/Drainage Services and industrial Cleaning Services requires the use of 100% Nigerian man hours while services such as Disposal/Distribution and Waste Transport Services, procurement of Sickline, Well Head Safety Panels and certain Seismic Data Acquisition and Interpretation Services requires 100% Nigerian spent. Operators are permitted to deviate from these specifications where local capacity is inadequate upon authorization by the Minister. Such authorization shall not be given for a period exceeding three years within which time local capacity is expected to have been built in the relevant area.

Nigerian content shall be a major factor in bid evaluation and where bid tenders are within 1% of each other, priority shall be given to the bid containing the highest level of Nigerian content provided such Nigerian content is at least 5% higher than that of the closest competitor.

At this juncture, it is worth it to examine the relevant provisions of the Nigerian Content Act for job creation and security of employment as well as the planned indigenisation of oil and gas industry as follows:

Prior to carrying out of project in Nigeria, an operator shall be required to establish a project office in the catchment area where the project is to be located, managed by approved personnel who shall exercise decision making powers to the satisfaction of the Board.

The operator shall locate, within the project office, personnel with decision-making authority in accordance with a list of personnel to be approved by the Board. The Board shall have power to require an operator to maintain an office in a community where the operator has significant operations.

Nigerians shall be given the first consideration for employment and training in any project-executed projects by any operator or project promoter in the Nigerian oil and gas industry. The Board shall ensure that the operator or project promoter maintains a reasonable proportion of employees from areas it has significant operations.

The plan submitted by any operator or project promoter for any project shall contain an Employment and Training Plan which shall include hiring and training needs of the operator and its contractors, breakdown of required skills and shortages in the Nigerian labour force and anticipated training requirements and expenditure for such training; a time frame for employment opportunities for each project phase; specific quarterly reports of the employment and training activities of the operator; evidence of reasonable efforts by operator to train Nigerians to fill skills shortages in the industry within a reasonable time.

In bidding for any licence, permit or interest and before carrying out any project in the oil and gas industry, an operator shall submit a Nigerian Content Plan to the Board demonstrating compliance with the Nigerian content requirements of this Act.

The Plan shall contain provisions intended to ensure that first consideration shall be given to services provided from within Nigeria and goods manufactured in Nigeria and Nigerians shall be given first consideration for training and employment in the work programme for which the plan was submitted.

Any collective agreement entered into by the operator, project promoter or other body with any association of employees in respect of the terms and conditions of employment the project shall contain provisions consistent with the Nigerian Content Policy.

For each of its operations, the operator shall submit to the Board a succession plan for any position not held by Nigerians and the plan shall provide for Nigerians to understudy each incumbent expatriate for a period of maximum period of four years and at the end of the four years period the position shall become Nigerianised.

For each of its operations, an operator may retain a maximum of five per cent of management positions as may be approved by the Board as expatriate positions to take care of investor interests.

The operator shall make application to, and receive approval of the Board before making any application for expatriate quota to the Ministry of Internal Affairs or any other agency or Ministry of the Federal Government.

The application shall be detailed and contain the job titles, description of responsibilities, the duration of the proposed employment in Nigeria and other relevant information required by the Board.

Where a project or contract value exceeds $100 million (USD), it shall contain a labour clause mandating the use of a minimum percentage of Nigerian labour in specific cadres as may be stipulated by the Board.

All operators and companies operating in the Nigerian oil and gas industry shall employ only Nigerians in their junior and intermediate cadre or any other corresponding grades designated by the operator or company.

The operator is required to carry out a research and development programme in relation to its work programme and activities for every project. This shall include a bi-annual update of the operator’s R and D Plans and a quarterly report of operator’s R and D activities. The R and D obligations of the operator shall be in conformity with the provisions of regulations to be made by the Minister with respect to targets to be met for the growth of R and D in the industry. We expect that such regulation, when published, will set out the procedure and criteria to be followed in respect of the Operator’s R and D programme.

An operator shall have a programme for the purpose of promoting the transfer of technology to Nigerians in relation to oil and gas. Accordingly, operators shall submit annually to the Board a plan setting out a programme of planned initiatives aimed at promoting effective transfer of technology to Nigerian personnel and companies from the operator and alliance partners to Nigerian individuals and companies; active encouragement and facilitation of strategic collaboration between Nigerian and foreign contractors and service or supplier companies with the submission of an annual report of such initiatives.

The minister may make regulations requiring compulsory registration of operators, companies, or its professional employees engaged in the provision of engineering or other professional services in the petroleum industry with relevant professional bodies in Nigeria.

This presents another avenue for monitoring importation of expertise and ensuring that this only happens where such expertise is not available locally.

The Minister is empowered to make regulations to ensure full utilization and growth of indigenous companies in the following areas: exploration, seismic, data processing, engineering design, reservoir studies, manufacturing and fabrication of equipment and other activities as well as the provisions of other support services for the Nigerian oil and gas industry. All operators and investors shall carry out all fabrications and welding activities in the country.

Foreign professionals employed in the oil and gas industry shall be registered with the relevant professional bodies. Where Nigerians are not employed due to lack of expertise the employer shall provide a succession plan for Nigerians to understudy the expatriates for a maximum period of 4 years.

All investors in the oil and gas industry shall insure all insurable risks relating to oil and gas business, operations or contracts with an insurance company, through an insurance broker registered in Nigeria under the provisions of the Insurance Act as amended.

Operators and other investors are restricted to retain the services of only legal practitioners or a firm of legal practitioners located in Nigeria. All operators shall submit to the Board, every six months, its Legal Services Plan (LSP).

Operators and other investors in need of financial services shall retain only the services of Nigerian financial institutions or organisations, except where, to the satisfaction of the Board, this is impracticable.

Operators must also submit a bi-annual report to the Board detailing the nature of the services so utilized, annual budget for the past one year in Naira and foreign currencies and projected expenditure for the services covered.

Within sixty days of the beginning of each year, operators shall submit to the Board their annual Nigerian Content Performance Report covering all their projects for the year under review. Specifying its employment achievements in terms of hours or days worked by Nigerian and foreign workers and their status.

To facilitate proper monitoring and verification of the reported activities, operators and their contractors are required to allow access to their facilities and provide relevant documentation to the Board and its designated agents.

It is pertinent to draw the attention of the workers in the oil and gas industry to the relevant provisions of the Presidential Executive Order No 5 for harnessing domestic talent and development of indigenous capacity across all sectors of the economy. By virtue of the Order, the Minister of Interior has been prohibited from giving visas to foreign workers whose skills are readily available in Nigeria. Thus, by the combined effect of the Nigerian Oil and Gas Content Development Act, 2010 and the Presidential Executive Order No. 5 of 2018 Nigerian employees shall be given first consideration in the oil and gas industry.

Pursuant to the Petroleum Training Development Fund Act a Fund shall be established to give scholarships to qualified Nigerians to acquire requisite knowledge in petroleum technology. Since the oil and gas industry requires skilled labour in many areas both the NUPENG and PENGASSAN should invest in the training of their members to acquire the requisite knowledge in petroleum technology.

The Act has provisions for sanctions for failure by operators, contractors and sub-contractors to comply with the provisions of the Act in their operations. Thus, it is an offence punishable by a fine of 5% of the project sum for each of the projects in which the violation occurs or the total cancellation of the project. It is noteworthy also that operators’ eligibility for the award of licenses, permits and other interests in petroleum operations would be based on the operators’ compliance with provisions of the Act. The law is quite comprehensive in scope. There are 107 Sections of the Act. This presentation has been limited to the provisions relating to the Nigerian content with respect to employment in the oil and gas industry.

It is our view that if the relevant provisions of the Act on Nigerian Content with respect to employment, training, technology transfer and services had been properly enforced by the Board the indigenization of the oil and gas industry ought to have been completed. In other words, since the law, which came into force in 2010, provides for a maximum period of 4 years for replacement of expatriates with Nigerian employees the indigenization of the oil and gas industry should have been completed in 2014.

Conclusion

The law is quite comprehensive in scope. There are 107 Sections of the Act. This presentation has been limited to the provisions relating to the Nigerian content with respect to employment in the oil and gas industry. It is our view that if the relevant provisions of the Act on Nigerian Content with respect to employment, training, technology transfer and services had been properly enforced by the Board the indigenization of the oil and gas industry ought to have been completed. In other words, since the law, which came into force in 2010, provides for a maximum period of 4 years for replacement of expatriates with Nigerian employees the indigenization of the oil and gas industry should have been completed in 2014.

We therefore call on NUPENG and PENGASSAN to compile a list of expatriate staff in all oil and gas industry companies operating in Nigeria and submit it to the Board without any further delay. With respect to the enhancement of the capacity of Nigerian employees both NUPENG and PENGASSAN should henceforth monitor the activities of the Petroleum Training Development Fund with a view to assuring that scholarships are given to deserving Nigerians to acquire the requisite knowledge in all areas of oil and gas.

The success or otherwise of the provisions of the Act would thus be substantially influenced by the rigour and political will exercised by the Board in carrying out its task. Therefore, unless the workers and the Nigerian people are prepared to ensure the enforcement of the Nigeria Content Act and other relevant legislations and policies the foreign control of the oil and gas industry will not cease. Both NUPENG and PENGASSAN are advised to monitor the activities of the Board and the Minister of Petroleum Resources with a view to ensuring strict compliance with the provisions of the Act.

Finally, NUPENG and PENGASSAN should liaise with relevant professional bodies to ensure that expatriates are not employed to perform services, which can be provided by Nigerians. The power of Minister of Petroleum Resources to approve the continued recruitment of expatriate staff where there is inadequate capacity in Nigeria should be properly monitored.