Nigeria: Overview Of Nigerian Local Content Law In Oil And Gas Industry

The Nigerian Oil and Gas Industry Content Development (Local Content Act) 2010 was enacted to promote the indigeneous participation in the Nigeria’s oil and gas industry for the purpose of improving the economic and social well being of those engaged in operating in the oil and gas industry.

The Act provides for the development of Nigerian content in the Nigerian oil and gas industry, Nigerian content plan, supervision, coordination, monitoring, and implementation of the Nigerian content.

The Act stated the requirement of any company or organization that intends to operate in the Oil and Gas Industry in Section 2 of the Local Content Act, which states that “all regulatory authorities, operators, contractors, subcontractors, 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”.

The Act defines Nigerian content in Section 106 as “the quantum of composite value added to or created in Nigeria through the utilization of Nigerian resources and services in the petroleum industry resulting in the development of indigenous capability without compromising quality, health, safety, and environmental standards”.

The sole purpose of the Local Content is to increase Nigerian participation in the oil and gas industry by prescribing minimum thresholds for the use of local services and materials for the promotion of technology and skill to the Nigerian labour in the oil and gas industry.

The Local Content Act is a vital instrument that empowers Nigerian Companies to contribute tremendously towards the development of the Nigerian economy by encouraging value addition, job opportunities, and furthermore the award of different oil contracts and undertakings.

In fulfilling this objective, Section 4 of the Local Content Act established The Nigerian Content Development and Monitoring Board (hereinafter referred to as ‘the Board’ or ‘NCDMB’), which is vested with the responsibility “to make a procedure that will guide, monitor compliance by operators, coordinate and implement the provisions of the Act within the industry.

The Local Content Board is empowered to execute its duties under the Act to ensure that all provisions contained in the Act are complied with.

For the purpose of the Local Content Act, Nigerian Company was defined in Section 106 of the Act 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”

The general obligations applicable to operators, participants, and activities taking place in the oil and gas industry are contained in Sections 3, 7, and 11 of the Local Content Act.

While the Local Content policy objectives imposed on transaction and projects are set out in Section 3 of the Local Content Act which provides that “(1) Nigerian independent operators will be given first consideration in the award of oil blocks, oil field license, oil lifting license and all project for which contract are to be awarded in the Nigerian oil and gas industry”.

(2) There shall be exclusive consideration to Nigerian indigenous service companies that demonstrate ownership of equipment, Nigerian personnel, and capacity to execute such work to bid on land and swamp operating areas of the Nigerian oil and gas industry for contracts and services contained in the Schedule to this Act.

(3) Compliance with the provisions of this Act and promotion of Nigerian content development shall be a major criterion for the award of licenses, permits, and any other interest in bidding for Oil exploration, production, transportation, and development, or any other operations in Nigerian Oil and Gas industry.

For the purpose of clarity, operators in the oil and gas industry in respect of this Act are defined as the “Nigeria National Petroleum Company (NNPC), its subsidiaries and joint venture partners and any Nigerian, foreign or international oil and Gas Company operating in the Nigerian oil and gas industry under any petroleum arrangement”.

The above definition accommodates any international or Nigerian company that is operating in the oil and gas industry in Nigeria.

All of the above requirements and conditions for operating in the Nigerian oil & gas industry as stipulated and contained in the Act have created several benefits and advantages for indigenous or local companies operating in the industry.

Furthermore, the operators are required to deliver a Nigerian Content Plan to the Board as provided in Section 7, which demonstrates compliance with the Nigerian Content requirement when bidding for not only licenses, permits, or blocks but for any project or activity ranging from the Front End

Engineering Design (FEED) and detailed engineering services; Fabrication and Construction; Materials and Procurement; Well and Drilling Services/ Petroleum Technology; Exploration, Subsurface, Petroleum Engineering, Seismic among others in the oil and gas industry.

However, the Board reserves the right to review and assess the content plan and if satisfied that the plan complies with the provisions of the Act, it will issue a Certificate of Authorization to the operator to proceed with the plan as provided in Section 8 of the Act.

In addition to this requirement, the operators are expected to submit in the content plan showing how the consideration is to be applied to goods, employment, service or training, research and development plans, technical plans, legal plans, and financial services plans.

The Local Content Act also in Section 41(2) states that “International or multinational companies working through their Nigerian subsidiaries shall demonstrate that a minimum of 50% of the equipment deployed for execution of work is owned by the Nigerian subsidiaries”.

The above section of the Act implies that every International and multinational company in Nigeria must show that 50% of the equipment intended to be used to operate or for a project in Nigeria is owned by their Nigerian subsidiaries who will apparently execute the project.

Several international and multinational companies have started to comply with the provisions of the Act, while the Board has continued to play a significant role in ensuring strict compliance with the Local Contact Act by all companies participating in the oil & gas sector.

The Local Content Act is one of the most successful economic policies of the Federal Government in recent times.

It is important to note that the Local Content Act does not try or intend to bar foreigners from taking an interest in the Nigerian oil and gas industry, but subject to the fulfilment of conditions specified by the Act.

Nigerian operators and Nigerian service companies are considered first in the award of oil blocks, license and works in the oil and gas sector before foreigners.

The Act welcomes foreigners to be operators, shareholders, investors, and partners in the industry, as long as they conform with the provisions of the Act.

Conclusion

The Local Content Act and relevant regulations have made it mandatory for any foreign-owned company seeking to carry out operations in the upstream sector of the economy to do so by involving Nigerians in the composition of the company.

The Act has been fundamental to the promotion of the development of indigenous capacity in the Nigeria oil & gas sector.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

By Olusola Jegede

Gh Extractives

Ghextractives.com is an independent multimedia portal that seeks to provide credible information and news content to readers especially players in the extractive sector in Ghana, Africa and beyond. It also provides a unique platform for players in the energy sector to market their products and reach a wider audience

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