Tuesday, April 27, 2010

Nigeria: As Jonathan Signs Local Content Bill Into Law


Mohammed Shosanya

Lagos — Following last Thursday's signing of the much-awaited Local content bill into law by the Acting President Goodluck Jonathan, a new vista of prospect in the nation's oil and gas sector seems to have been opened for indigenous operators.

For a sector that has generated over $300billion to the coffers of the government in the last 32 years, with foreign oil companies dominating the scene, observers said the law would change the status quo and ensure that indigenous oil and gas companies now come to the front burner in the sector.

The thrust of the Nigerian Content Policy of the Federal Government issued by NNPC to the international oil companies and other stakeholders in 2005 is to promote value addition to the local economy, increase indigenous participation, build local capacity on the back of ongoing projects and generally create linkages to other sectors of the national economy to grow Local content to 70% by 2010.

The Act, among other notable objectives, provides that Nigerian independent operators shall be given first consideration in the award of oil blocks; oil filed licenses, oil lifting licenses and in all projects for which contract is to be awarded in the Nigerian oil and gas Industry.

It also stipulates 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 Nigerian content plan demonstrating compliance with the Nigerian content requirements of this Bill.

According to the Act, every multinational company must domicile a minimum of 10 per cent of its annual profit in Nigerian banks, while Nigerian insurance companies must do all aspect of insurance in the oil and gas industry unless where in the opinion of the Nigerian insurance commission, the capacity of the Nigerian company has been exhausted.

The Act also required that Nigerians shall be given first consideration in the award of oil blocks, oil field licences, oil lifting licences and shipping services and all projects for which contracts are to be awarded in the industry; subject to the fulfilment of such conditions as may be specified by the minister; and there shall be exclusive consideration for Nigerian indigenous service.

Major operators will be expected to ensure that Nigerians are engaged in key sectors of the industry to enhance indigenous human capital development and technology transfer.

In a situation where Nigerians are not competent, oil companies are expected to ensure, to the satisfaction of the Board, that every reasonable effort is made within a reasonable time to supply such training locally or elsewhere.

According to the Act: "For each of its operations, the operator shall submit to its Board a succession plan for any position not held by Nigerians. Such succession plan shall provide for Nigerians to understudy each incumbent expatriate for a maximum period of four years. At the end of the four-year period, the position shall become Nigerianised.

"Where Nigerians are not employed because of their lack of training, the operator shall ensure, to the satisfaction of the Board that every reasonable effort is made within a reasonable time to supply such training locally or elsewhere. Such effort and the procedure for its execution shall be contained in the operator's employment and training plan while the operator shall report to the Board quarterly on employment and training activities for the reporting period and compare this to the employment and training plan".

It further stated the minimum Nigerian content that would apply on takeoff of the law. These include field and detailed engineering and other engineering services (onshore facilities), offshore facilities, shallow water 90 per cent; feed and detailed engineering on Liquefied Natural Gas (LNG) facility (50) feed and detailed engineering on gas gathering (90) feed and detailed engineering on deep offshore facilities-hull and topside modules (80) and floating concrete structure (80).

On well and drilling facilities, the Act provides thus: Reservoir services 75 per cent, well completion services (80) logging while drilling services (45) well watch services (70) fluid/bottom hole sampling services (80) and OCT services (cleaning, hardbanding, recutting, re-threading, storage) (95).

It also stipulates that: "Notwithstanding the provisions of the schedule to this Act, all projects or contracts whose total budget exceeds $100 million, 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".

The Act mandates the minister of petroleum to make regulations that could further encourage indigenous companies and requires international/multinational companies working through their Nigerian subsidiaries to demonstrate that a minimum of 50 per cent of the equipment deployed for execution of work are owned by the Nigerian subsidiaries.

Acting President Goodluck Jonathan said while signing the bill into law last week that its full implementation will make indigenous participation in the nation's oil industry obligatory.

He said that the new law will address the compelling need for us as a nation to have indigenous participation in the oil industry", emphasizing that it shall "apply to all matters pertaining to Nigerian content in respect of all operations or transactions carried out or connected with the Nigerian Oil and Gas Industry, Jonathan stressed 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.

According to him, the Nigerian content development and monitoring board established in accordance with the Local Content Act will make procedures to guide, monitor, coordinate and implement the provisions of the new law to ensure and enforce measurable and continuous growth of Nigerian content in all oil and gas operations in the country.

The acting president however noted that the law as presently passed may not be totally perfect.

But stakeholders in the oil and gas sector see the new law as the beginning of the road to an endurable path in the country.

Minister of Petroleum Resources, Mrs Diezani Alison-Madueke said the Nigerian Content Law has the potential to generate over 30,000 jobs in the next 5 years.

She also said the new law has far reaching implications for the issues of technological advancement, long term cost effectiveness, post amnesty programs in the Niger Delta and the improved impact of the Oil & Gas Industry on National Gross Domestic Product.

The Minister expressed joy that the law would transform the industry from a major importer of goods and services to an industry that sources a substantial proportion of its inputs locally to support operations thereby empowering Nigerians.

The Minister noted that very soon there will be an urgent need to undertake certain interventions to, among other things, build strong partnerships between local and multinational service companies to handle Engineering, Project Management, Procurement, Data processing, Reservoir studies etc; upgrade existing shipyards and develop new ones with modern docking facilities for marine maintenance and boatbuilding; establish Steel Pipe Mills to handle the high demand of line pipes.

Besides, the Group Managing Director of the NNPC Malam Shehu Ladan described the passage of the new law as a great day for the industry, stressing that its multiplier effect is enormous.

Ladan said: "The signing of the Bill into Law today is timely because it sets the stage for the anticipated growth that the PIB will herald in respect of our national Oil and Gas asset portfolio. Post PIB, it is estimated that investment inflow into the industry will drive activities over the next five years in the magnitude unprecedented in the history of oil and gas in Nigeria."

For his part, President of the Trade Union Congress [TUC],Comrade Peter Esele told Daily Trust that the new law is good on paper but would be better if the government can guarantee its enforcement and implementation.

According to him, the law would be meaningless if it encourages indigenous companies to get job and give same to multinational companies to execute as the development does not give room for backward integration.

He explained that the law should be conceived in such a way to promote necessary manpower in order to maximize the benefits of oil and gas sector for Nigerians.

Director General of the Lagos Chamber of Commerce and Industry [LCCI] Muda Yusuff said the law is a good development for the country though it is coming late.

"It will open more doors for indigenous companies in the nation's oil and gas sector.The law is the beginning of linkage between the oil and gas sector and other sector of the nation's economy".

Mr Yussuf however advised the Federal government to ensure that the purported linkage the law would bring should not be allowed to jeopardize production of oil by the country.

Chairman, Lagos Chapter of National Union of Petroleum and Natural Gas Workers[NUPENG], Tokunboh Korodo said there should be concerted efforts on the part of the Federal government to ensure transparency in the implementation of the law.

"The law should bring about employment. It should be in totality. There should be no sectionalism".

Nigerians are no doubt waiting to see how the new law would transform the oil and gas sector, the economy and their well being in totality.

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