Tuesday, May 4, 2010

Nigeria: Content Law - of Content And Contempt


Hamisu Muhammad

The Nigerian Content Act signed recently by the Acting President Goodluck Jonathan has dominated discussions in the oil and gas industry in the last few days. It's a piece of legislation that many indigenous operators rejoice over due to the expected benefits they perceive it will bring to them. At the same time, it adds more confusion to the International Oil Companies on how the future of their operations in the country will look like. The Act entitled: An Act to provide for the development of Nigerian Content in the Nigeria Oil and Gas Industry introduces new policies and legislations that seem to change the shape of oil and gas business in Nigeria.

Background to the Act:

It is no longer news that indigenous firms in Nigeria are not benefiting from the oil wealth. Before now, almost 90 percent of the contracts for goods and services in the sector are provided by foreign firms.

The estimate of the cumulative worth of the total businesses in the oil and gas sector is about $18 billion US Dollars (N2.7 trillion) having realised that President Olusegun Obasanjo set up Nigerian Content Initiative under the direct supervision of NNPC with the mandate to domicile significant portion of oil and gas derivatives and increase contribution of the sector to the national GDP.

The government want to achieve 45 percent in 2009 and 70 percent in 2010, in its local content drive in the oil and gas sector, which seems unrealisable. In 2009, only 39 percent success was achieved and the figure remains almost the same for this year. Some experts say the absence of the legislation and lack of monitoring and supervision capacity by the NNPC dashed the dream.

What the Local Content Act says?

Key among the provisions of the Nigerian Content Act are:

"Nigerians 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".

"In the bidding for any License, permit or interest and before carry out any project in the Nigerian oil and gas industry, an operator shall submit a Nigerian Content ('Plan') to the board demonstrating compliance with the Nigerians Content requirement of this Act".

Other provisions in the Act say "The award of contract shall not solely based on the principle of the lower 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 percent"

"With the Act now in place, operators and service companies providing services to the Nigerian Oil and Gas industry will finally be required 'by law' to perform designated scopes of work set out within the Act in Nigeria," she declared.

But many questions were raised such as what different can the Act make in this versatile and dynamic petroleum sector? Why is the Act so important to indigenous oil firms and how preferred are they to handle some of the sophisticated contracts in the sector? And what are the likely implications it will bring into the majors' operations?

The drivers:

Speaking at the unveiling of the Act in Abuja, the Minister of Petroleum Resources, Diezani Alison-Madueke said now that there is Nigerian Content Law and that the $18 billion average annual spending in the oil and gas industry will largely be domiciled in the country.

Alison-Madueke said their administration was determined to make the huge investment in the oil and gas industry to impact positively on the economy and the lives of Nigerians through the new law therefore promised to aggressively implement the Act.

"We are determined to get this right and to make it work. That is why the Bill was signed into law only a few days after it was presented to me to enable us go to work expeditiously," she said.

She started by appointing Engr. Ernest Nwapa, the Group General Manager, Nigerian Content Division of the NNPC as the Acting Executive Secretary of the newly created Nigerian Content Development and Monitoring Board which the Act provides for as the agency to drive its implementation as the demonstration of enforcing the law.

Alison-Madueke lamented that before now the impact of the oil and gas industry was not felt in the Nigerian economy because most of it was transferred to other countries to import materials and services for the industry because of the absence of a law to force the International Oil Companies, IOCs, and other players in the industry to source materials and services locally.

Mallam Shehu Ladan, the Group Managing Director of the NNPC, said now that we have the Act, NNPC will operate like other oil companies in compliance with provisions and focus on integrating the provisions into its business and operational strategy.

The agony of IOCs:

It is true that multinational companies are reluctant to implement the policy as stipulated by the government. It was revealed that the reluctance of the international oil companies is borne out of the fact that Nigerian graduate engineers do not have the basic engineering knowledge and skills. Apart from inadequate training facilities to meet industry demands, there are also inadequate and obsolete infrastructure in the educational system. Besides, engineering certification by local institutions in Nigeria is said not to have met international accreditation standards.

Other reasons adduced by the international oil companies include: Absence of sustainable power to support fabrication and manufacturing industry, directives not always aligned with in-country capacity, lack of counterpart funding to execute major projects and security and safety issues.

With most of these problems unaddressed, and the passage of the Act by government, the IOCs are not really happy with the development, as they see it as opportunity of creating inefficiency and mismanagement in their operations.

A top officer with Chevron Nigeria Limited who doesn't want to be named in press said: "We are not happy with the law, but we have to abide by it since it is the law of the land, we have to obey it. It will affect our operations and that will hurt our profits". According to him if care is not taken the Act will simply politicise our operations and that will not go down well to our businesses.

He said our only prayer now is that it will not be implemented to the core, otherwise there will be problems.

It is happy moment for Nigerian firms

"If there is any beautiful piece of legislation throughout the history of the Nigerian Oil and Gas industry it is the Nigerian Content Act", said a Nigerian service provider.

The Director, Oceaneering Services Nigeria Limited Sir Rowland Nze said the new Law means a lot to indigenous oil and gas companies. He said before now there is no enabling Law that guided the activities of the Nigerian Content Division of the NNPC. But the Law now can enforce all the companies to implement the Nigeria Content.

According to him, the only problem is that Nigerian Companies are not yet developed to meet the requirement of the oil industry, "Oil industry is a very dynamic, there are virtually changes every day, new technologies, innovations are coming in but if you sit and wait for technology to get to you, you will never get it. So you have to get the means to grab it",

"Again the problem of mismanagement has to stop. If all the funds sunk into the system is continued to be mismanaged, we won't go anywhere. We need to set up an industry that can train Nigerians to acquire the experience because you cannot acquire experience from the school, you can only get it when you are in the field. If they can compliment this law to monitor the training of Nigerians in the industry and make sure they get the right qualifications, give it another five years things will change".

He said before now there was Indigenization Degree set up by the military government in the 70s which was very similar to this Act, it was doing very well until when the changes in administrations which kill the decree.

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He said without strict monitoring and supervision, the Act will not make any difference because the IOCs are not happy with it.

Joe Odocha, the former Group General Manager in NNPC and now a consultant with the Jonakod Nigeria Limited, said the law is a welcome development.

"We hope Nigerians will take it seriously, because it is one thing to have the Law and another for it to materialise, because we need human capacity and the material to meet the requirement of the industry".

"I think with this law, Nigerians will be pushed into action, already there is progress in developing capacity, we have PTDF , PTI and many more who are ready to improve in that sector".


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