Is Nigerian Content Act Indigenising the Oil Industry?

Is Nigerian Content Act Indigenising the Oil Industry? Part 2

Section 70 (d) makes reference to the schedule to the Act which contains information as to specific Nigerian content level that must be achieved by operators in the industry.  However, Section 70 (l) of the same Act provides that the Nigerian Content Development and Monitoring Board (NCDMB or the Board) shall “provide guidelines, definitions and measurement of Nigerian content and Nigerian content indicator to be utilized throughout the industry”.  Guidance is needed as to the purpose of the Schedule if the Board is still expected to issue another guideline in this respect.  Thus, in the absence of the referenced guidelines, companies may be compelled to  apply only the Nigerian Content levels indicated in the Schedule and adopt any other indicators as they deem fit.

It is therefore conceivable that a Company may be considered a Nigerian company under the NOGICDA but may still not qualify as one, where it does not have ownership of equipment, does not manufacture its product in the country or make use of “made in Nigeria” materials or possess the technical capacity in-country to do the work.

From the foregoing, the following inferences may be drawn:

  • The bids of both Nigerian and non-Nigerian companies for contracts awarded in the offshore operating areas must first be evaluated on the basis of their Nigerian content level. While being a Nigerian company puts the company in a vintage position, the company will still need to prove that it owns the equipment, has Nigerian personnel and in country technical capacity to execute the work. Nigerian subsidiaries of foreign companies should not automatically be disqualified by virtue of being owned by non-Nigerians. Once Nigerian companies bidding for the same project are unable to meet the requisite criteria, the subsidiaries of the foreign companies should be considered.
  • A company with a higher Nigerian content level (at least 5 per cent higher) would rank above its competitor in the bid evaluation stage.
  • Where there is a Nigerian indigenous company that satisfies the above requirements, its bid must be considered if it is within 10 per cent of the lowest competent bid.

Role of the Board in enforcing the provisions of the Act

The central role of the Board in the implementation of the above provisions cannot be over-emphasised.
Section 70 of the Act encapsulates the broad functions of the Board in ensuring the implementation of these provisions. One key area which the Board needs to address urgently is ensuring that both Nigerian (indigenous) companies and subsidiaries of foreign companies are treated objectively during contract award process by petroleum companies. The Board should put in place a review process which will facilitate regular audit of those procedures by the Board.

Where any contravention of the provision of the Act is observed, the Board is empowered by virtue of Section 68 of the Act to prosecute the offender on conviction, either by imposing  “a fine of five per cent of the project sum for each project in which the offence is committed or cancellation of the project”.  Blacklisting service companies who are in the various stages of compliance with the provisions of the law, as it is being suggested in some cases, may be an overreaction, and inconsistent with the provisions of the NOGICDA.

In addition to the above, the Board should embark on a rigorous manpower development of its personnel resources to horn their skills and be able to up the ante in the review process. The Board’s current efforts at doing this are applauded, but more should be done particularly in the area of resource utilization in addressing the industry’s needs.

NOGICDA neither seeks to “Nigerianise” existing subsidiaries of foreign companies in the country, nor exclude them from participating in the industry’s activities.  Rather, it only seeks to create ample opportunities for Nigerians and indigenous (Nigerian) companies to increase their level of participation in the industry.  Given the size of Nigerian banks and the depth of their offerings, now is the time for indigenous (Nigerian) companies to leverage our financial institutions in accessing funds to finance large and complex projects which hitherto were exclusively executed by foreign companies. Just like it is being suggested for the Board, they should also embark on rigorous manpower development to facilitate smooth project delivery to top quality. All stakeholders (the Board, petroleum companies and oil service companies amongst others) have responsibilities to ensure the success of NOGICDA.
Arogie is  Manager , KPMG Advisory Services, Nigeria.

Source : Thisday Newspaper 16 December 2013

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One Response to Is Nigerian Content Act Indigenising the Oil Industry? Part 2

  1. olabode Sowunmi Jr December 23, 2013 at 12:46 pm #

    There are many challenges to the law itself at it stands. That a given as no law is ever perfect. The challenge is to get the business of implementation going. it should be understood that appart from Norway, no country is yet to succeed with local content laws. here are multiple reasons for this. I am of the sincere conviction that once we start the implementation of these laws a number of things will get fine-tuned in consonance with the realities of the field.

    if we do not too that we have the danger of getting into the age old analysis of paralysis. That said, i must commend the amount of work done by analyst. The way now should be forward!

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