Berkeley Legal | The Impact of the Local Content Act on the Nigerian Oil & Gas Industry
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01 Jun The Impact of the Local Content Act on the Nigerian Oil & Gas Industry

INTRODUCTION

The Oil and Gas industry in Nigeria is regarded as the foremost lucrative sector in the economy. It entails the exploration, transportation, development and sale of Nigerian oil and gas resources including upstream and downstream oil and gas operations.

There are a number of policies governing the Oil and Gas sector inter alia the Petroleum Act, Petroleum Technology Development Fund Act, Petroleum Equalization Fund Management Board Act and Petroleum (Drilling & Production) Regulations. In addition, Government institutions such as the Ministry of Petroleum Resources (MPR), the Department of Petroleum Resources (DPR), amongst others, were also created by the Nigerian government to ensure that due process and procedures in the industry are adhered to.

It is however safe to note that a gap was identified as regards the protection of local participation in the industry. This led to the enactment of the Nigerian Oil and Gas Industry Content Development Act, 2010 (herein referred to as the ‘Local Content Act’ or ‘The Act’) by the Nigerian Government.

THE LOCAL CONTENT ACT

The objective of the Act is to increase indigenous participation in the Oil and Gas Industry. The Act is designed to promote local participation within the industry, that is, Nigerian incorporated companies. There is no clear definition of a Nigerian Company in the Companies and Allied Matters Act (CAMA) however it recognises that a company duly incorporated in Nigeria, with not less than 51% equity shares by Nigerians and in accordance with the provisions of CAMA can be referred to as a ‘Nigerian Company’ or a ‘Local Company’. This is also in accordance with the Local Content Act.

The Nigerian Content Monitoring Board (NCMB) was established as the regulatory body responsible for monitoring, coordinating and implementing the provisions of the Local Content Act. The NCMB has also been given the mandate to certify companies to ensure compliance with the Local Content Act.

THE IMPACT

The impact of the Local Content Act on the Nigerian Oil and Gas Industry has been tremendous. A few of these impacts include:

Employment

  •  There has been a creation of employment opportunities for Nigerians who have interest in the industry. This in turn has reduced the unemployment rate within the country. The Local Content Act specifies that for each operation, an operator, in this context foreign expatriate, may maintain a maximum of five percent (5%) of management positions as a way of protecting the interest of investors.

  • Section 31 of the Local Content Act clearly states that a mandatory succession plan needs to be placed wherein Nigerians can understudy an incumbent expatriate for a period of four (4) years. This allows the expatriate disseminate relevant technical expertise to the Nigerian whilst also adding to the development of the Nigerian employee.

  • With the establishment of a mandatory succession plan, there is a certain reassurance of longevity of Nigerian participation and interest within the industry.

Training

  •  Training, in any given field, is advisable as it contributes to the development of manpower which thereafter results in attaining a company’s goals and objectives. Section 30 of the Local Content Act provides that training shall be provided to Nigerians who require adequate training to operate within the Oil and Gas industry. This effort creates an avenue for continuous learning development opportunity.

Professional Services

  • Professionals are not left out from the benefits of the Local Content Act. Under Sections 49, 51 and 52 of the Local Content Act, Insurance Brokers, Legal Practitioners and Financial Advisors can be enlisted by contractors and operators within the industry for the provision of professional services for any of the operations the contractors and operators wish to execute.

  • Joint Venture Agreements (JVAs) are usually entered into by parties within the oil and gas industry. This, in turn, will provide opportunities for the professionals listed above to input their services into the industry.

Investment

  • With the introduction of the Act, there has been a high level of investment in the Oil and Gas industry as investments have been received from reputable international companies.

  • The Act, as much as it is directed at local involvement, has also resulted in providing a platform for international participation as well.

PETROLEUM INDUSTRY GOVERNANCE BILL (PIB)

With the recent passing of the PIB by the Senate, it is envisaged that this will play a key role in enhancing local content in the Oil & Gas Industry. The PIB was initially designed to complement the Local Content Act and as such the delay in passing the Bill has hindered local content implementation due to the uncertainty surrounding the laws regulating oil and gas operations.

The correlation between the Local Content Act and the PIB is the essentiality of ensuring that new investments are sufficiently domiciled. In particular, it is pertinent that the service and manufacturing ends of the industry are localized and not diverted abroad i.e. promotion of local manufacturing of industry equipment and the establishment of facilities to enhance local production.

In order for Nigerian participation in the industry to fully benefit from the passing of the PIB, it is essential that Nigerians embrace the local content policies. The projected new investments are likely to increase job creation thereby allowing Nigerians engage to in all areas of the industry.

CONCLUSION

Local Content Act plays a vital role in the advancement of the Nigerian Oil and Gas Industry and it also gives first consideration to Nigerian independent operators. This creates a platform for the Nigerian Company to contribute immensely towards the growth of the Nigerian economy. The Local Content Act, however, needs to be fully implemented by the Nigerian government as not all companies within the industry have embraced its provisions.

The Firm is able to provide information regarding bidding/application for any licence, equity participation, Joint Ventures and any project within the Nigerian Oil and Gas Industry.


The content of this document is solely for information purposes only and should not in any way be construed as a legal opinion. If you require specific legal advice on any of the matters covered in this article please contact info@berkeleylegal.com.ng