NIGERIAN OIL & GAS INDUSTRY CONTENT ACT: Impact On The

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NIGERIAN OIL GAS INDUSTRY CONTENT ACTImpact
On The Engineering Family

• Paper by
• ENGR (Sir) CHRIS OKOYE FNSE, FASCE, FNSME, FNICA,
  FITN, FIoD
• Chairman, Nigerian Content Committee
• Nigerian Society of Engineers (NSE)/Chairman,
  Fegno Construct Nig. Ltd
• At the
• 20TH COREN ZONAL ENGINEERING ASSEMBLY
• ENUGU 2nd 3rd August, 2011

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• Nigerian Oil Gas Industry Content Act Impact
  on the Engineering Family

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Table of Contents

• Introduction
• Overview of the Act
• Benefits of the Act
• Challenges
• The Role of COREN
• Recommendations
• Conclusion

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The Nigerian Oil Gas Content Act Introduction
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Nigerian Content Definition

• Nigerian Content means the quantum of composite
  value added to or created in the Nigerian economy
  by a systematic development of capacity and
  capabilities through the deliberate utilization
  of Nigerian human, material resources and
  services in the Nigerian oil and gas industry.

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Strategies for value addition

• therefore shall include
• Capacity Building
• Capacity enhancement
• Competency Development
• Technology and knowledge transfer

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Before the Act, the only legal basis for Nigerian
Content pressures was the Petroleum Act, and the
JOAs/PSCs in the Industry.
PETROLEUM ACT (1969)

• Protection for indigenous Nigerian companies on
  the basis of reciprocity (Pet Act. 1st Schedule
  Section 23 (1),(2))
• Human Capacity Development (Pet Act. 1st Schedule
  Section 37 Pet Regulation, Part IV, Paragraphs
  26, 27, 28 and 29)

• Patronage and involvement of indigenous companies
  in the supply of goods and services (JV-JOA,
  Section 5.5.1 of Schedule C (Uniform Project
  Implementation Procedure)
• Premium on commercial offers of locally sourced
  goods and services over imports (JOA Schedule C
  and PSC, Article 5.5 of Annex E)

JOA (1991) AND PSC (1993 ONWARDS) AGREEMENTS

• Domiciliation of the certain services
• Consignment of low tech onshore supply of goods
  and services to indigenous companies
• Patronage of local sources of goods and services

NIGERIAN CONTENT POLICY (2005)
Source NNPC-NCD/G.Osahon
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Economic Imperatives

• o Average Annual Industry Spend 8 billion
• o Contribution to National Revenue 71
• o Contribution to Export Earnings gt90
• o Contribution to GDP 12
• o Local Value addition (Local Content) 10 -
  15
• o Local Refining Capacity 445,000 bopd
• o Increased use of Expatriate Workforce

High industry spend, coupled with low retention
within Nigerian economy, with its consequences on
local value creation /addition, and massive youth
unemployment, made this law a political and
economic necessity.
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The Nigerian Content Law History

• The Chibudom Nwuche Bill (1999-2003) Legislature.
  Failed to pass.
• The Ofodili Bill (2004-2007) Legislature. Failed
  to pass.
• The Lee- Maeba Bill. (2007-2011) Legislature.
  Passed and signed into law on 22/April.2010.

• Other Laws with strong local content
  implications
• Cabotage Act 2003
• Insurance Act 2004

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Nigeria Oil Gas Industry Content Act Overview

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Nigerian Oil Gas Industry Content Development
Act

• The components of the Act that will drive growth
  and domestication of engineering practice in
  Nigeria include
• 1. First Consideration
• (i) First Consideration shall be given to
  Nigerian independent operators in the award of
  oil blocks, oil field licenses, oil lifting
  licenses and in all projects for which contract
  is to be awarded in the Nigerian oil and gas
  industry subject to such conditions as may be
  specified by the Minister.
• (ii) First Consideration shall be given by
  operators to Nigerian goods services and the
  Nigerian Content Plan submitted to the board by
  an operator shall contain a detailed plan,
  satisfactory to the board setting out how the
  operator and his contractors intend to achieve
  this (Section 3, 12)

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• (iii) First Consideration shall be given to
  Nigerians for employment and training in any
  project being executed by any operator or project
  promoter in the oil and gas industry. (Section
  28)
•  
• 2. Full and Fair Opportunity All operators and
  alliance partners shall maintain a bidding
  process for acquiring goods and services which
  shall give full and fair opportunity to Nigerian
  indigenous contractors and companies. (Section
  15)
•  
• Employment and Training The plan submitted by
  any operator or project promoter for any project
  shall contain an Employment Training Plan (ET
  Plan) which shall include
• (a) an outline of the
• i) hiring and training needs of the operator or
  project promoter and operators major
  contractors with a breakdown of the skills
  needed,
• ii) anticipated skill shortages in the Nigerian
  labour force,
• iii) project specific requirements and

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• iv) anticipated expenditures that will be made
  directly by the operator in implementing the E
  T Plan as a forecast and actual expenditure
  (Section 29-30)
•  
• 4. Succession Plan For each of its operation,
  the operator shall submit to the board a
  Succession Plan for any position not held by
  Nigerians and the plan shall provide for
  Nigerians to understudy each incumbent expatriate
  for a maximum period of four years at the end of
  that period, the position shall be Nigerianized.
  (Section 31)
•  
• 5. Research Development Plan The operator
  shall submit to the board and update every six
  months, the operators Research and Development
  Plan which shall
• a) outline a revolving three to five year plan
  for all oil and gas related research and
  development initiatives to be undertaken here in
  Nigeria, together with a breakdown of the
  expected expenditures that will be made in
  implementing the RD Plan and
• b) provide for public calls for proposals for
  research and development initiatives associated
  with the operators activities (Section 36-39)

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• 6. Growth of indigenous capacity The Minister
  shall make regulations setting out targets to
  ensure full utilization and steady growth of
  indigenous companies engaged in exploration
  seismic data processing, engineering design,
  reservoir studies, manufacturing and fabrication
  of equipment and other facilities as well as the
  provision of other support services for the
  Nigerian Oil and Gas Industry. (Part 141)
•  
• 7. Registration with Nigerian professional
  bodies The Minister shall make regulations which
  shall require any operator or company or its
  professional employees engaged in the provision
  of engineering services in the industry to be
  registered with the relevant professional bodies
  (Part 142)
•  
• 8. Technology Transfer Each operator shall carry
  out a programme in line with the countrys own
  plans and priorities, to the satisfaction of the
  board to the promotion of technology transfer to
  Nigeria in relation to its oil and gas
  activities. (Section 43-46)

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• 9. Establishment of operation Operators shall be
  required to invest in or set up a factory,
  facility or production units or other operations
  in Nigeria for the production, manufacturing or
  provision of a service otherwise imported into
  Nigeria. (Section 47)
•  
• 10.Welded products All operators, project
  promoters, contractors and any other entity
  engaged in the oil gas industry shall carry out
  all fabrication and welding activities in the
  country. (Section 53)
•  
• 11.Petroleum e-marketplace The board shall
  establish an e-marketplace which shall
• (a) Provide a virtual platform to facilitate the
  transactions required for efficient delivery of
  goods and services in the industry.
• (b) Track and monitor the Nigerian content
  performance of operators, project promoters as
  well as suppliers and service providers with the
  provision of relevant feedback (Section 54)

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• 12.Responsibility to communicate Nigerian content
  policies to contractors Operators shall
  effectively communicate its Nigerian content
  policies and procedures to its contractors and
  subcontractors and to monitor and enforce their
  compliance. (Section 66)
•  
• 13.Nigerian Content Consultative Forum (NCCF) It
  shall be a consultative body set up by the board
  to provide a platform for information sharing and
  collaboration in the industry with respect to
• a) Upcoming projects in the industry
• b) Information on available local capacities
  and
• c) Other policy proposals that may be relevant
  to Nigerian content development.

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• The NCCF shall comprise of key industry
  stakeholders, government and regulatory agencies
  and representatives from the following sectors
  fabrication, engineering, information and
  communication technology, materials and
  manufacturing, petroleum technology association
  of Nigeria, etc. (Section 57-58)
•  
• 14.Nigerian Content Monitoring Board shall make
  procedures that will guide, monitor, coordinate
  and implement the provisions of this act.
•  
• 15.Nigerian Content Development Fund shall be
  established for purposes of funding the
  implementation of Nigerian Content development in
  the industry. (Section 104)

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Impact 1 The NC Monitoring Board
Section
Impact
Description

• Functions range from implementation of the Bill
  to supervision, administration, monitoring,
  institutionalization of procedural guidelines and
  management of the development of Nigerian Content
  in the industry.
• All functions/powers conferred on any agency or
  department to carry out the implementation of
  Nigerian Content Development /policy in the
  industry is hereby transferred to the Board.

• Sec 4, 69 -70
• Sec 106

• The Board shall assume all NCD/NNPC
  responsibilities, in accordance with this
  provision.
• Imposes a whole new layer of requirements and
  administrative controls.
• Reporting requirements significantly increased.
• Significant additional organizational
  requirements and conditions will impact project
  delivery and operations and costs.
• Additionally, there are transition plan and
  timing issues that need to be addressed.
• FGN currently undertaking agencies reforms
  initiatives to streamline contract approval
  processes, improve efficiencies, reduce costs
  etc..

• Affairs of the Board shall be conducted by the
  Governing Council.
• Council shall consist of 9 members Chairman (Min
  of Petr Res representative of NNPC, rep of
  agency in charge of Tech regulation of the
  industry, rep of MPR, rep of PETAN, rep of NCCF,
  rep of COREN, rep of NIC Exec Secretary
  (doubles as Council Secretary).
• The Council shall consult with the Minister in
  making its standing orders.

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Impact 2 First Consideration in all Operations
and Contracts
Impact
Description
Section

• Sec 3(1) (2)

• Nigerian Independent Operators shall be given
  first consideration in award of oil blocks, oil
  fields, oil lifting licenses and in all projects
  for which contract is to be awarded in the
  industry subject to the fulfillment of such
  conditions as may be specified by the Minister.
• Exclusive consideration to Nigerian Indigenous
  Service Companies for contracts on land and swamp.

• This will lead to awards of oil blocks and
  licenses.to more indigenous companies.
• There will also be increase in the demand for
  IOCs to bid through LCVs.
• For the award of contracts on land and swamp, any
  default with this provision could be considered
  an offence under this Act

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Impact 3 Retention of 10 of Revenue in
Nigerian Banks
Impact
Description
Section

• 10 of total revenue means billions of dollars
  available in local banks impacting the inflow of
  foreign direct investment.
• More availability of funds for lending to local
  businesses
• Increased liquidity of local banks will also
  benefit non-oil businesses.

• All Operators, contractors and sub-contractors
  shall maintain bank account (s) in Nigeria in
  which it shall retain a minimum of 10 of its
  total revenue accruing from its Nigerian
  operations (sub-section d).

• Sec 52

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Impact 4 Establishment of Nigerian Content Dev
Fund
Impact
Description
Section

• Sec 107

• 1 levy increases annual costs by hundreds of
  millions of dollars reducing government take
  through taxes and royalty.
• Has potential to cause cost escalations in
  operations.
• This fund is a potential source of funding for
  Capacity building if well managed.

• The sum of 1 of every contract awarded to any
  operator in the upstream sector shall be deducted
  at source and paid into the fund for the purpose
  of funding the development of Nigerian Content
  (sub-section 2).

• This implies that 1 of all Contract values and
  Purchase Orders awarded in any particular year is
  payable to this Fund.

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Impact 5 Minimum Nigerian Content in Projects
(Schedule A)

• The Minister shall conduct a review of Schedule A
  every two years, to ensure a measurable and
  continuous growth in Nigerian Content in the
  industry.

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Impact 6 An Operator is required to invest/set
up facilities for production/manufacturing.
Description
Impact
Section

• The Minister shall make Regulations which will
  require an operator to invest in or set up a
  facility/factory for the production or
  manufacturing or/for providing any services
  otherwise imported into Nigeria.
• Minister shall consult with the relevant arms of
  govt on appropriate fiscal framework tax
  incentives for companies that establish
  facilities, production units, etc in Nigeria for
  production and provision of services goods
  otherwise imported into Nigeria.

• Sec 47
• Sec 48

• Level of exposure and amount of contribution
  unknown and uncapped.
• Investors would be forced into areas of business
  that are not core to their operations a good
  way to generate linkages to non-oil activities .
• Leaves room for negotiations. Appropriate fiscal
  framework tax incentives may render investment
  attractive.

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Impact 7 Prohibition of Importation of Welded
Products
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Impact 8 The Boards Powers to enforce Cabotage
Act
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Impact 9 Penalty for Non-Compliance
Impact
Description
Section

• An operator, contractor or subcontractor who
  carries out any project contrary to the
  provisions of this act, commits an offence and is
  liable upon conviction to a fine of 5 of the
  project sum for each project for which the
  offence is committed and or cancellation of the
  project where applicable .

• 68

• Non-compliance with the provisions of this Bill
  is an offence under this Bill!

• Can failure to obtain approval before
  advertisement trigger off this Clause?
• In the absence of any express indication of which
  body or office will enforce this clause and the
  specific procedure for obtaining a conviction,
  the Board may be the arbiter for cases of
  non-compliance.

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Other Provisions
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Nigerian Content Targets for Services in Schedule
A
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Nigeria Oil Gas Content Act Benefits to the
Nigerian Economy
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Benefits

• Domestication of substantial volume of Industrial
  activities, especially construction of Oil field
  structures.
• Domestication of services to the Oil Gas
  sector, especially Insurance services
• Boost to the Service sector , particularly the
  indigenous companies
• Increased employment opportunities for young
  Nigerians, as engineers, geoscientists, welders,
  fitters, instrumentists..etc
• Increased in-country retention of Oil Industry
  spend and attendant reduction in capital flight
• Increased local capacity building in diverse
  areas , such as, Engineering studies, Seismic
  processing, structural fabrication, welding,
  project management, etc.
• Increased use of local raw materials and finished
  products.

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Nigeria Oil Gas Content Act Challenges
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Challenges

• Capacity building to meet the sudden growth in
  work volumes in-country.
• Finance for local contractors. Cost of borrowing
  makes local contractors less competitive relative
  to foreigners.
• Skills gap necessity to bridge the gap between
  Industry personnel needs and available manpower
• Fiscal support Need to remove laws that make
  local production less competitive than imports
• Quality standards Need for local contractors to
  meet the needs of International oil companies
• Certification Need to have local presence of
  certifying agencies
• Need to build-up Nigerian codes and standards in
  all spheres of Engineering
• Massive retraining of Artisans and
  technicians/technologists to make them acceptable
  for Local/Global Certification.
• Need to re-create our Engineering schools, trade
  centres, polytechnics, etc.

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Nigeria Oil Gas Content Act The Role of COREN
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Role of COREN

• Sec.72(b)(vi) Empowers COREN to nominate a
  representative to the Council of the Nigerian
  Content Monitoring Board
• Sec.49 The Minister shall make regulations
  which shall require any operator or company or
  its professional employees engaged in the
  provision of engineering or other professional
  services in the Nigerian oil gas industry to be
  registered with the relevant professional bodies
  in Nigeria such as COREN.
• Several sections in the law dealing with
  technology issues such as
• Succession planning
• Technology transfers

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Nigeria Oil Gas Content Act Recommendations
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Recommendations to COREN

• Aggressive Registration of all professionals in
  the Industry, will generate funds for the
  Councils professional activities
• CORENs pupilage schemes (SIWES and SITSIE)
  should be re-created and re-invigorated, using
  the provisions in this law for succession
  planning and mentorship
• COREN has a major advocacy role to play on the
  Nigerian Content Board. Its position on the Board
  must be used to the maximum to promote the
  interest of Nigerian professionals
• COREN should work with other professions such as
  Nigerian Content Committee (NSE), to sponsor a
  similar law for other sectors of the economy
  (Power, Telecom construction, Infrastructural
  developmentetc)

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Conclusion

• The Act, though severe, is a welcome development
  in Nigeria
• Efforts need to be put into Capacity building, by
  using the Nigerian Content support fund
  judiciously
• COREN has another profound and important
  instrument for regulating engineering practice in
  Nigeria.

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ANNEX
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Nigerian Content Comparative data
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Defining the right Focus

• Increase in industry spend on community related
  issues did not impact Nigerian Content attainment
  and did little to halt the new wave of militancy
  in the region.

• More jobs created abroad from Nigeria
• oil and gas activities than created in
• Nigeria
• Poor Nigerian GDP growth despite
• heavy expenditure
• Local companies seek subcontracts for
• Nigerian Projects abroad
• Youth restiveness from joblessness
• Insecurity
• Absence of Skills acquisition and
• Technology transfer mechanisms
• Undeveloped industrial infrastructure
• Insufficient opportunity to anchor skills

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Source NNPC-NCD/G.Osahon
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• Thank You