Analysis: Assessing the Nine Years Implementation of NOGICD Act

Nigerian Oil and Gas Industry Content Development (NOGICD) Act

By Ikenna Omeje

He began his career with Shell Petroleum Development Company (SPDC) in 1995 and later joined BJ Services two years after. He worked with BJ Services for over 12 years, rising to the position of a Country Manager for the pipeline services from 2001 to 2009.

Engr. Obidike Nelson Uzu is a Petroleum engineer and an administrator. Following the enactment of the Local Content Law in the Nigerian oil and gas industry in 2010, he established   Global Process & Pipeline Services Limited with the aim to take advantage of the opportunities he believed the law would create for Nigerians. Hear him: ” After the enactment of the Local Content Law  2010, I realized that it was going to create a big opportunity for local participation, hence I  took that positive initiative to start Global Process & Pipeline Services even when the company barely had anything to leverage on as an asset.”

Speaking on the extent to which the Act has helped his company, he says,” Before now we were not even given the opportunity to come close to the door not to talk of competing. Nobody would have recognized that we can do this. The Local Content Act has given us the opportunity to say that we can.” He thinks that what his company and other Nigerian service Companies are doing within the oil and gas industry now, may not have been possible 20 years ago, but for the Local Content law.GPPS was awarded early this year in Abuja as the best pipeline servicing company in Nigeria at the 2019 Nigerian International Petroleum Summit (NIPS). This is just one of the ‘miracles’ of the Nigerian Oil and Gas Industry Content Development (NOGICD) Act.

In the past nine years following the enactment of the NOGICD Act, numerous opportunities have been created for Nigerians in the oil and gas space, resulting in an increase in human capacity development, retention of capital in-country, and job creation, especially for the teeming youth population in the country.   

Prior to the enactment of the Act in 2010, the Nigerian oil industry was literary the exclusive preserve of the International Oil Companies (IOCs) and other foreign companies in areas ranging from exploration and production, trading as well as service operations.

According to reports in 2008, even though the oil and gas industry accounted for 90 percent of the country’s revenue, it contributed less than 38 percent to the Nation’s Gross Domestic Product (GDP). This was because of the absence of local capacity in the industry, which made it difficult for the country to retain a significant percentage of about $18 billion, as of then, yearly average industry spend. Most of the local strategic positions were largely dominated by expatriates. As a result, most of the industry’s lucrative contracts were carried out in foreign fabrication yards, ultimately leading to adverse effects on labor creation and the growth of the domestic economy as a whole.

The Central Bank of Nigeria (CBN) 2011 Annual Report of Sectoral Contribution to Growth Rates of GDP at 1990 Constant Basic Prices, shows that crude oil contributed -0.1, -0.9, 0.1, 0.8, and -0.1 to the GDP in 2007, 2008, 2009, 2010 and 2011 respectively.

Efforts by previous administrations to introduce local content policies had challenges largely because of the absence of an appropriate legal framework to drive such policies. It was in a bid to address these challenges that the 2010 NOGICD Act was signed into law on April 22nd 2010, with the aim to increase indigenous participation in the oil and gas industry by prescribing minimum thresholds for the use of local services and materials and promote the transfer of technology and skill to Nigerian labor in the industry.

The Executive Secretary of Nigerian Content Development and Monitoring Board (NCDMB), Engr. Simbi Wabote captures it this way: ” Before the enactment of the Nigerian Oil and Gas Industry Content Development Act, all fabrication, engineering, and procurement were done abroad, resulting in the estimated capital flight of US$380 billion and over two million jobs lost in 50 years of our hydrocarbon history. Our vigorous implementation of the Act has reversed the trend: from less than five percent in-country value retention in 2010 to 28 percent, marked by a seismic shift from negligible local Content activity in earlier deepwater projects to over 60 percent domestication and domiciliation of work and services in Egina.”

Key Components of the Act
Section 1 and 2 of the Act state: “Notwithstanding anything to the contrary contained in the Petroleum Act or in any other enactment or law, the provisions of this Act shall apply to all matters pertaining to Nigerian content in respect of all operations or transactions carried out in or connected with the Nigerian oil and gas industry.

“All regulatory authorities, operators, contractors, subcontractors, 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.”Section 3 (1) states that local oil and gas companies in the country will be given first consideration in the award of oil blocks, oilfield licenses, and in all projects. In section 3 (2),  it says that Nigerian service companies that demonstrate ownership of equipment,  have Nigerian dominated workforce and the capacity to execute projects, will be given exclusive consideration in the award of contracts.

Section 3(3) notes that compliance to the Act will be the primary criteria for the award of licenses, permits and bidding for exploration, production, transportation, and development in the country’s oil and gas industry.
“3.-(1) Nigerian independent operators shall be given first consideration in the award of oil blocks, oil field licences, oil lifting licenses and in all projects for which contract is to be awarded in the Nigerian oil and gas industry subject to the fulfillment of such conditions as may be specified by the Minister.

“(2) There shall be exclusive consideration to Nigerian indigenous service companies which demonstrate ownership of equipment, Nigerian personnel and capacity to execute such work to bid on land and swamp operating areas of the Nigerian oil and gas industry for contracts and services contained in the Schedule to this Act.

“(3) Compliance with the provisions of this Act and promotion of Nigerian content development shall be a major criterion for the award of licenses, permits and any other interest in bidding for Oil exploration, production, transportation, and development, or any other operations in Nigerian Oil and Gas industry,” the Act reads.

According to Section 7, “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 (“the Plan”) to the Board demonstrating compliance with the Nigerian content requirements of this Act.”In the last nine years, the vigorous efforts of NCDMB to ensure regimented compliance to the Act by companies through rigorous implementation of the Act has in no small measure led to an economic revolution in the Nigerian oil and gas industry.

Major Challenges of the Act
According to Jean Balouga, an energy economist, in his academic paper, “Nigerian Local Content: Challenges and Prospects”,  Nigerian banks do not have the required capacity to energy financing.”Nigerian banks lack the financial base to make any meaningful impact on local content development. The biggest Nigerian banks are tiny banks when it comes to energy financing. Most Nigerian banks operate in dilemma-laden territory as most indigenous contractors have no proper business structure. Others are not really in the business because more often than not the person who gets the contract is not the one looking for finance. Other obstacles are a thin industrial base, lack of adequate power, water, and other infrastructure to support an expanded manufacturing base, lack of small and medium-sized enterprises and an underdeveloped capital market”

He adds that “Other problems of local companies revolve around executive capacity and critical mass with technical and financial wherewithal. Generally, most local companies are small, fragmented and incapable of packaging or attracting loans. Few of them can deliver turnkey projects without resorting to some form of partner�ship agreement for equipment, expertise or technical support. 

“There exists the so-called “Knowing-Doing Gap” in Nigeria, that is the disconnect that exists between policy formulation and policy implementation. This term describes the absence of a critical link between strategy and action. Public policy initiatives and actions in Nigeria have persistently been incapacitated by this gap, with many government programs and projects ending in downright failure. Inadequate think through, weak institutional capacity, lack of political will to carry through change, inconsistency in govern�ment policies, lack of support from relevant stakeholders, and corruption are some of the causes of this gap.” Although, a lot has changed positively between 2012 when this article was published by the International Association for Energy Economics and now.

Expressing his view on the enforcement mechanism of the Act, a Petroleum Tax and Fiscal Systems Specialist, Bar. Naboth Onyesoh,  in one of his articles, is of the opinion that enforcement mechanism is essential and suggests the adoption of administrative penalty as against the current criminal penalty as stipulated in Section 68 of the Act. He describes the criminal penalty as a lengthy exercise that demands lots of evidence to nail violators of the Act.

In his words: “Enforcement is an essential component of regulatory function. The mechanism for enforcement determines the temper of law and the behavior of those regulated. Legal enforcement is either criminal or civil or a combination of the two. Regulatory sanctions are, therefore, divided into criminal penalties or administrative (civil) penalties.

“The sanctions prescribed under section 68 of the Nigerian Oil and Gas Industry Content Development Act 2010 (‘the Act”) are criminal in nature. The section describes breach of the Act as an offense punishable upon conviction by fine or project cancellation. That’s a problem.

“Depicting breach of the Act as an offense is troubling and gives multiple reasons to be concerned. First, the implication is that the penalties stipulated thereunder can only kick in after conviction. Yes, conviction by a court of competent jurisdiction based on strict rules of evidence and proof beyond reasonable doubts. Thus, criminal law remedies are hard to obtain. They entail diligent prosecution, high evidentiary requirements and strict proof with presumption of innocence in favour of the alleged offender.”
In  recent years,  administrative penalty has become very popular among countries in the developed world. For instance, Canada chose administrative monetary penalty (AMP) to drive its Smart Regulation Initiative. Other countries like Australia, Germany, Netherlands and the United States have adopted administrative monetary penalties because it’s more beneficial than criminal penalty. Also, in the United Kingdom and the Flemish region, which used to rely solely on criminal penalty to enforce environmental regulations, have since  2009 adopted the use of administrative fines to complement criminal penalties.

Onyesoh, however, notes that administrative fines are not new in Nigeria, using sections 15 & 16 of Nigerian Communications (Enforcement Regulation) 2004 made pursuant to section 70 (1) (c) & (e) of the Nigerian Communications Act 2003, which gives the Commission the power to impose monetary penalties on erring operators as an example. According to him, the same is true of section 6 (2) & (3) of the National Oil Spills Detection and Response Agency (Establishment) Act 2005, which allows NOSDRA to impose monetary penalties for specified environmental infractions and omissions. The Civil Aviation Act gives similar power to the Nigerian Civil Aviation Authority (NCAA) under section 27 (1) – (3). 
In his argument for a review of Section 68 of the Act, Onyesoh says,”The point is that criminal penalty is severely limited. It is incapable of providing efficient and effective enforcement of Nigerian content requirements. This is the reason to rethink the current enforcement mechanism under the Act, now that it is up for review. The proposal is for the National Assembly to insert a new clause after section 68 or a subsection empowering NCDMB to make regulations to sanction infractions (e.g. failure to obtain approvals, failure to remit NCDF levy, expatriate quota breaches, failure to make statutory returns, etc.), through administrative fines. The extreme sanction of project cancellation might still be left for judicial conviction. It is submitted that a sensible combination of administrative and criminal penalty will engender better compliance, cooperation and timely rectification by the regulated community.”
Also, some indigenous players in oil and gas industry have pointed out  that the Law has not checked the issue of rate discrimination in the industry.
According to them, when Nigerian companies bid for jobs, the International Oil Companies (IOCs) expect that they should be charging very low, but the  foreign players like engineers bidding for such contracts be demanding four times more than what the Nigerian engineer is being paid, and the IOCs would oblige this request, which when they question why, IOCs say is because they are expatriates.
In the area of capacity, training and development, many operating and service companies still apply for substantial expatriate quota approvals from the NCDMB, claiming that requisite capacities are not available in-country. Also, many of these companies keep sending their staff overseas for routine trainings, a situation which the President, Oil and Gas Trainers Association of Nigeria (OGTAN), Dr. Mayowa Afe, described  as an indictment on Nigeria as a country in an interview with Local Content Digest, a quarterly magazine of the NCDMB.
“It is an indictment on Nigeria as a country. Take , for example, a Nigerian company with a Nigerian instructor going to Dubai to train. Is that a foreign training or indictment of our members? No! Many workers prefer overseas training because of the estacode and shopping and not because of any additional training they will get.” He added,”Our regulatory framework has to be strengthened to monitor this Act.”

Perspectives of Industry Players on the Act
Giving his assessment of the Act, the Chief Executive officer of Oilserv Group, Engr. Emeka  Okwuosa is of the view that the Act has helped to institutionalise the development of Sustainable local capacity, but emphasises the need for NCDMB to address the issue of contract awards to companies without capacity.Hear him: ” Overall, I would say the Nigerian Content Law has helped to institutionalise the development of Sustainable local capacity in the oil and gas industry. 
“However, there is need to address the issues bordering on briefcase contractors who hide  under the Local Content Law to harass fully . Nigerian companies that have built capacity. This harassment sometimes comes in the form of attempting to force wholly Nigerian companies to use their services even though these companies have full internal capacity to execute such scopes.”On her part, the Chief Executivr Officer of  Lagos Deep Offshore Logistics (LADOL) base, Dr. Amy Jadesimi, believes that the Act has led to a revolution in the oil and gas industry in Nigeria, but points out the importance of spreading it beyond petroleum sector.
“I think that the Local Content Act has already changed the landscape for the oil and gas industry and it had such a positive impact. One of the first things we need to look at is how to spread that beyond the petroleum sector to other sectors; to the manufacturing sector, the technology sector, the fine art sector. The benefits of local content when it’s properly applied and strictly enforced to the economy, are second to none. In other words, having correct local content could push economy into the G-29 just as it did for Brazil,” she said recently in an exclusive interview with Majorwaves Energy Report.
The Chief Executive Officer of Solewant Group, a pipe/metals fabrication and coating company, Mr. Solomon Ewanehi, thinks NCDMB should increase the level of awareness regarding the Act to improve on it’s implementation.
“Well, so far so good. However, improvements will come as more awareness is created. Indeed the Act came into existence some nine years ago, but not many of the players in the industry are aware of the full provisions. Awareness is a key component to improving the implementation of the Act by the NCDMB,” he says while sharing his thoughts.Leading her voice to the nine years implementation of the Act, the Chief Operating Officer, MicCom Cables and Wires, Mrs. Bokola Adubi, says that the Act has given Nigerians immeasurable advantage and leverage.
In her words: ” The Local Content Act is probably one of the best decisions our legislature has taken on behalf of the country in the last few years. It would appear like that tiny piece of law was enacted for companies such as ours. To help help us Garner in-road into an otherwise very difficult industry to enter into. Today, the advantage and leverage we have through this law has been immeasurable.”
Giving his perspective on the Act at the 2018 Practical Nigerian Conference (PCN) held in Yenagoa, Bayelsa State, the Chairman, Petroleum Technology Association of Nigeria (PETAN), Engr. Bank-Anthony Okoroafor gave some wow statistics to point out how impactful the implementation of the Act has had in the service end of the Nigerian oil and gas industry.
“Before the Nigerian Content Act, we had 27 service companies operating in Nigeria. At Last count, there were 287 service companies operating in Nigeria,” he said. He noted that the implementation of the Act has led to a remarkable growth in the number of goods sourced in-country and has contributed to an increase in the training of Nigerians on the back of major oil and gas projects.
“When Usan deep water project was done, in-country training was 150,000 man-hours. With Egina, it was 450,000 man-hours. In Engineering, Usan recorded 40,000 man-hours but Egina had 1.167 million man-hours and we saw collaborations between Nigerian companies – NETCO, IESL and Delta Afrik,” he said.

Way Forward
NCDMB must find a way to address  issues surrounding access to fund. Most Nigerian companies do not have the financial muscle to fund big contract. To this end, effort should be made to address financial challenges they face in trying to execute projects by reviewing Section 101 of the Act upward. This will ensure that NCDMB have enough fund to grant credit to these companies. Section 104 (1-3) states: “A Fund to be known as the Nigerian Content Development Fund (the “Fund”) is established for purposes of funding the implementation of Nigerian content development in the Nigeria oil and gas industry. 
“(2) The sum of one per cent of every contract awarded to any operator, contractor, subcontractor, alliance partner or any other entity involved in any project, operation, activity or transaction in the upstream sector of the Nigeria oil and gas industry shall be deducted at source and paid into the Fund. 
“(3) The Fund shall be managed by the Nigerian Content Development Board and employed for projects, programmes, and activities directed at increasing Nigerian content in the oil and gas industry.”

Going by the capital intensive nature of executing contracts and investing in the oil and gas industry, the one percent deduction according to the Act is no longer realistic, which is why NCDMB as not just a regulatory body, but also an intervention body, should sponsor a bill to amend Section 104.
It is also important for the NCDMB to partner with the Central Bank of Nigeria to ensure that Nigerian banks begin to engage in long term financing of projects in oil and gas industry. This will help indigenous exploration and production companies not to lose their licences due to their inability to develop their fields.

Speaking on the challenges of indigenous E&P companies in this regard, the Head, Energy Covering Downstream and International Oil  Trading  within Corporate Banking Directorate, First Bank of Nigeria, Oluwatoyin Aina says,” Hedging is a major requirement for most Reserve Based Lending financing as it provides a buffer to falling prices. Commercial banks generally are not positioned to take exploration risk due to the nature of our foreign currency capital which isn’t long term . Our long term financing are usually in local currency. For foreign currencies, banks borrow the funds at an expensive cost and the tenure is usually short.”
She admonished local E&P companies in the country to look outside of Nigeria while seeking credit facility to fund their projects, like targeting African Finance Corporation (AFC) and International Finance Corporation (IFC) for fund.

However, the recent pledge to amend the NOGICD Act by the Chairman of the House of Representatives Committee on Nigerian Content Development and Monitoring,  Rt. Honorable Legor Idagbo at the  inaugural meeting of the Committee  with the NCDMB held at the National Assembly recently if fulfilled,  will help the country a great deal in addressing some of the challenges confronting the implementation of the Act.

In 2017, NCDMB launched a 10-year roadmap aimed at domiciliating skills and competence in the Nigerian oil and gas industry up to 70 percent by 2027. Speaking at a summit in the twilight of 2018, Wabote said,” We are determined to grow Nigerian content to 70 percent within 10 years. The target includes generating 300,000 jobs, retain $14 billion in-country from the industry’s annual spend, engender manufacturing and increase oil and gas contribution to the the nation’s GDP.” The annual spend in the industry is currently about $20 billion.

To achieve this noble target, the Board in the Q2 of 2018 embarked on fostering collaborations and synergies critical to the realization of the 10-year rolling plan. The most fundamental of the collaborations was the one with the Nigerian Stock Exchange (NSE), in which the Board advocated for a shift in the listing of companies on the Exchange. The Board advocated listing by upstream and midstream oil and gas companies to add more value to the country’s hydrocarbon resources in-country.

Speaking on the advocacy, Wabote said,” No doubt, the listing of upstream companies, refineries, petrochemical industries, fertilizer companies and allied firms in the LPG/CNG value chain on the Exchange will spur cross-sectorial linkage and economic buoyancy.”

It is also important for the Board to take the issue of Skill Gap Audit seriously. The current efforts by OGTAN, with support of the NCDMB, in championing a Data Gathering Strategy and Categorisation of OGTAN members outside the proposed NOGOS effort, is a welcome development and should be sustained. Speaking on this, Dr. Afe says,” This will help to identify these seemingly non-existent capacities and equip Nigerians with the skills”  adding that,” It will further provide a veritable Skills Gap Analysis and Needs Assessment Plan.”

To a large extent, the implementation of the Act has helped the country to build capacity in various areas in the industry, increase  retention of annual industry spend to about 30 percent and led to creation of jobs. It can be better if the scope of the plan amendment of the Act as Hon. Idagbo said at the House Committee inaugural meeting with NCDMB, is expanded  to cover other sectors. This will ensure that Executive Order 5 yields the desired fruit and help the country to build capacity that will ensure the overall development of Nigeria.

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