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GLOBAL LOCAL CONTENT SUMMIT 2009. LOCAL CONTENT POLICY IMPLEMENTATION - A NIGERIAN PERSPECTIVE A Presentation by Olawale Akoni SAN Managing Partner Babalakin & Co. www.babalakinandco.com. OUTLINE. Introduction Nigerian Local Content Policy Thrust Policy Objectives

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global local content summit 2009

GLOBAL LOCAL CONTENT SUMMIT 2009

LOCAL CONTENT POLICY IMPLEMENTATION - A NIGERIAN PERSPECTIVE

A Presentation by Olawale Akoni SAN

Managing Partner Babalakin & Co.

www.babalakinandco.com

outline
OUTLINE
  • Introduction
  • Nigerian Local Content Policy Thrust
  • Policy Objectives
  • Existing Legal Framework
  • NOGIC and the PIB
  • Implementation Challenges
  • National Content in other jurisdictions
  • Recommendations
  • Conclusion
introduction
Introduction

Government’s interest in developing indigenous manpower and encouraged patronage of locally manufactured goods and services dates back to the enactment of the Petroleum Act 1969. This was followed by the Government’s Policy on same which was drawn up in 2004 thus making it clear that the concept is not nouvelle in any way. The challenge for us lies with the actual implementation of LC due to the absence of the proper framework and the “will power” as both appear to elude us as a nation.

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This presentation will examine Government’s policy on developing LC and the existing framework for implementing the policy within the Nigerian Oil and Gas Industry. We would also discuss the existing and proposed legislations which forms the legal framework for LC and some of the concerns mitigating against attaining the desired objectives.

defining local content lc
Defining Local Content (LC)

LC has been defined as the quantum of composite value added or created in the Nigerian economy through the utilisation of Nigerian human and material resources for the provision of goods and services to the petroleum industry within acceptable quality, health, safety and environmental standards in order to stimulate the development of indigenous capabilities*

*Synchronized Report on Enhancement of Local Content in the Upstream Sector of the Oil and Gas Industry n Nigeria

the lc policy
The LC Policy

The Government’s LC policy was launched in 2005 with the following objectives:

  • Increased participation of Nigerians in the oil and gas industry
  • Encourage utilization of local raw materials and services
  • Reduction in the number of expatriate staff of industry operators
  • Capacity building through the development of local expertise
  • Gradual increase in revenue accruable to Nigerians from the oil industry
  • Achievement of 70 per cent local content implementation by 2010
policy thrust
Policy Thrust

The LC policy seeks to put in place a framework that would guarantee active participation of Nigerians in Oil and Gas operations without compromising standards in order to stimulate steady and substantial development of indigenous capacity.

It also seeks to add value to indigenously manufactured goods and services as well as locally sourced raw materials by encouraging maximum utilisation of local raw materials and human resources in the manufacturing goods and provision of services within the Petroleum industry.

The overall aim is to promote steady measurable and sustainable growth of Nigerian Content.

efforts at implementing the policy
Efforts at Implementing the Policy

Further to the introduction of the LC policy, there was a need to set up both organizational and legal frameworks which would serve as drivers of LC development in line with the set objectives.

Organizational framework - A Nigerian Content Division (“NCD”) was set up in March 2005. Upon creation, the NCD was placed under the supervision of the NNPC GMD's office. A Nigerian Content Consultative Forum (NCCF) was also inaugurated with Committees covering Fabrication, Engineering, Manufacturing, Banking & Insurance, Shipping & Marine, Well & Drilling as well as Logistics services.

The NCD has been active in:

  • Measuring growth in LC implementation
  • Managing indigenous skills and capacity development
  • Monitoring compliance through consistent interactions with the LC units of industry operators
  • Developing strategies for Capacity building and improved competency of indigenous labour.
efforts at implementing the policy1
Efforts at Implementing the Policy

Legal framework - Beyond the organizational framework, legislative efforts have also been made towards achieving Government’s set objectives in respect of LC. First was the Nigerian Oil and Gas Industry Content Development Bill (“NOGIC”) which was proposed in 2006 with emphasis on providing legal backing for the LC policy. The Bill has seen been passed by the Senate and the House of Representatives has since sent its final report on the Bill to the Committee of the whole House. It is hoped that the Bill will soon be passed into law.

There has also been an effort of Government to consolidate all Petroleum Industry related legislations into a single industry specific law, (the Petroleum Industry Bill) which is presently before the Nigerian National Assembly. Since LC is an integral part of the industry, the PIB also contains LC provisions.

nogic and the pib
NOGIC and the PIB
  • The NOGIC is a sector specific Bill to provide for the development of Nigerian content in the Oil and Gas Industry through the provision of a Nigerian Content plan, and the supervision, coordination, monitoring and implementation of the Nigerian Content Policy. The NOGIC repeals the provisions of the Petroleum Act which relates to LC and any other enactment contrary to its provisions.
  • The PIB was introduced in an effort to establish a legal and regulatory framework and set standards for operators within the Nigerian petroleum industry. It is LC inclusive with one of its parts providing for LC whilst considering existing and future legislations in respect of same.
comparing nogic and pib
Comparing NOGIC and PIB

Whilst both Bills recognise the importance of LC, there appears to be certain variations in the mode of implementation and set standards in achieving the policy objectives.

Definition – There is a concurrence on what LC represents as the PIB borrows the definition provided by NOGIC.

In a bid to show how both laws have sought to advance the implementation of the LC policy, we shall examine the relevant provisions on the following areas:

National Content Plan

Process for the bidding and award of licenses

Quotas

implementation challenges
Implementation Challenges

Concerns on the success or otherwise of the LC drive centers around the policy implementation and the challenges which may be faced by both the institutions and the laws.

Some of the perceived challenges are:

  • Inadequate indigenous capacity - manpower, skills and technical know-how
  • Absence of the relevant legislations to give implementation required backing
  • Quality - Keeping up with standards which are to be in harmony with international norms
  • Transparency and sincerity of the operators in support the LC drive
  • Funding – Indigenous companies have limited access to international finance.
  • Indifference of the Regulators
  • Security issues
    • Niger Delta unrest
    • Corporate Social Responsibility
implementation of lc in other jurisdictions
Implementation of LC in other jurisdictions

Norway

The Norwegian Government introduced policies to establish a preference for Norwegian goods and services, technology transfer and research cooperation.

The Ministry of Industry established a Goods and Services Office (GSO) to act as a watchdog agency monitoring the IOCs’ contracting and procurement procedures.

The GSO was also responsible for stimulating the local supply industry through joint ventures and targets were set for local participation that were monitored and reviewed.

Over the years, the Norwegian LC implementation has become a model for other oil producing countries.

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United Kingdom

Following the an increase in oil prices in the early 70’s British authorities encouraged more UK companies to engage in oil operations and this led to the establishment of the Offshore Supply Office to assist UK firms gain a large share of the petroleum supply and the service market.

By the 1990s the UK’s focus changed from increasing local content to supporting UK service companies develop export markets thus taking LC to a higher pedestal.

The Government also established the Oil and Gas Industry Task Force (OGITF) with the mandate to keep the UK’s energy service and supplies industry highly competitive. The support given by the UK Government to its service companies has resulted in the companies developing into first class global companies.

recommendations
Recommendations
  • Swift passage of the relevant laws
  • Increased interest of all stakeholders as Government cannot achieve desired success by itself
  • Efficiency of regulators
  • Resolution of the Niger Delta crisis in order to encourage indigenous investors and guarantee security of investments.
  • Establishment of training programs to develop capacity
  • Increased support for the growth of indigenous companies especially in the area of funding and technology acquisition