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Local Content Policy And Its Implication for Nigeria

June 8, 2010.

LOCAL CONTENT POLICY AND ITS IMPLICATION FOR NIGERIA

By Innocent I. Edemhanria

 

To assuage the strong concerns of oil producing communities in Nigeria’s oil rich Niger Delta, the administration of former President Olusegun Obasanjo initiated the Local Content Policy for Nigeria to increase local capacity and participation in the petroleum industry. The Obasanjo government needed to achieve the objective by ensuring that a substantial portion of the activities in the oil and gas sector, which is the mainstay of Nigerian economy, were carried out in the country by Nigerian companies and Nigerian workers. 

As it is currently, more than 70 percent of the jobs in the oil and gas sector are still carried out by foreigners, an action, which is contrary to the local content policy of the Nigerian government. At a time, stakeholders in the industry argued that government was not serious in attempting to stop this act of 'cheating', as it could not lobby the National Assembly to sign the Local Content Bill into law. Many described it as an aberration that such a bill that is geared towards improving indigenous participation in the oil and gas industry, after many years that it was initiated, has not been passed into law.

 Even the Nigerian National Petroleum Corporation (NNPC) at a point warned that it will no longer be acceptable for oil companies that operate in Nigeria and derive enormous revenue from the country to hide under convenient excuses to export Rig Shipyard/Shut-down Repairs & Maintenance to other countries, a threat which the oil companies did not take seriously as they continued to take the bulk of their works to foreign countries, because they have no confident in the ability of Nigerian companies to handle such jobs. Experts in the industry estimate that Nigerian content in the oil and gas sector is around 40%, which indicate that most white-collar jobs such as engineering, material and maintenance work are provided by foreign workers and overseas suppliers. The trust of the Nigerian Content Policy is to promote value addition to the local economy, increase local participation, build local capacity on the back of ongoing projects and generally increase linkage to other sectors of the National economy to grow local content by 70%.

Unfortunately, this noble dream of having the local content bill signed into law and implemented could not be achieved during Obasanjo’s administration. The administration of Goodluck Jonathan saw the eventual passage of the bill which was then signed into law on Thursday April 22nd 2010 while in acting capacity. President Jonathan, hoped that this new law will help provide domestic job growth to Nigeria’s 140 million citizens who have seen little tangible benefit in their daily lives in the five decades since oil was first discovered. Stakeholders in the oil and gas sector immediately hailed the development as a great day for the industry as it would create many jobs among other forms of empowerment for indigenous personnel and operators. In fact, the Minister of Petroleum Resources Mrs. Diezani Alison-Madueke reportedly said the bill has the potential of generating over 30,000 jobs in the next five years. If this is achieved, then the unemployment situation in Nigeria would improve marginally.

Beyond the issue of job creation, the law also has far reaching implications for technological advancement, long term cost effectiveness, post amnesty programme in the Niger Delta and the improved impact of oil and gas industry on Nigeria’s Gross Domestic Product. The bill which was sponsored by Senator Lee Maebe, made clear provisions for exclusive consideration of Nigerian indigenous service companies which demonstrate ownership of equipment, Nigerian personnel and capacity to execute jobs. And as such, all regulatory authorities, operators, contractors, sub-contractors, alliance partners and other entities involved in the project, operation, activity or transaction in the industry shall consider Nigerian content as an important element of their overall project development and management philosophy for project execution.

The bill also provides that every multinational oil company operating in Nigeria must domicile a minimum of 10% of its annual profit in Nigerian banks, which means that Nigerian banks will have more money to fund investment in the country. Nigerian insurance companies must do all aspect of insurance in the oil and gas sector except in the opinion of the Nigerian Insurance Commission, the capacity of Nigerian companies have been exhausted. Nigerian companies must also do all issues of legal services and every company doing project in a community must establish in that community.

The Act will also create special fund into, which one percent of every contract awarded in Nigeria’s oil and gas sector shall be paid for the purpose of building capacity and capability in the sector. This provision is meant to take care of funding local capacity building to ensure that greater percentage of the projects in the industry are done in Nigeria by Nigerians. Also at least 50% of the asset of any company seeking to execute oil and gas contract in Nigeria must be domicile in Nigeria. This is to ensure that a large chunk of the payment for the contract is domicile in Nigeria.

Under the Act as well, Nigerians shall be given first consideration in the award of oil blocks, oil field licenses, oil lifting license and shipping service and all project for which contracts are to be awarded in the industry; subject to the fulfillment of such conditions as may be specified by the Petroleum Minister; and there shall be exclusive consideration for Nigerian indigenous services. It will also check a situation where jobs are given to unqualified personnel just because they are Nigerians, it will be appropriate to give such jobs to qualified foreigner who can satisfactorily execute the jobs.

At this point, let me be quick to note that it was difficult to enforce the Nigerian Local Content Policy as defaulters could not be sanctioned without the law in place, for this reason, Nigerian government has taken the right step in putting in place a law and measures that will compel multinationals and the Nigerian people to obey in its totality the content of the Act.

A critical challenge to the realization of the objectives of the local content law is the absence of a functional steel mill and sustainable power to support the fabrication. Today, Nigeria does not have a functional steel mill; the Delta Steel Company, Aladja, and Adjaokuta Steel Rolling Mill are both in comatose conditions. As 85% of the oil industry project activities revolve around the steel industry, it may be difficult to realize government’s target in the local content policy, if the issue of local production of steel and electricity are not urgently addressed. Thank God, now that President Goodluck Jonathan has decided to double as Minister for power, in order to personally handle the necessary issues in the sector. He must ensure that all necessary arrangements are put in place to restore the lost glory of the power sector in Nigeria.   

Besides, for such an important policy to succeed, government should partner with key stakeholders including civil society to monitor its implementation. Nigerians are in a hurry to see the enforcement of Local Content Act so that the Niger Delta people and Nigerians in general will reap the attendant benefits.  

·         Mr. Innocent Edemhanria is a Programme Officer with Africa Network for Environment and Economic Justice (ANEEJ).