As Nigeria’s oil and gas industry continues to experience many challenges, mainly as a result of the prolonged Coronavirus pandemic, an expert has proposed measures targeted at taking the industry to the next level.

The expert,  Dr. Wisdom Enang, articulated his ideas at the just-concluded 4^th Lawyers in Oil and Gas Conference and Awards, which had ‘Nigeria’s Oil and Gas Future: Law, Policy and Regulation’ as its theme, in Lagos.

In his presentation – the Nigerian Oil and Gas Local Content Policy: Gains, Improvement Opportunities, and Imperatives for the future – Dr. Enang, noted the various positive impacts of Local content, including the rise of crude oil production and exploration through increased indigenous participation; the rising number of fabrication yards; development of two world-class pipe mills: the SCC Pipe Mill, with an installed capacity of 270, 000 MT per annum; and the Yulong Pipe Mill, with the capacity to manufacture 400, 000MT per annum; growth in the number of service companies; rise in the number of rigs and marine vessels owned by Nigerians from 3% to 40% currently, and establishment of the Nigerian Content Development Fund to deepen and expand investment in the industry.

Dr. Enang said: “With Nigerians developing competence in jobs that were the exclusive preserve of expatriates, most of the jobs that were executed outside Nigeria are now being performed by Nigerians and in Nigeria. This has led to the retention of a large chunk of the industry expenditure in-country, with the attendant positive impact on employment generation and growth of Gross Domestic Product (GDP).”

Problems

On problems, he stated: “A notable factor militating against local content development in Nigeria, is insufficient funds for indigenous companies from Nigerian banks (due to the large financing requirements of energy projects) which impede these companies from participating effectively and efficiently. Also, although the local content policy has led to increased opportunities for small and medium-sized enterprises (SMEs) in the industry, and thus resulted in more contract awards in both cases, this cannot yet be considered as a higher SMEs participation, because there are still several bottlenecks to the award of such contracts – such as tedious prequalification and tender processes. Some industry players argue that local content raises project inflation costs sharply. These companies blame such inflation on quota policies without adequate pre-existing networks of suppliers, which often leads to the syndrome of the middleman, in which local importers purchase goods and services from foreign suppliers and resell them locally at higher prices. In such a situation, the local content policy becomes a hidden generator of inflation for the benefit of only a few. Beyond the difficulty in aligning with quotas, companies also struggle to obtain and report local content data from their own suppliers. Other obstacles are a thin industrial base, lack of adequate power, water, and other infrastructure to support an expanded manufacturing base, and an underdeveloped capital market.”

“The issue of non-compliance remains a highly debatable topic, with some schools of thought arguing that some multinationals continue to violate provisions of the Nigerian Content Policy through the use of expatriates from foreign technical centres, who perform job functions that Nigerians have the capacity to execute.”

Recommendation

In order to bring about further development, Dr Enang said: “For the government to achieve the local content target, it must adopt initiatives to create an enabling environment for increased involvement of Nigerians in the oil and gas industry. Such reforms as the Petroleum Industry Bill (PIB), and other relevant legislation, will go a long way in increasing the opportunities and environment that will integrate local players in the oil and gas sector. To achieve full implementation of the local content policy, the government needs to embark on a series of market-oriented policy reforms to integrate the economy towards achieving competitive economic growth and globalization through the use of private sector-led socio-economic initiatives. The government must also encourage industrial development by granting liberal tax incentives and strengthening support for local institutions. The role of the small and medium scale enterprises, in realizing the effective implementation of the Nigerian local content policy cannot be ignored. They need to be encouraged and strengthened in terms of finance and operational regulations, because of the critical role they play in the development of the economy.

“The Nigerian local content policies need to look beyond the simple generation of economic rents, and instead focus on the development of linkages that will endear more growth and economic development of the oil-producing regions and the nation. Enforcing local content depends on the availability of an industrial-supply base that can act as growth levers. The mechanism for enforcement often determines the temper of the law and the behavior of those regulated. The sanctions prescribed under section 68 of the Nigerian Oil and Gas Industry Content Development Act 2010 are criminal in nature. The section describes breach of the Act as an offense punishable upon conviction by fine or project cancellation. The implication of this provision is that the penalties stipulated can only kick in after conviction by a court of competent jurisdiction, based on strict rules of evidence and proof beyond a reasonable doubt. Considering criminal law remedies are hard to obtain, this provision may constitute a bottleneck to the implementation of the act in some cases. The adoption of administrative penalties as against criminal penalties is however recommended, as the former demands lots of evidence to nail violators of the act. Additionally, a sensible combination of the administrative and criminal penalty will engender better compliance, cooperation, and timely rectification by the regulated community.

“A strategic approach to local content also requires realistic targets that contribute to lasting benefits in the long term, as well as clearly defined yardsticks to measure agreed local-content benchmarks by government. Targets that are beyond the existing capacity of local industry or the absorptive capacity of particular assets may create inefficiencies which result in higher costs, lower government revenues, and less competition.

“Monitoring and transparent reporting remain a key imperative in actualizing the goals of the Nigerian Local Content Policy. This requires the development of appropriate structures and frameworks on the ground to monitor and transparently report the implementation of policies related to local content. Consistency of implementation is another noteworthy imperative.

“The Nigerian Content Development Fund established by the Act and managed by the Board should extend its hand to bailing out indigenous companies by operating a kind of revolving loan to indigenous companies to enable them to actively participate in the oil and gas sector of the Nigerian economy. For example, the Local Content Fund should be widely accessible to more local contractors who win bids but do not have the upfront mobilization to execute the projects – this can otherwise lend towards some ending up in debt or losing the contract entirely. Such funds could be made available under contractor finance schemes, and favorable term loans for equipment acquisition.”

Dr. Enang also disclosed, “need for a private-public partnership to reinforce the implementation of human capital development through the constant acquisition of skills and technical know-how. The Nigerian Content Research and Development Fund is a good starting point that can advance skills acquisition; however, the expertise of a broad range of research-intensive private and public universities should be actively leveraged to its maximum potential.”

Future

Dr. Wisdom Enang, who painted the future picture of the Nigerian oil and gas industry, said: “Achieving the goals of the Nigerian Local Content Policy would further help in the domestication of petroleum refining; domiciliation of manufacturing of industry requirements; extraction of value from gas; and positioning Nigerian operators and service providers at the fore-front of play in the upstream, midstream, and downstream sectors of the industry.

“In a bid to extend the scope of the Nigerian Local Content Policy beyond the Oil and Gas sector, to other critical sectors of the Nigerian economy, a Bill has been proposed for an Act to repeal the Nigerian Oil and Gas Industry Content Development Act (NOGICDA) and enact the Nigerian Content Development and Enforcement Act. The new bill will see the spread of the local content policy beyond oil and gas to other sectors: Information and Communications Technology, Power, Solid Minerals, and Construction.

“The scope of influence of the NCDMB within and beyond the Oil and Gas sector is only expected to increase significantly. For example, through the use of the Nigerian Content Development Fund, the NCDMB is partnering with a gas production and manufacturing company for the establishment of a 400,000 per annum Type 3 LPG composite cylinder manufacturing plant in Polaku, Bayelsa State. This is in line with its resolve to develop facilities that will improve Nigeria’s ability to meet domestic gas demand. The NCDMB will also be partnering with the OPTS (Oil Producers Trade Section) to develop marine standards for the vessels that operate in the Nigerian oil and gas industry. The standards, which will be applied in marine tenders, will state uniform technical specifications that the marine vessels must meet to be eligible to operate in the industry.”

However, he added that “actualizing the goals of the Nigerian local content policy cannot be at the expense of quality. As such, indigenous companies must continue to invest in improving the quality of their products and services, and deliver the same to the Nigerian market at competitive prices.”