Peter Uzoho writes on the need to reconsider the amendment of the Nigerian Oil and Gas Industry Content Development bill
Oil is the lifeblood of any industrialised nation. It is a major source of energy in Nigeria and the world in general. Oil is the commodity that greases the global economy. Without it most industrialised nations and their economies do not function.
The federal government, in recognition of the importance of oil in Nigeria’s economic growth, adopted the local content policy in the oil and gas industry to increase participation of indigenous oil firms in the supply chain to improve backward linkage development and also create more employment opportunities for the local workforce.
Consequently, the Nigerian Oil and Gas Industry Content Development (NOGICD) Bill was signed into law in 2010.
The implementation of the NOGICD Act 2010 has to a very large extent significantly changed the business and operating structure in the Nigerian oil and gas industry, resulting in development of capacity and capabilities through utilisation of Nigerian human, material resources and services.
But despite the successes arising from the implementation of the NOGICD Act 2010, the National Assembly recently embarked on a legislative reform process to carry out an amendment of the Act.
Already, two bills on Nigerian Content Development- the Local Content Development and Enforcement Bill, and the Nigerian Oil and Gas Industry Content Development Act (Amendment) Bill have scaled through second reading in the National Assembly.
Of special interest is the NOGCID Act (Amendment) Bill 2020, sponsored by Senator Teslim Folarin (All Progressives Congress, APC, Oyo Central).
According to the exponents, this Bill is proposed to amend the NOGICD Act 2010 by expanding its scope to capture changes in the industry.
Some of the highlights of the bill include: Creation of a Nigerian Content Council to be headed by the Vice president; deduction of two per cent from every contract awarded in Nigeria for the development of local content; ensuring that no expatriate is allowed to do a job in Nigeria that can be done by Nigerians; building capacities of local companies, not only to compete in Nigeria but also abroad and ensuring the patronage of made in Nigeria goods.
Nigeria has recorded significant accomplishments in Nigerian Content development since the NOGICD Act 2010 and even prior to the enactment of the Act.
Minister of State for Petroleum Resources, Chief Timipre Sylva, corroborated this recently.
According to him, “before 2010, only three percent of marine vessels were Nigerian owned; but today, Nigerians control and own over 40 percent of vessels that are used in the oil and gas industry.
“In the area of fabrication, Nigeria can handle fabrication of more than 60,000 tonnes per year, with its array of world-class fabrication yards.”
More so, the industry has continued to demonstrate commitment to the promotion of Nigerian Content and has been involved with other stakeholders in proposing and considering various amendments to the NOGICD Act, to ensure that the objectives of the federal government on Nigerian Content are realised in an efficient and practical manner.
The Executive Secretary, Nigerian Content Development and Monitoring Board (NCDMB), Simbi Wabote, also stated in a recent interview with THISDAY that the international oil companies (IOCs) strictly comply with the provisions of the Act and have been very supportive of local companies that do business with them.
He noted that, “the local companies and the not the IOCs circumvent the Act” as they still have challenges, dealing with indigenous producers.
Having an effective Nigerian Content Law that will ensure capacity development and increased opportunities for Nigerian businesses in the oil and gas industry is very critical and we must commend the National Assembly for the move to expand the Nigerian Content Law, to create more opportunities for Nigerians by amending the NOGICD Act and introducing some new provisions.
However, analysts have expressed concerns about the draft bills to amend the NOGICD Act, particularly the proposals to increase the contributions to the Nigeria Content Development Fund (NCDF) by 100 per cent and the additional requirement for companies to provide annually a minimum of 0.5 per cent of their respective gross revenues for Research & Development (R&D) activities in Nigeria among other changes.
The Bill also proposes that the oil and gas operator will bear all the penalties exclusively (100%), contrary to the standard liability and risk distributions in joint operating agreements and global oil and gas industry practice.
Oil industry analysts argue that the sector is already significantly overburdened by a plethora of levies and fees: Education tax, NPTF levy, NCDF Levy, NDDC Levy, Nigerian Export Supervision Scheme, and Offshore Safety Permit. Others include Cargo & Stevedoring Dues, Waste Reception Facilities Levy, Value Added Tax among others. They have expressed concern that any additional financial imposition as proposed by the NOGICD Act (Amendment) Bill on the industry, will very negatively impact Nigeria’s competitiveness and affect the viability of projects and investments.
“The industry is still reeling from the financial impact of the Deepwater Offshore and Inland Basin Production Sharing Contract (Amendment) Act, the Finance Act, and Petroleum (Drilling and Production) Regulation amendments with their cost burden.
“In this current environment of lower oil prices, OPEC production cut and the pervading macro-economic effects of the COVID 19 pandemic, the Government is expected to support the industry to remain a viable partner for the economic development of Nigeria,” analysts emphasised.
The drive by the Ministry of Petroleum Resources and NNPC to cap production cost at $10/barrel will be significantly challenged by this bill. On one hand, government wants to achieve lower costs; on the other hand, it’s imposing multiple taxes and levies – NDDC (3%); Education tax (2%); NOGICD Amendment (2%) and (0.5%) for R&D. Other bills with potential to increase costs are NOSDRA Amendment, Maritime University Bill, Host Community Bill, CSR Bill, among others.
This is without consideration for high security costs, assets fixing and environmental remediation costs, that follow asset damages.
Industry experts have therefore advised that a further comprehensive review of the proposed amendments with all stakeholders is necessary in the best interest of the oil and gas industry and the country as a whole.