A PAPER PRESENTED BY THE FORMER MINISTER OF LANDS, HOUSING AND URBAN DEVELOPMENT, RT. HON. NDUESE ESSIEN, TO MEMBERS OF THE NIGERIA UNION OF JOURNLAISTS, AKWA IBOM STATE COUNCIL ON AUGUST 26, 2015.
Gentlemen of the Press
I want to begin by thanking the organizers of this programme and particularly, ExxonMobil and the leadership of the Nigerian Union of Journalists, Akwa Ibom State Council, for finding me worthy to speak here today. I also wish to thank all of you, gentlemen of the press, for turning out for the programme.
While the Council wished I speak on the topic: “Prospect of the Petroleum Industry Bill in the Development of Nigerian Oil and Gas Industry,” I had considered that since that piece of legislation is still in the works, it was better to speak on something that is very practical and relevant. As lawyers would always argue and rightly so, “You cannot build something on nothing.” A discussion of how a bill that is yet to be passed into law would contribute to national development is like building something on nothing.
I, therefore, crave your indulgence to allow me speak on a topic that would be useful to you as journalists and encourage significant local participation in all operations and transactions of our oil and gas sector.
I am aware that majority of you do not know about the existence of the Nigerian Oil and Gas Industry Content Development Act and the role you can play individually and collectively to ensure that our national interest is not jeopardized in the oil and gas sector operations and transactions.
EVOLUTION OF NIGERIA OIL AND GAS SECTOR
At Independence, most African countries, including Nigeria were determined to ensure that their citizens take over the operations and control of their natural resources for exploitation and conversion into economic growth. In Nigeria, some of the legislations made in this direction include the Petroleum (Drilling & Production) Regulations; Industrial Training Fund 1971; Petroleum Technology Development Fund 1973 and National Office of Technology Acquisition Act 1979. Before the enactment of the above laws, the Nigerian oil and gas industry was an exclusive domain for the International Oil Companies, IOCs. The IOCs were solely responsible for exploration, production, refining and trading.
Shell Petroleum Development Company was the first multinational oil firm to drill the ground in search for oil in Nigeria. In 1937, the company then known as Shell D’Arcy was granted license to search for oil in the country. However, in 1956, it discovered the first commercial oil field at Oloibiri, a quiet community in Ogbia Local Government of Bayelsa State and commenced oil exports in 1958. Before the discovery of oil in commercial quantity, Nigeria like many other African countries strongly relied on agricultural exports to sustain its economy. Many Nigerians who witnessed the initial exploration thought Shell was looking for palm oil.
Since then, the Niger Delta had become Nigeria’s scene of feverish exploration and production. From an initial output of 5,100 barrels per day in 1956, the nation steadily rose to the sixth position on the production chart of the Organisation of Petroleum Exporting Countries. By the mid 1970s Shell, the leading producer had exceeded the one million barrels per day production mark.
After over three decades during which the oil industry was dominated by foreign companies, a private indigenous oil company, Consolidated Oil, recorded its first discovery, Bella – 1, in 1991. Since 1992, following the release of new concessions in the Niger Delta to indigenous exploration and production companies, the number of indigenous companies has increased but most of the fields are not producing because the country has to abide by OPEC’s production quota which currently stands at 2.2 million barrels per day, bpd.
OVERVIEW OF THE NIGERIAN OIL AND GAS INDUSTRY CONTENT DEVELOPMENT ACT, 2010
A research carried out in 2008 had indicated that although the oil and gas industry accounts for 90 percent of Nigeria’s revenue, it contributes less than 38 percent to the nation’s GDP. In real terms, the upstream industry has for decades functioned as an enclave economy with minimal impact on the wider economy. The primary reason was the absence of a strong legal framework for Nigeria to harvest the technological, industrial and economic intangible capital assets being generated by oil and gas activities for diffusion into the local economy.
The Nigerian Oil and Gas Industry Content Development Act was, therefore, promulgated in 2010, to create the framework for the growth of local content in respect of all operations and transactions in Nigeria’s oil and gas sector. The Act also established the Nigerian Content Development and Monitoring Board.
Under the law, investors are mandated to consider Nigerian companies as an important element in their project development and management. For the avoidance of doubt, a Nigerian company is defined as a firm registered in Nigeria in accordance with the provisions of the Companies and Allied Matters Act with not less than 51 percent equity shares owned by Nigerians.
The Act has a total of 107 Sections and applies to all operators, contractors and other entities involved in any project in the country’s oil and gas industry. It takes precedence over all other existing enactments and laws in respect of all matters and operations industry pertaining to Nigerian content carried out in the oil and gas. A Nigeria Content Development and Monitoring Board has also been established and vested with the responsibility to implement the provisions of the Act, make procedural guidelines and monitor compliance by operators within the oil industry.
Section 3(1) states, “Nigerian independent operators shall be given first consideration in the award of oil blocks, oil field licenses, 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.”
However, Section 3 (2) states, “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.”
In order to have full grasp of the law, you can download it at: http://www.placng.org/new/laws/NIGERIAN%20OIL%20AND%20GAS%20INDUSTRY%20CONTENT%20DEVELOPMENT%20ACT,%202010.pdf
HOW THE ACT STIMULATES JOB CREATION AND NATIONAL ECONOMIC GROWTH
The policy objectives of the law as contained in Section 3 are further backed up by the provisions in Section 11, Section 15 and Section 16 which confer advantages to Nigerians firms.
The main support granted in favour of Nigerian companies is contained in Sections 15 and 16 which deals with the bidding process. This advantage is considered further under bid evaluation.
In addition to the benefits conferred on Nigerian businesses in the bid evaluation process, Section 41 provides that the Minister may make regulations ‘setting out targets to ensure ‘full utilisation and growth of indigenous companies’ in the following areas:
- Exploration • Seismic data processing • Engineering design • Reservoir studies • Manufacturing and fabrication of equipment; and • Other facilities as well as the provisions of other support services for the Nigerian oil and gas industry.
The benefits to be enjoyed by Nigerian companies by way of technology transfer are contained in Sections 44 and 45 of the Act. Section 44 stipulates that operators are required to have a program of incentives to promote transfer of technology and Section 45 encourages the formation of joint ventures and other forms of alliances.
Under the bidding process, the general provisions in this regard are contained in Sections 14, 15 and 16 of the Act. These sections state as follows:
Section14: All operators and Project Promoters shall consider Nigerian content when evaluating any bid; where bids are within 1 percent of each other at commercial stage, the bid containing the highest level of Nigerian content shall be selected provided the Nigerian content in the selected bid is at least 5 percent higher than its closest competitor.
Section15: All operators and alliance partners shall maintain a bidding process for acquiring goods and services which shall give full and fair opportunity to Nigerian Indigenous contractors and companies.
Section16: The award of contract shall not be solely based on the principle of the lowest bidder where a Nigerian indigenous company has capacity to execute such job, the company shall not be disqualified exclusively on the basis that it is the lowest financial bidder, provided the value does not exceed the lowest bid price by 10 percent.
However, details of document to be submitted at each stage of the bidding process are contained in Sections 18, 20, 21, and 22 of the Act.
Sections 25 – 27 of the Act sets out the provisions of the Act in regard to the maintenance of a project office by “operators or any other body” submitting a Nigerian content Plan. The does not however specify when a project office would be mandatory, although power is conferred on the Board to require that an office is maintained in a community where there are significant operations.
The promotion of Nigerian human capital as an aspect of Nigerian Content is contained in Sections 28 to 35 of the Act. Section 28(1) of the Act stipulates that “Nigerians shall be given first consideration for employment and training in any project executed by any operator or project promoter’.
Based on the above, the Act requires that the Nigerian Content Plan submitted by operator or project promoter shall include and Employment and Training Plan which complies with Section 29 of the Act.
Sections 30 and 31 also make it an obligation on operators to provide training to Nigerians where Nigerians are not employed because of lack of training and to provide a succession plan for a Nigerian to understudy to an expatriate for a maximum period of 4 years.
By Section 32 the expatriate workforce for an operator or project promoter is limited to a maximum of 5 percent of its management positions as may be approved by the Board.
Again, Section 33 requires that all applications for expatriate quota must first be referred to the Board. The Act requires in Section 34 that a “Labour Clause” be inserted in “projects or contracts” mandating the use of a minimum percentage of Nigerian workers as may be stipulated by the Board.
Finally all operators and companies operating in the Nigeria oil and gas industry shall employ only Nigerians in their junior and intermediate cadre. By the definition of the “Labour Clause” the minimum labour use is not limited to junior and intermediate cadre, but extends to professional cadres also. This is a significant provision when it is considered that the labour cost centre in most oil and gas operations is constituted in the professional cadre i.e. geologist, petroleum engineers and highly skilled technicians.
The Act imposes very strict measures on the employment of expatriates in the oil industry. Expatriate management positions are limited to 5 percent in respect of each project. In addition, operators are required to obtain prior approval of the Board before applying for expatriate quota from other Government agencies. What is perhaps innovative is section 42 which requires professional employees engaged in engineering or other professional services in the Nigerian oil industry to be registered with the relevant professional bodies. This requirement means that the Board is able to track and monitor the activities of expatriates in order to ensure that the expatriate does not hold a position for more than 4 years (Section 31).
Section 37, 38 and 39 deal with the R & D requirements of the Act and requires operators to submit a programme for the ‘promotion of education attachments training research and development’
The Act in Sections 40, 41and 42 empowers the Minister to make regulations in respect of training, growth of indigenous companies in various areas such as exploration, engineering design etc and for ensuring that professional employees are registered with Nigerian professional bodies.
Section 47 also permits the Minister to make regulations which requires operators to invest in or set up facilities factories etc for the purpose of carrying out any production or manufacturing in Nigeria.
Section 43 provides that an operator must have a programme for purpose of promoting the transfer of technology into Nigeria in relation to oil and gas. By virtue of Section 44, the operator is required to submit to the Board annually a plan setting out a programme of planned initiatives aimed at promoting the effective transfer of technologies from the operator and alliance partners to Nigerian individuals and companies.
An operator is required to support the transfer of technology initiative by encouraging and facilitating the formation of the formation of joint ventures, partnering and development licensing agreements between Nigerian and foreign contractors. As well as ensure that the agreements for such joint ventures meet the requirement of the Nigerian content development to the satisfaction of the Board (Section 45 of the Act).
Section 49 of the Act requires that all investors in the oil and gas industry to insure all its insurable risks relating to the oil and gas business, operations or contracts with an insurance company, through an insurance broker registered in Nigeria under the provisions of the Insurance Act as amended. However, the operators can place their insurance risk outside Nigeria with the written consent of the National Insurance Commission who shall ensure that Nigerian local capacity has been fully exhausted in Section 50 of the Act.
Section 51 provides that the operators and other investors in any operations, business or transaction in Nigeria oil and gas industry can only retain a Nigerian legal practitioner or a firm of legal practitioners located in Nigeria.
Section 52 provides that all operators and investors in need of financial services can only retain the services of Nigerian financial institutions expect in situations to the satisfaction of the Board it is impracticable to do so.
Section 53 provides that all operators and investors engaged in Nigerian oil and gas industry must carry out all fabrications and welding activities in the country.
THE NIGERIAN MEDIA AND THE REPORTAGE OF THE OIL AND GAS SECTOR
The Nigerian media is one of the freest and most authoritative in the continent. The media, we must admit, have been instrumental to the attainment of great milestones in the country including Nigeria’ Independence, the entrenchment of democratic rule and agenda setting and shaping of public opinion.
Permit me to use this opportunity to express profound appreciation to you, Gentlemen of the Press for the roles you have played individually and collectively towards the unity and development of the country and Akwa Ibom State in particular.
But Gentlemen of the Press, I can tell you unequivocally that while the law provides that preferential treatment be given to all Nigerian companies operating in the industry and further requires that the promotion of Nigerian content development shall be a major concern in all projects and operations in the oil industry, the reality is that multinational oil companies are yet to substantially comply with the provisions of the law.
Multinationals still find ways of circumventing our laws by using Nigerian cronies to register companies and then award joint venture projects to these phony firms to the disadvantage of genuine Nigerian companies.
While these crimes are being committed against our people and in contemptuous violation of our laws, the media seem to pay little or no attention to the plight of Nigerians whose businesses are being destroyed in the process. Instead of fighting against the monopolistic tendencies of some of the oil majors, journalists have instead formed splinter bodies, like the National Association of Energy Correspondents which appears to be working against our collective national interest in the oil and gas sector.
For instance, since the promulgation of the Act in 2010, the Nigerian media are yet to carry out an investigation into how the oil majors have complied with it. We are yet to know how many Nigerian workers who understudied their expatriate counterparts have taken over such jobs based on the provisions of Section 31 of the Act.
Gentlemen of the Press, permit me to express profound gratitude to media organisations that have risen in defence of Arco Group, a major indigenous oil and gas company that has offered quality services to the nation for over three decades. Arco Group had during the peak of disturbances in the Niger Delta region, single-handedly maintained the OB/OB, Ebocha and Kwale Gas faculties in Rivers state at a time the Nigeria Agip Oil Company and its partner, General Electric, GE, withdrew their staff and sent them abroad.
Not long after peace was restored to the region with the proclamation of Amnesty by the late President Umaru Yar’Adua, Agip and GE returned to the country and found that the gas plants were still functioning in top gear. Instead of encouraging the indigenous firm, the two foreign partners launched an insidious project to get rid of Arco and replace it with a company that has no root in the operations of the gas facilities.
Even when the indigenous oil company secured a valid court order against being thrown out of the OB/OB, Ebocha and Kwale Gas plants, Agip is widely reported by the media of attempting to flaunt the court order. It is, therefore, on this premises that I implore the Nigerian media, the civil society community and the National Assembly to rise in defence of our law. While Arco has taken up the challenge of fighting against the attempt to throw it staff out of Nigeria’s economic asset, other indigenous firms have not been able to muster the willpower to seek redress. This is therefore, a wakeup call to Nigerian operators in the oil and gas sector to use every legitimate means to fight against neo-colonialism by oil majors in country.
I wish to also use this medium to call on President Muhammadu Buhari, to launch an investigation into disputes associated with the non-compliance of oil majors to the laws of the Federal Republic of Nigeria. Any company found to have flouted the laws of Nigeria should be made to face the full weight of the law and may be asked to leave the country depending on the level infraction.
I challenge the media to do more in reporting the good things done by both indigenous and international oil companies and the bad sides of such operations equally.
The Nigeria Oil and Gas Industry Content Development Act is one giant move by the government to stimulate the participation of Nigerians in the country’s lucrative oil and gas sector. The full and effective implementation of the law will yield millions of jobs and create value chains across the sector.
This cannot happen unless the media apply its agenda-setting role to beam their searchlight into how the oil and gas sector operates and point out the feats, infractions and challenges.
Thank you and God bless you.