Nigeria
- introductionThe one to watch...
There can be very few countries across the globe in which the concept of local
content as a solution to the resource curse has been more enthusiastically
received than in Nigeria. The issue is so potent that even the average person
on
the
street is not only familiar with the term but will most likely insist on
sharing
his views on the matter with you. Barely a week goes by without at least one
national newspaper running an editorial on the topic. As such, Nigeria is
regularly
identified as the vanguard state in the proliferation of local content laws
across
the globe. It is worth watching closely - if such laws are to deliver
significant macro-economic benefits to any state in sub-Saharan Africa, it will
happen
in
Nigeria first.
In comparison to smaller producing states in the Gulf of Guinea, local capacity,
the extent of regulation - and the larger local content debate are growing in
sophistication and complexity, and while IOCs, government, and local companies
profess to be "singing from the same hymn sheet," there is in reality
a
diverse spread of approaches, perspectives and underlying tensions between
all
concerned.
Of course, troubles in the Niger Delta provide the backdrop for any and every
aspect of Nigeria's oil industry, and in this respect local content is no
exception. Practical implementation of equitable local content policies may yet
play
an
important role in lessening the deep discontent that has taken root in the
region, if it can be proved to bring tangible benefits to host communities.
From lip service to law
Lip-service has been paid to a local content policy for several years, but
until recently regulation was administered on an ad-hoc basis and compliance
was
not monitored. Arguably the most significant landmark has been the
establishment
of a well defined local content policy, and a local content division, by the
Nigerian National Petroleum Corporation, which implements and monitors
adherence to
the policy. In addition, a draft Nigerian Content Development Bill (“NCD
Bill”)
is in the process of being passed into law, which, when enacted, will
constitute
the first ever independent legal instrument dealing specifically
with
local
content.
The need to develop and implement a local content policy within the Nigerian
economy, especially in the petroleum industry, can be traced to the growing
need
to build and develop local capacity in all the sectors of the economy with
Nigerians taking active participation in the exploitation of the country's
natural
resources.
The importance and significance of implementing such policies was further
buttressed and became imperative after the Federal Government realised that
notwithstanding the colossal investments made into the oil and gas sector of
Nigeria,
(around US$10 billion per annum, estimated), gross domestic product (GDP)
growth
has not been encouraging, which it linked to the abysmal level of local
participation in the industry, in itself both a cause and effect of capital
flights,
unemployment, lack of technical know-how, and reverse economic growth.
In addition, the government perceived the domination of the industry by the
multinational oil companies, dependence on imported goods and preference for
expatriate personnel as hampering the realization of the national goal of
achieving
economic independence and development, giving further impetus to the
development
of a formal local content development policy drive.
Policy thrust
The policy is geared towards developing and improving local indigenous capacity
building in the Nigerian oil and gas industry with a view to enabling Nigerians
take active participation in order to improve the growth and development of the
Nigerian economy. Consequently, the local content drive should not only aid
reduction of production costs and improvement of the nation's economic base
within
a
defined period of time but should also ensure that the quantum of locally
produced materials, personnel, goods and services are significantly increased,
thereby
generating more employment and economic empowerment.
To ensure the achievement of these objectives, the Federal Government has put in
place a regulatory framework tailored towards achieving local participation
through a deliberate utilization of Nigerian human and material resources and
which
it says, does not compromise on quality, health, safety or environmental
standards. It is envisaged that a greater proportion of work and services
within
the
petroleum industry in Nigeria will be performed locally and by Nigerians
with
active participation of all sectors of the economy. Ultimately, the
government
expects, Nigeria will be positioned as a hub for service delivery within
the West
African sub region and beyond.
The scope for developing Nigerian content is to cover all major contracts
awarded in the Nigerian Oil and Gas industry starting with JVs, Production
Sharing
Contracts, LNG Projects, Engineering, Procurement, Installation, and
Construction
contracts as well as operation and maintenance contracts.
Poor
Non-Nigerian oil companies (major players include Shell,
ExxonMobil,
Chevron,
Total and Statoil) have all expressed their public
willingness to
comply with
the new framework, but on occasion questioned whether
targets
(see
below) are
either realisable or desirable. Some have gone on the
offensive,
claiming that they are doing everything they can reasonably be expected to
but
that
local firms simply won't comply (see news article) Key concerns generally for oil companies include
the
lack of security
within the petroleum industry, political instability, a
industrial base and low
level of infrastructure.
Local companies, however, say that they are often denied contracts unfairly, and
that without being given sizeable contracts on a regular basis they cannot
afford to make the investments required to compete on an equal footing with
international competitors.
Local content targets
The targets of the local content policy as set out by the Federal Government of
Nigeria are that by 2006, the local content of the petroleum industry in
Nigeria
be 45% and by 2010, 70% would have been attained. In monetary terms, it is
expected that over US$4 billion worth of oil contracts are to be handled by
indigenous oil companies in Nigeria within the relevant period.
The draft bill presented to the National Assembly on local content issues and
which is captioned “Nigerian Content Development Bill, 2003” defines Nigerian
content as:
“the quantum of composite value added to, or created in, the Nigerian economy
through a deliberate utilization of Nigerian human and material resources and
services in the Upstream Sector of the Nigerian Petroleum Industry which
includes
all activities connected with the exploration, development, exploitation,
transportation and sale of Nigeria Crude Oil and Gas Resources, without
compromising
quality, health, safety and environmental standards.”
This definition is consistent with the local content definition in NNPC's
Nigerian Content Policy.
Delta Blues
Despite Nigerian's
vocal
enthusiasm for meaningful local content, the
PDP
if anything
seem to be drifting
further and further away
from enacting the Bill.
The
embattled
president has, from
outset
of
his
term been forced to focus on
keeping his
job and fending of
legal
challenges
to
his rule. The deteriorating
situation
in the Niger Delta
adds to
the
distraction
as well. However, perhaps
the
biggest threat to the NCD
bill is
not that
it
won't get passed, but rather what
happens
to
it in the meantime.
Reports of
attempts to water-down the bill are
commonplace. Furthermore,
it seems both the current president and the former,
President Obasanjo remain
willing to play politics with the issue (see
news story).
Taken
together, it is hard to
see Nigerian lawmakers making real progress
any
time soon.
Useful Links
Nigerian Content Draft Bill 2005
Official targets and units of measurement 2005
Production Sharing Contracts Decree 1999
Petroleum Act 1990
Oil Pipelines Act 1990
Coastal and Inland Shipping (Cabotage) Act 2003
Menas Directory of Service Providers in Nigeria
Menas Nigeria Focus
Menas Nigeria Politics & Security
Nigerian National Petroleum Corporation homepage