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Cost Implications And The Drive To Achieving Enhanced Local Content In Nigeria’s Oil And Gas Sector



CHIKA IZUORA, in this analysis previews the desire of government to offer indigenous oil companies growth opportunities with amendment of Oil and Gas Industry Local Content Act, in the face of agitations for wider consultations to assess associated costs.

Nigeria is curiously inching toward achieving humongous local content target to accelerate local firms involvement in the oil and gas business.

This has bolstered the ego of local operators who are now positioned to explore the industry that hosts Nigeria’s entire economy for the benefit of the local economy.

Quite interesting and commendable as it appears, 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 scaled through second reading in the National Assembly.

Of special interest is the Nigerian Oil and Gas Industry Content Development Act (Amendment) Bill.

Advocates of this Bill believe in its ability to amend the Nigerian Oil and Gas Industry Content Development Act (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 2 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.

Interestingly, Nigeria has recorded significant accomplishments in Nigerian Content development since NOGICD Act 2010 and even before then.

The Minister of State for Petroleum Resources, Chief Timipre Sylva, corroborated this recently, when he admitted that , “Before 2010, only three per cent of marine vessels were Nigerian owned; but today, Nigerians control and own over 40 per cent 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 realized in an efficient and practical manner.

It is important to acknowledge the value of having an effective Nigerian Content Law that will help put Nigerians on the driver’s seat in the critical oil and gas industry by ensuring capacity development and increased opportunities for Nigerian businesses. Experts have commended the lawmakers for the move to make the Nigerian Content Law even stronger by amending it and introducing some new provisions.

However, some analysts have expressed concerns on the draft bills to amend the NOGICD Act.

Industry watchers are particularly concerned about 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 seeks for the oil and gas operator to bear all the penalties exclusively 100 per cent contrary to the standard liability and risk distributions in joint operating agreements and global oil and gas industry practice.

Analysts argue that the industry 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 maintain that any additional financial imposition as proposed by the NOGCID 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 emphasize.

The drive by the Ministry of Petroleum Resources and NNPC to cap production cost at $10/barrel will be 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 and assets fixing and environmental remediation costs that follow asset damages.

It is therefore advocated 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 at large. Without diminishing the importance of Nigerian Content development, some commentators advise that the country should not kill the oil and gas industry: “the goose that lays the golden egg.”