2010

LOCALCONTENTKEYISSUESANALYSISSERIES PAPER1:
THENIGERIANCONTENT PLAN

Odujinrin & Adefulu

Church House 1 Floor 29, Marina, Lagos

st

By Dr. Adeoye Adefulu & Aderemi Ogunbanjo*

ABOUT THE LOCAL CONTENT KEY ISSUES ANALYSIS (LC KIA) SERIES The LCKIA series has been designed by the Energy Practice Team of Odujinrin & Adefulu as brief papers which provide practical analysis of the critical elements of the Nigerian Oil and Gas industry Content Development Act 2010. Some of the issues the Series is expected to cover are: The Nigerian Content Plan The Nigerian Content Monitoring & Development Board Employment & Training Obligations The Nigerian Content Development Fund and the contractors funding responsibility Financial Services Obligations

Research & Development Obligations

The

papers

shall

be

available

on

our

website

www.odujinrinadefulu.com/publications as they are published.

DrAdeoyeAdefuluisapartnerandMs.AderemiOgunbanjoisaseniorassociateintheEnergyPracticeTeam ofOdujinrin&Adefulu.Theymaybereachedatfirstname.lastname@odujinrinadefulu.com.
*

1.

Introduction

T he N ig er ia n C o n te nt P la n is a ke y re qu i rem e nt o f t he N i ge r ia n O i l a n d Gas In d us t r y C o nte nt De ve lo p me nt A ct 20 10 ( NC A ). T his pa pe r b r ie f ly exa m in es the issu es w h ic h m us t b e co ns i de r e d i n pr e pa r in g s u c h a pl a n.

2. Scope of Requirement for Submission of Nigerian Content Plan Plan by Operators

S ec t ion 7 o f th e NCA r eq u ir es op e rat ors 2 to submit a plan showin g compli ance with t he N i ge ri a n co nte nt r e qu i re me nts o f t he Ac t, a s p a r t o f th e con d i tio n f o r b i d d in g f o r a l i ce nc e, p er m it o r o th e r o il a n d gas in te r est and be fo re th e exe c ut io n o f an y p r o j e c t i n t h e i n dus t ry. W h i ls t t he w o r d in g o f t his se ct io n su ggests th e plan s ho ul d demo nstrate histo r ical compliance of a n o pe ra to r w it h t he A ct, s e ct io ns 12 a n d 1 3, w h ic h dea l w i th th e c o n te nts o f t he p la n r e q ui re a f o rwa r d pr o gr a m me i n d ic a t in g h o w a n o pe ra to r i nt en ds to co mp l y w i th t he p ro vis io ns o f t he A ct . W e s u g ges t t ha t t he lat te r in te r p ret a t io n is t he co r re ct o n e. A s sta te d in se ct ion 7 , a pl an w ou l d be re quir ed when ...bi dding fo r any licence, pe r mi t o r in te r est... By v i rt ue of t hi s pro v is io n a Ni ger i an Co nt en t Pla n (t he Pla n) w ou l d b e r e qu i re d to be su b mi t te d fo r go ve r nm en t ac r eage a war ds. Th is w ou ld m ea n t hat i n fo r mat io n r e ga r di n g a ny bi ddi ng r ou n ds mu st be ma de a va i la bl e b y the g o ve rn me nt l i ce ns in g bo d y in s u f f ic i e n t t ime fo r a Pl a n t o be dr aw n up, s ubm it te d a n d a p p ro ve d. T his is l i k e l y t o req u i re up t o t w o mo nt hs. A Pl a n is a ls o r e q u i re d .. . b e f o r e ca r ry i n g o u t a n y pr o je c t i n t h e N i ge r ia n o i l a nd gas i n dus t ry ... W h ils t t hi s p ro visi o n ma y s ee m v e ry w id e in t he se nse tha t it co ve rs e ve r y t y p e o f p ro j e c t i n w h i ch a n o p e r a t o r m ig ht be i n vol v e d in res p e ct o f a f ie ld o pe ra ti on, w e su g ges t t ha t i n pra ct ic al te rm s, it wo u ld m ea n no m or e t ha n t he P lan being re quired when s uc h pr o je cts r eq u ire s o m e f or m o f go ve r nm e n t / re g u la t o ry a ppr ova l. F or e xam pl e, a F ie l d D ev el opme nt P ro g ram m e i n an u pst ream p roj ec t

2 Companies in this category include NNPC, its subsidiaries and joint venture partners and any Nigerian or foreign or international oil and gas company operating in the Nigeria oil and gas industry under any petroleum arrangement. See Section 109 of the Act.

w o u l d in vol v e va rio us o t h e r m i no r p ro j e c t s w h ic h w o u l d a l l be s ubs u me d u n de r t he m a j or pro j e ct re q u i rin g a p rio r s ubm iss ion o f a P lan.

3.

Plan Approval

T he N ig e ria n Con te nt M o n ito r ing & De ve lop m e n t Boa r d ( t h e Bo a r d ) i s e m p o w e re d t o re v ie w a n d ass ess an y P la n s ub m it te d b y a n op e ra tor . Th e P la n is a p pr o ve d b y

t he iss ua nce o f a Ce rti f i ca t e o f Au t ho r isa t ion f o r t h e pr o je c t , w h ic h is iss ue d w he n the Boa r d is ...sa t isfied that the Pla n complies with the provis ion o f this Act... 3 T he B o a r d i s re q u ir e d t o co me t o a d e c is io n no la t e r t ha n 3 0 day s f ro m t he dat e o f c o m me n cem e nt o f t h e ir a s s e s s me nt o f t he P la n a n d a p ub l i c re v ie w m a y b e conducte d w i thin t hat perio d. 4 S e c t ion 9 o nly p ro v i de s f o r a n a p pr o va l o r den ia l o f t he Ce rtifica te, it does not s peak to a process fo r se eking a me ndments to t he Plan submit ted. We however believe that the co ns ideratio n pro cess as a matter of p r ac ti ce sho u ld l ea ve r oo m fo r th e Bo ar d to co mm u nic at e its re se r vat io ns in res pe ct o f a P la n fo r ne ces s a r y a m en d me nts b y the o pe ra to r, t o fac i l itat e a n e f fi c ie nt a n d r o bus t P la n a pp ro va l sy st em.

4. Content of the Plan

T he P la n mu s t c o n t a i n p ro v is ions g i v in g : a. f i rs t c o nsi d e ra t io n t o t h e ut il i za t ion o f s e r v ic e s p ro v i de d f ro m w it h i n N i g e ria a nd go ods ma nu fa ct u red i n Ni ge r ia ; an d b. f i rst c ons id e rat io n fo r t he t ra in i n g an d em p lo y me nt o f Ni ge r ian s i n th e wo rk p r og ra m me f or w h ic h t he Pl an was s ub m it te d. 5

It is interesting that this provision does not specifically mention services provided by Nigerian companies 6 or Nigerian contractors, but has rather used a term as vague as services provided from within Nigeria. The import is
3 Section8oftheAct.
4 5

Sections 8 & 9 of the Act. Section 10 of the Act.

6 A Nigerian company is defined in section 109 of the Act as a company formed and registered in Nigeria in accordance with the provision of Companies and Allied Matters Act with not less that 51% equity shares by Nigerians.

that the provision could be interpreted to mean either services provided by Nigerian contractors or Nigerian service companies as defined under the Act (that is companies with 51% Nigerian shareholding) or services provided by a company registered in Nigeria regardless of the percentage of Nigerian equity in the company. The only practical interpretation however is that the Act is referring to Nigerian contractors and service companies. Additionally, the concept of first consideration is not specifically defined in the Act and is likely to be a subject of guidelines issued by the Board. We now consider below what we expect to be the boundaries of this concept.

5.

Determining First Consideration

I n p ra c t ic e , w e e x pec t t h a t fi rs t c o nsi dera tio n wo ul d re qu ir e o pe ra tor s t o look

first to the Nige rian ma rket to mee t their va rious goo ds, servic es and emplo y me nt
r e qu i re me nts w he re th e y mee t in d us t r y s ta n dar ds i n te rms o f q u a l it y a nd ma rket valu e.
7

A t t he ve ry le a s t , a n o p e ra t o r mu s t i n di ca t e a p ro ce s s fo r i d e n t if y i ng

N i g e ria n goo ds a n d s e r v ice s p ro v i d e d b y Nige r ian co mpa ni es. S ubse que nt ly, it mus t s ho w ho w i t p ro po s e s t o g iv e s u ch bi ds f i rs t co nsi d e ra t io n. F o r e x a m pl e , w he re g oo ds o r se r v ice s a re t o be so ur c ed t hro u g h a bi d d in g p ro c e s s , a n o pe ra t o r ma y s ho w fi rs t c o ns i de ra t io n by t a k i n g i nt o a cco u nt t he b i d t e nd e rs f ro m N i g e r ia n c o m pa n ies f i rs t to s ee i f t he y m ee t t he o p e ra t o r s re q u ir em en ts a nd wh er e t h is is t he cas e, to l im i t t he a wa rd to s uc h qua l i fi e d lo cals . I n d oi n g t h is, it is e xpec te d t ha t th e op e rat or w ou l d a lso be loo k in g a t th e f i nan c ia l v ia b ili t y of th e t en d er by u t i lis i n g t h e b i d e va lu a t io n p r inc i p le e n u n cia te d in se ct io n 1 6 o f t he Ac t t o en su re t ha t s u ch b i d is no t h i g he r b y a m ar g in o f no t mo re t ha n 1 0 % to its for e ign c om pet ito r. T he im p or tan t t h in g to no te is t hat w h ils t a ge ne ra l

d e f in it io n/ d e s c ri pt io n o f f irs t co ns ide r a t ion m a y b e g i v e n b y t h e Boa rd , t he Act indicates that it is up to t he re leva nt o pe ra to r to de mo nst ra te how it would s how f i rs t co nsi de ra ti o n in t he Pl a n. T h e re fo re ea ch o pe ra to r m us t i de nt i f y va r io us ways o f sho w in g f i rst co nsid e rat io n, an al ys e th e i m pa ct o f e ac h c ho ice o n i ts o pe ra ti ons, c ho o s e o ne o f t h e a l t e r na t i ve s a n d l a y o u t cl e a rl y i n t h e P la n t he cho ic e it has
7 Providing detailed analysis of this in the Plan would require operators liaising with their contractors on how the contractors intend to meet these requirements in their service delivery and in engaging sub-contractors. This would generally also be part of the required documentation to be provided by bidders in an Invitation to Tender.

ma de. Su ch a cho i ce ma y be ma de wi th r es pe ct t o a ll pro je cts fo r wh i c h t he o pe ra tor is i n vol v ed in th e Nig e ri an o i l a nd gas i n dus try , o r m ay be determin ed on a project by project basis.

6. Giving first consideration to Nigerians for Training and Employment

A s a lr e a dy s t a t e d , t he A ct re q ui r e s o pe ra t o rs t o gi ve f i rs t co ns i de ra t io n f o r t he t ra i ni n g and em p lo yme nt o f N i ge r ia ns i n th e wo r k pr o gr am me f o r wh i ch t he Pla n w as s u bm i tt e d. 8

To a c hi ev e t h e f i rst c ons i de ra tio n r equ ir em e nt o f th is pro vis io n, a n o pera to r w h ic h h a s o ut l in e d i t s h ir i n g n e e ds i n res p e c t o f a p a rt i cu la r p r o j e c t w o u l d b e e x pe ct e d t o h i re qua li f ie d Ni ge ri an s f i rst wh e re a va i la ble be fo re loo k in g t o fo r ei gne rs in the e ve nt o f s h o r ta ges in th e Ni ge r ia n la bou r fo rc e.
9

I n p ro vi d in g p ro j e c t s pe c i f ic

t ra i ning require me nt, we ex pe ct tha t the Ac t is re ferring to the t ra i ning o f ex ist ing e m p loy ees o f t he o per ato r as we l l as t hose to be rec r u ite d fo r a pa rt ic u la r pro je ct a n d ens u rin g tha t N ig e r ians a re co nsi de re d fi rs t for su ch trai n i ng p ro gr a mm es w he re t h e ir q ua l if i ca t i o ns a n d/o r jo b pr e s c r i pt io ns w i t h in t he o r g a n is a t i o n q ua l i fy t he m for s u c h t ra in ing .

7.

Other Important Considerations

W hils t the Act s tat es t ha t the conte nts o f th e P la n s ho u ld gi v e cl ea r i n d ica ti o ns o f f i rst co ns id e rat io n fo r Ni ge r ians w it h res pe ct to goods, s e rv i ces, e mplo ym e nt an d t ra i ni n g, th e re a re o t he r c o n cep ts w i th in t he Ac t, w h ic h a re a ls o im po rt a n t a n d w h ic h a n o p e ra t o r w o u l d a ls o f i nd us ef u l to d e mons tr a t e w it hi n th e P la n. T hes e a r e: E x c l us iv e co ns id e r a t io n - r e q u i re d to be give n to Nigerian in dige nous se r v ic e c om p an ies wh i c h de mon st rat e ow ne rs hi p o f equ ipme nt , Ni geri an p e rso nn el a n d c a pa c it y to exe cu te p ro je cts in vo lv i ng w o r k on lan d and

Ibid. See also section 28(1) of the Act.

9 This assumes greater importance in the light of the more stringent stance taken by the Act with regard to expatriate quota positions.

sw am p ope ra tin g a re as . 10 W h ils t t he te rm is not de fine d in t he Act, it can be ta ke n to mea n t ha t o n ly Nige ria ns ca n be co ns idere d fo r a pro ject in this o pe ra ti n g a r ea. T he re fo re i nv it a t io n to te nde r fo r s u ch p r o j ec ts wo u ld o n ly be i ssu e d to Ni g e ria n co m pan ie s. T his e ff ec ti v e ly al lo ws fo r so l e so u rc in g and t he p ri n ci pl e o f ex cl us iv e co ns ide ra ti o n wou l d a p pea r to a p pl y irr es pe ct i ve o f cost.

F ul l & Fai r Op po rt un i t y

11

- T h is m eans th at no t on l y m ust c on tr ac ti n g

p r o c e d u re s n o t u n fa ir ly d is a dva n t a g e local supplie rs, but the operator should be able to demo nstrate that a ll reasona ble e f fo rts ha ve bee n ta ke n to ens ur e t ha t loca l s up p l ie rs ha ve bee n a f for ded am pl e o ppor t un it y to pa rt ic i pat e i n t h e c o n t ra c t i n g p ro c e s s . E f fo rts w o u l d in cl ud e s u p pl y in g a d e qua t e a n d t i mel y n ot ic e an d i n for ma ti on in re lat io n to o p era tors n ee ds an d r eq ui r em en ts fo r u p co mi n g p r o j e c t s . T h is co ul d a l s o in c lude proper debriefin g o f u ns uc ce s s f u l b i d de rs fo r p u r po s e s o f f u t u re bid s .

8. Concluding Remarks

O v er al l, t he ge ne ra l id ea be hi n d t he r equ i re me nt fo r t he s ubm iss io n o f a P la n is t ha t i t con s t it ut es a m a jo r a ve n ue t hr o u g h w hi c h t he Boa rd ca n mon i to r a nd re gula te the activit ies o f o p era tors to e nsu re co mplia nce w i th the Act. T he abilit y o f a n o pe ra tor t o de ve lop a Ni ge r ian Con te nt P la n, wh i ch com p l ies wi th t he pr o vis io ns o f t he N C A i s cr i t i ca l in e ns u r in g t ha t t he nec e s s a r y a pp r o va l is g iv e n in a n e f f i c ient m a n ne r, a s t he a b i l it y t o d emo nst ra te f i rs t co ns ider a t io n is the ma jo r e le me nt o f t he N ig er ia n Co nte nt P la n, d et erm i n in g a pr o c es s th a t wo rks fo r ea ch o pe ra to r o r i ndeed e ach p ro j e ct t y p e is i mp e r a t i ve.

W e h o p e yo u f in d t h e i n f o r m a ti o n c o n t a in e d h e r e in u s e f u l . T h i s N o t e i s fo r g e n e r a l p u r p o se s a n d g u i da n c e o n l y a n d s h o u l d n o t b e r e ga r d e d a s l e ga l o r p r o f e s s i o n a l a d v i c e . A n y q u e s ti o n s , c o m m e n t s o r c la r i fi c a t io n s m a y b e d i r e c t e d to : D r A d e o y e A d e f u lu t e l- + 2 3 4 8 0 2 2 2 4 0 8 8 8 e m a i l
adeoye.adefulu@odujinrinadefulu.com

10See section 3(2) of the Act. Nigerian indigenous service companies can best take advantage of this concession by structuring their organization to meet the specified conditions. 11

Section 15 of the Act.