Oil and Gas: Slow Implementation Frustrates Local Content Law

Three years after it was initiated for legislative consideration, the Nigerian Local Content Act which was signed into law in April 2010, by President Goodluck Jonathan is said to be far from achieving its purpose because of slow implementation. However, in spite of its weak performance, some still believe that the law is already showing its potency of change.

The bill to enact the law was in 2007 sponsored by Senator Lee Maeba with an expectation to align Nigeria with other developed countries in achieving a system that places obligations on upstream oil companies in ensuring local workforce to the benefit of the citizens, and making appropriate financial provision for community development.

According to Sen. Maeba, “No law was guiding the activities of Nigerian companies in the oil and gas industry and because of that, there has been a control drift. That was the reason why there is poverty in Nigeria in spite of the fact that we are the sixth largest producer of crude oil.” He added that amongst the oil producing countries in the world, Nigeria happens to be one of the worst managers of the resources.

The Chairman of the Nigeria Liquefied Petroleum Gas (LPG) Association, Alhaji Auwalu Ilu, told FinIntell that the local content law is currently serving the purpose of its establishment while also admitting that the implementation is slow.

Alhaji Ilu said, “The local content law has achieved a lot. Quite a number of oil companies are now involving indigenous expertise, even in the area of engineering and logistic. I will like to say that year in year out we are seeing the dividend while we hope for better improvement. Although it is not an overnight thing to achieve, but we still expect more improvement in terms of compliance.”

He said what the oil and gas companies are presently achieving is far above what they accomplished when the law was not in place.
In a similar reaction, Gbenga Koku, Controller of Operations, Department of Petroleum Resources (DPR), Lagos Zonal Office, believes that the local content law is performing its duty as expected. “For now, it will be very difficult for anyone to measure its achievement so far. And the most difficult part of it is to start comparing them (the performance of the law) with other countries. This is Nigeria, and we just established the law not quite long,” Mr. Koku said.

Full Compliance
Speaking on his company’s effort in complying with the new law, Akin Fatunke, Mobil Oil Public Affairs Manager, said the local content law is a welcome development and a good law, even though its full compliance by operators cannot happen overnight.

Noting that there are still some aspects of the law that he is not familiar with yet, Mr. Fatunke said, “By and large, it is not a very bad law. The local content law will create employment and capacity building for Nigeria and Nigerians, specifically in the oil and gas. I work with a multinational and I know that it (full compliance of the law) is not something that can happen over the night. At least we have been here for over hundred years, and over that period we have been having white people holding positions, but that is now changing.”

“On local content for material, as much as possible we have local contractors that do the bidding as regards the propriety technology,” he added. He was however quick to decry some of the challenges of operating under the new regulations which he said the multinational companies that have spent over hundred years in the country will surely overcome.

Commenting on the challenges encountered by contracting certain parts of their business to Nigerians as required by law, Mr. Fatunke said, “As a matter of fact, we have tried our hands in some aspect of that and got our fingers burnt. We have encountered adulteration and other problems.” Nevertheless, he is optimistic that with time Nigerians will meet up in providing the required standards for any part of their operations. “If we have to continue in business, we must ensure that those things that are of propriety we keep it close to ourselves. We’ll get Nigerians to import the materials and then we see how it goes from there.”

In the meantime, some analysts say that the challenge of securing the qualitative services of local expertise has been the fear of most companies in meeting the requirements of the law.
Some staff of oil companies who spoke to FinIntell submitted that their companies are still reluctant to adhere with the new regulations on the aspect of the law which stated that: “Nigerians to be given first consideration for employment and training Succession plans for positions not held by Nigerians. Maximum of 5% of management positions for expatriates; Board to approve before application for expatriate quota is made; Nigerians to constitute a minimum of 60% of the Board.”

Speaking under the condition of anonymity for fear of job loss, a Niger Delta youth from Bayelsa State who is a staff of an oil firm said, “Some of us were not employed until the youth in my community went to the company to protest. They don’t use to employ our youth. But thank God that has changed now, although we are still not getting the desired job. I realised that it is our people, Nigerians, working in these companies that are the devil; they are not in support of the change. They want us to keep doing the contract job, so that we can earn small money.”

For Dike ThankGod, a graduate of Niger Delta University who is seeking employment, “it is the conveyance of some corrupt Nigerians that has been frustrating the true implementation of the local content law,” adding that “the most disappointing part of it is that our leaders pretend not to know what is going on.”

Requirement Of The Law
It is expected that with time, the local content law would become a systematic way of capacity development through the deliberate use of human and material resources in Nigeria, and the use of other available services in the Nigerian Petroleum Industry.

The law created opportunity for Nigerians to be involved in the entire company’s operations. Some parts of the Act stated that: “Henceforth, fabrication of all piles, decks, anchors, buoys, jackets, pipe racks, bridges, flare booms and storage tanks including all galvanizing works for LNG and process plants are to be done in Nigeria.

Another section states that: “Henceforth, all flow‐lines and risers must be fixed and must be fabricated in Nigeria except for special cases to be demonstrated and approved by NCD. Henceforth, Assembling, testing and commissioning of all Subsea valves, Christmas trees, well heads and system integration tests are to be carried out in Nigeria. All FPSO contract packages are to be bid on the basis of carrying out top side integration in Nigeria.”

Another requirement is that: “A minimum of 50% of the total tonnage of FPSO top side modules must be fabricated in Nigeria. All third party services relating to fabrication and construction including but not limited to NDT, mechanical tests, PWHT as well as certification of welding procedures and welders must be carried out in Nigeria. Nigerian Institute of Welding must certify all such tests in collaboration with international accreditation bodies.”

It also requires that: “Operation and maintenance of offshore production units, FPSO and FSO in particular, are to be performed by Nigerian companies. All international codes and standards used in the industry are to be harmonized to support utilization of locally manufactured products such as paints, cables, steel pipes, rods, sections, ropes etc and to improve capacity utilization in local industries. Clauses that create impediments for/exclude participation of local companies should not be included in any ITT,” adding that “operators and project promoters must ensure that recommendations for contract award for all drilling contracts shall include a binding agreement at Technical Evaluation stage for the sourcing of Barite and Bentonite from local manufacturers.”