Pitfalls of local content enforcement by legislative fiat

Nigeria’s lower legislative body is planning an investigation into the contracting of vessels by foreign oil and gas companies operating in Nigeria on the suspicion that local firms are not benefiting as much as they should.

According to the lawmakers, the investigation is to determine whether the processes of contracting vessels by the oil firms complied with the provisions of the Nigerian Oil and Gas Industry Content Development Act 2010.

This arose from a motion sponsored by Daniel Reyenieju (Delta/PDP) who told lawmakers that local shipping owners were being excluded by the foreign oil and gas companies in the award of maritime contracts.

Citing Section 12 of the Act, Reyenieju said it provides that first consideration be given to Nigerian companies in the evaluation of bids for goods and services required for projects by oil and gas companies as the act seeks to ensure a measurable growth of Nigerian content in the oil and gas exploration processes.

According to section 15 of the Act, all operators and alliance partners are to give full and fair opportunities to indigenous contractors and companies in the award of contracts. The Lawmaker said a situation where indigenous shipping companies had spent money to procure vessels which were now lying idle at the ports because the multi-national companies refused to engage their services is unfortunate.

International Oil Companies in Nigeria have often been accused of engaging the services of foreign vessels that are not flying the Nigerian flag and sometimes working through Nigerian companies as fronts. But in investment decisions, emotive arguments rarely hold sway, as businesses would always act in their own best interests.

To check against flagrant abuse of due process, extant laws exist but lack of enforcement either due to inadequate capacity or compromise of regulators, would make them ineffectual. This defeat the notion that more laws are needed to check the menace. The other side of the argument is whether Nigerian firms have the capacity to undertake specialised tasks in the sector.

This situation can hardly be fixed by legislative fiat though, because capacity, whether human or technical, experts say, is the first determinant of who is awarded the contract. In the past five years, Nigeria has ramped up capacity to undertake critical projects with indigenous firms competing for big ticket contracts in the oil and gas industry.

Funding constraints is being tackled with the creation of the $200m fund, a portion of the Nigerian Content Development Fund (NCDF), which was established by Section 104 of the Nigerian Oil and Gas Industry Content Development (NOGICD) Act which is drawn from 1 percent of all contracts awarded in the upstream sector of the oil and gas industry.

Set up in 2013 with $50m in 2012, the fund have grown to about $100m but local firms have expressed frustration over inability to access the funds due to stringent conditions. Many have not been able to meet with the requirements ranging from meeting their own contribution quota, health and safety requirement and human capacity development.

An interview Simbi Wabote, executive secretary of Nigerian Content Development Monitoring Board granted online news platform Premium Times in April revealed the critical role regulation should play. Wabote admitted that many international oil companies are defaulting in following the provisions of the act but they have not been sanctioned.

“If you read through the Act itself, there is a mechanism for doing so. That is why there are so many cases in court. People often default or run foul of the law. So, in an Act like that, yes there will be defaulters out of ignorance or total disregard for the rule of law itself. The monitoring units of the NCDMB are well equal to the task.

“We have gotten defaulters. We are taking them through the process and ensure that they comply as well as penalties for non-compliance. It is an ongoing exercise. Even Nigerian companies that you would think will comply with the Act are also defaulting,” said Wabote.

ISAAC ANYAOGU