The Nigeria Local Content Policy & ShareholdingAbbakin
The Nigerian Oil and Gas Industry Content Development Act, 2010 (the “Content Act”) provides the legal basis for the determination of the Nigeria local content policy and compliance of companies operating in the Nigerian oil and gas industry (“the Industry”).
The local content policy drive of the Nigerian government is aimed primarily at building local competencies in the Industry by ensuring indigenous participation through the provision of manpower, services and the ownership of interests in the Industry.
To this extent, the Content Act places emphasis on the promotion of “Nigerian Content” among companies bidding for contracts in the Industry.
Highlights of the Nigeria Local Content Policy (the Content Act)
Following our summary of the thrust of the Content Act above, a synopsis of the major highlights of the Content Act is set out as follows:
- All operators and alliance partners to maintain a bidding process for all job oﬀers and the bid selection process shall not be based solely on principle of the lowest bidder but shall, where the bids are within 1% of each other at the commercial stage, be considered with preference for the bid with the highest Nigerian content.
- Where applicable or where directed by the Board, an operator shall, prior to commencing work, establish a project oﬃce in the area where the job is to be executed and such project oﬃce shall have staﬀ with decision- making authority. The Board shall ensure that a reasonable number of personnel from the signiﬁcant areas of operation of the company are supervised by the operator together with a requirement that Nigerians shall be given ﬁrst consideration for employment and training in any project executed by an operator in the Industry.
- The conduct of any project contrary to the provisions of the Content Act is an oﬀence for which the operator would be punishable by a ﬁne of 5% of the value of the contract, or a cancellation of the project.
- A ﬁscal framework and tax incentives are to be put in place for foreign and indigenous companies that establish facilities, factories, production units or other operations in Nigeria for providing support services to the Industry.
- 1% of every contract awarded is to be deducted at source for the funding of the Nigerian Content Development Fund.
- Operators are encouraged to train and develop a Nigerian labor force and all expatriate positions shall after a maximum four-year period, be occupied by a Nigerian albeit that a maximum of 5% of management positions may be reserved for protecting investor interests; subject to the condition that any application for expatriate quota for such positions must be pre-approved by the Board. However, staﬃng in the junior and intermediate cadre or any other corresponding grades shall be held exclusively by Nigerians.
- International/multinational companies working through their Nigerian subsidiaries must demonstrate that a minimum of 50% of the equipment deployed for execution of work is owned by Nigerian subsidiaries.
All insurable risks related to oil and gas business, operations or contracts are required to be insured through insurance brokers registered in Nigeria.
- Only services of Nigerian legal practitioners would be permitted to be retained by companies in the Industry.
- Except where impracticable, only Nigerian ﬁnancial institutions shall be retained by companies in the Industry.
(II) Local Shareholding
The Content Act does not provide any threshold of share capital distribution as one of its parameters. The Content Act, however, provides a deﬁnition of a Nigerian Company as “a company formed and registered in Nigeria in accordance with the provision of the Companies and Allied Matters Act with not less than 51% equity shares [held] by Nigerians”.
Notably, the Content Act does not indicate that it would be a general requirement for eligibility in respect of any company desirous of operating in the Industry to be a Nigerian Company, either at contract bidding or contract execution.
It is, however, worth mentioning that the Content Act vests exclusivity for certain contracts and services in the areas where such Nigerian indigenous service companies demonstrate ownership of equipment, (Nigerian) personnel and capacity to bid for contracts and services on land and swamp operating areas of the Industry.
Consequently, a company operating in the Industry would be in compliance with the Content Act where:
(i) its operations meet the requisite parameters; and
(ii) at least 51% of its shares are held by Nigerians.