Nigeria Extends Local Content to Power Sector

A NEW era is set to unfold in Nigeria’s electricity power sector as the country finally gets a local content Regulation with far-reaching provisions for prioritization of employment of Nigerian workers, technologies and consultants. Among other things, the Regulation mandates the electricity power utilities to first give consideration to goods and services of Nigerian origin in the award of contracts. It specifically mandates all operators in the sector to first give consideration to suitably qualified Nigerians for employment and training. The Regulation, titled ‘Regulations on national content development for the power sector’ which took effect from December 24, 2014, was signed by Chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr. Sam Amadi.

The Regulation provides that all licenses shall have the development of Nigerian content as a key component of their philosophy in their general operations, including the execution of their projects. It also requires NERC to establish, maintain and administer a Joint Qualification System (JQS) in consultation with the Nigerian Content Consultative Forum (NNCCF) in accordance with provisions of the content law. The JQS is to constitute an industry databank of available capabilities and shall be the sole system for Nigerian content registration and pre-qualification of contractors in the industry, a source for the verification of contractors’ capacity and capabilities, a source for information in the review of applications of Nigerian content, and the data bank for national skills development pool. The JQS is also to be used for the ranking and categorization of all service companies on capabilities and Nigerian content.

 It directs all operators to ensure that first consideration is given to qualified Nigerian companies for the supply of goods and works, and for the provision of services.

On contracts/procurement

Under contracts/procurement, the Regulation provides:  “All licenses shall give first consideration for goods made in Nigeria and services provided by Nigerian firms in award of contracts. All operators and project promoters shall consider Nigerian content when evaluating any bid at commercial stage and the bid containing the highest level of Nigerian content shall be selected.”

Under consideration for employment and training, it provides that “All licenses shall first give consideration to suitably qualified Nigerians for employment and training.  For each of its operations in respect of management positions, a licensee must ensure that not more than five per cent of such percentage as may be approved by the Commission from time to time is retained by expatriates.

“The application for employment of an expatriate shall be in the form prescribed by the Commission with appropriate justification showing that no suitably qualified Nigerian has been found for the position following diligent search. The approval of the Commission in this instance does not preclude compliance with the requisite immigration procedures.

“All operators and companies operating in the NESI shall employ only Nigerians in their junior and intermediate cadre or any other corresponding grades designated by the operator or company. All unskilled labour should be locally sourced.

“Where a Nigerian is not allowed to progress within the organisational structure of a Licensee because of their lack of training in a particular area, the Licensee shall prove to the satisfaction of the Commission, that the Employment and Training Plan of the Licensee provides for such training and efforts have been made to train the employee.”

In the area of maintenance of employment and training plan, the regulation directs that Nigerians should be given first consideration for training and employment in the work program for which the plan was submitted. It stressed: “Licensees shall maintain an employment and training plan for each financial year. The said plan shall be submitted to the Commission upon request.

“The employment and training plan shall make provision for succession planning to enable Nigerians assumes positions that may be occupied by expatriates. The training plan shall take into cognizance the full involvement of Nigerians in any research and development activity undertaken by the company.

“Any collective agreement entered into by the licensees with any association of employees regarding their terms and conditions of employment shall contain provisions consistent with this section.”

The need for Technology Acquisition Plan by each of the utilities was emphasized. 

Technology acquisition report

Failure to submit an acceptable technology acquisition report when requested by the Commission would render a defaulting firm liable to fines and other sanctions as may be determined by the Commission under the applicable laws and regulations.

According to the policy: “Each Licensee shall maintain a Technology Transfer Plan. The plan shall contain details of various technologies deployed by the operator and the proposed modalities for transfer to Nigerians where applicable. All licenses shall give full and effective support to technology acquisition by encouraging and facilitating the formation of joint ventures, partnering and the development of licensing agreements between Nigerian and foreign contractors and service or Supplier Company’s agreement for all such joint ventures or alliances shall meet the requirements of Nigerian content development to the satisfaction of the Commission.

“Where necessary, the Commission shall consult and make recommendation to the relevant arms of government on appropriate fiscal framework and tax incentives for foreign and indigenous companies who establish facilities, factories, production units or other operations in Nigeria for the purpose of carrying out production, manufacturing or for providing services and goods otherwise imported into Nigeria.”

Professional services 

Under professional services, the new Regulation gave Nigerian professionals and consultants’ prominence over their foreign counterparts.

It provides: “Engineering services shall be rendered by Nigerian engineering companies registered with relevant regulatory authorities. Foreign engineering consultants/firms may only be engaged when the required services are rendered in collaboration with the firms licensed to provide such services.

“Licensee shall obtain insurance and reinsurance services from companies licensed by the National Insurance Commission (NAICOM) for such purposes. Where there is a reasonable need for a company to engage an offshore insurance firm, prior consent of the Commission must be sought. Application for consent to engage an offshore insurance firm shall be in the format specified by the Commission and include clearance by the NAICOM such foreign firms.

“At the end of each financial year, each company shall maintain a register of all companies through which insurance coverage was contained in the past financial year, the classes of cover obtained and the premiums paid for such coverage.”

It further provides that the need for legal services in the sector to be carried out by legal practitioners qualified to practice in Nigeria, noting that foreign consultants may only be engaged in the NESI when the required services are rendered in collaboration with a firm of Nigerian legal practitioners registered by the Corporate Affairs Commission (CAC).

Under Financial and Capital Market Services, it provides that foreign financial and capital market services may only be engaged when the required services are rendered in collaboration with firm licensed to provide such financial and capital market services in Nigeria.

“Financial and capital market services in the sector shall be rendered by the Nigerian registered companies licensed by and in good standing with the relevant regulatory authorities.”

Gains of new regulation

Speaking on the Regulation, the Chairman of NERC noted: “The idea here is not to restrict trade of any sort, or to impose hardship or difficulties for operators in this industry. Rather, it is to ensure that we see significant localisation or nationalization of services, of employment and of technology.  Basically, these are the three areas of focus.

“We did not go to the National Assembly to procure legislation because we are not creating any new body. The law content in the oil and gas sector created a local content agency, so it needed to have a legislation to create that with full structure and organisation and perhaps much more regulatory power.

  “What we did is to use our regulation making powers to create obligations in the market. The difference here is that we didn't need a structure or agency, we created obligations. As part of the licensing commitment of licensees in this industry, they have an obligation to ensure increasing nationalization of their services, of their employment and of their technology.  And we are leading a process of peer review, which means we create some kind of council, some kind of Board that is made up of stakeholders in the industry that will be advising on what benchmarks should be adopted.

“We expect that every year, each Disco, Genco and Transco will send in their annual report, some kind of commitment to meet the local content obligation.”

Comparing the oil and gas sector with the power sector, he noted: “Don’t forget that the difference between the electricity sector and the oil and gas is that everything in the power sector is regulated. Price here is regulated. End user tariff is what backs or stops everything in the market, in the value chain. Therefore, we will be very careful to ensure that the implementation of local content does not also make the sector inefficient. That is critical here.

“We want to do two sides. We will impose obligations on the utilities and at the same time ensure that there are quality appropriate services to back up that expectation. So, if we ask you to hire Nigerian experts in any aspect, we want to make sure those Nigerians are comparable globally, competitive, capable in best practices, so that you do not get to a grandfather and inefficient industry.

Source: The Guardian

Mandatory Listing of Oil Companies in the Mozambican Stock Exchange: A Novel Approach to Local Content?

On August 18, 2014, Mozambique enacted the Petroleum Law No. 21/2014. The enactment of this law was to create an enabling legal framework for the new Mozambican gas sector which was buoyed by recent massive gas discoveries made in 2012 and 2013. These discoveries revealed that Mozambique sits on over a 100 tcf of recoverable gas reserves. The need to ensure proper exploitation of these reserves for the ultimate benefit of the country and citizens necessitated the new Petroleum Law which expectedly, established local content obligations for entities seeking to operate in the emerging Petroleum State.

Consistent with traditional local content obligations, the Law mandates employment and training of Mozambicans and patronage of Mozambican goods and services. With respect to employment and training of Mozambicans, Articles 12 and 15(b) of the Petroleum Law mandates petroleum exploration companies to ensure the employment and training of Mozambican nationals in technical areas and to see to their participation and management in petroleum operations. As regards patronage of Mozambican goods and services, Article 41(3) requires petroleum operations right holders, in purchasing goods and services, to give preference to Mozambican products and services which must be comparable in terms of quality to international products and services.[1] These requirements are traditional local content requirements as established by the Local Content PET Rule, i.e. Patronize, Employ and Train.

In addition to these requirements, the Mozambican Petroleum Law introduces a novel addition to the local content requirements. This is the mandatory listing requirement. Article 13(2) of the Petroleum Law provides that the oil and gas companies must be registered in the Mozambican Stock Exchange in accordance with the applicable Mozambican legislation.  There are two ways to interpret this provision. The first is by looking at Article 13 in isolation. Article 13 is titled “Promotion of National Entrepreneurship”. Article 13(1) provides that the government must create mechanisms and outline the conditions for the involvement of indigenous entrepreneurs in the oil and gas enterprises. Then Article 13(2) provides that the oil and gas companies must be registered with the Mozambican Stock Exchange. It can be argued that the oil and gas companies referred to under Article 13(2) are the oil and gas companies of indigenous entrepreneurs. This position is strengthened if consideration is taken of the fact that the term “oil and gas companies” is not used elsewhere in the Law. The other way to interpret the Article is by saying that Article 13 (2) applies to all oil and gas companies carrying out operations in Mozambique, irrespective of whether they are indigenous or foreign.

Irrespective of which interpretation is adopted, one thing is certain, there is a mandatory listing requirement under the Law. Could this be a novel approach to local content?

Harrison Declan

Editor, Energy Law Review, and author ‘Local Content in Africa’s Petroleum States: Law and Policy’.

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[1]   The Decree Law for Offshore Areas 1 and 4, published on 2^nd December, 2014 (Decree Law No. 2/2014) introduced some exceptions to this mandatory purchase requirement. See Article 10 of the Deccree Law. 

Caging the Regulator: Ghana's Local Content Committee and the Petroleum Commission

Ghana's success in hydrocarbon exploration which culminated in production from the Jubilee Field in 2010 threw up new opportunities as well as challenges for the promising West African country. One of such challenges is entrenching local content, which has become a major feature of Africa's petroleum producing States, into the emerging petroleum sector. The enactment of the Petroleum Commission Act (Act 821) in 2011 and the Petroleum (Local Content and Local Participation) Regulations in 2013 were significant legislative steps to make local content an integral aspect of the Ghanaian petroleum sector. 

The Petroleum Commission Act created the Petroleum Commission for the purpose of overseeing activities in the country's petroleum industry. The functions of the Commission extends to promoting local content and local participation in petroleum activities as prescribed in the Petroleum Exploration and Production Act 1984 (P.N.D.C.L. 84) and other applicable laws and regulations to strengthen national development. In exercise of powers conferred on the Minister by section 22 of Act 821, the Local Content and Local Participation Regulations were made. The Regulations established the Local Content Committee as the body to see to the implementation of the Regulations, however, the Commission still retained its duty of promoting local content and local participation in petroleum activities and shares the responsibility of implementing the provisions of the Regulations with the Committee.

For the avoidance of doubt, the duties of the Local Content Committee as set out in Regulation 5(3) are as follows:

i.                    Overseeing, coordinating and managing the development of local content;

ii.                 Preparing guidelines, to include targets and formats for local content plans and reporting;

iii.               Making appropriate recommendations to the Commission for smooth implementation of the Regulations;

iv.               Setting minimum standard requirements for local content in local content plans where applicable;

v.                  Undertaking public education;

vi.                Undertaking local content monitoring and audit; and

Performing other functions conferred on the Committee by the Commission in accordance with the provisions of applicable laws. The Committee is further required to submit quarterly reports of its activities to the Commission.

It is submitted that the provisions of the Regulations and the position of the Commission operate to cage the Local Content Committee which ought to be a separate and independent regulator, and we are tempted to ask if the duty of the Local Content Committee is to oversee the implementation of the Regulations or to assist the Commission in the implementation. 

The Petroleum Commission Act which establishes the Commission fixes the functions of the Commission to include promoting local content and local participation in petroleum activities as prescribed in P.N.D.C.L. 84 and other applicable laws and regulations to strengthen national development. [See section 3 (f) of the Act.] The Commission’s governing body (the Board) is empowered to establish Committees consisting of members of the Board or of members and non-members of the Board to perform a function, [See section 8(1) of the Act] and in particular, shall establish a Local Content Committee to deal with local content and local participation program [See section 8(2) of the Act]. Thus, it can be safely concluded that while the Commission has a general role towards the entire petroleum industry, the part of the industry relating to local content and local participation is to be overseen by the Local Content Committee. This position is strengthened by the provisions of Regulation 5(1) where it was stated that the Local Content Committee shall oversee the implementation of the Regulations.

However, a closer reading of the Regulations shows that rather than oversee the implementation of the Regulations, the Local Content Committee would only assist the Commission in the implementation of the Regulations. Evidence of this abounds in all the provisions of the Regulations, but a single example will suffice. Regulations 7(1) imposes on a contractor, subcontractor, licensee or other allied entity the duty of submitting a local content plan. Implementation of this Regulation would envisage the power to receive and approve the local content plan and issue penalties where there is a contravention of the Regulation. These powers are all vested in the Commission [Regulations 7, 8(5) and (7) and 46(7)]. The only duty of the Committee in this process is that of making recommendations on the local content plan to the Commission, which the Commission is not bound to act upon. In these circumstances, it is wondered how the Committee would satisfactorily carry out its duty of overseeing the implementation of the Regulations.

It is submitted that for the Local Content Committee to effectively and efficiently carry out its duties and fulfil the aspirations of the local content Regulations, then it has to be freed from the Commission’s cage to become a free and independent regulator.

Harrison Declan, MCIArb (UK)

decok86@yahoo.com

Author, Local Content in Africa’s Petroleum States: Law and Policy