Suggested Further Amendments to the Nigerian Oil and Gas Industry Development Content Law

-By Harrison Declan. Harrison is a local content law expert and author of the book ‘Local Content in Africa’s Petroleum States: Law and Policy’.

On the 2^nd of June, 2015, the Nigerian legislature passed a Bill amending the country’s local content law. The Bill is titled the Nigerian Oil and Gas Industry Content Development (Amendment) Bill 2015 (HB. 452). Currently, the amendment Bill has been forwarded to the President for assent. Vide section 58 (4) and (5) of the Constitution of the Federal Republic of Nigeria, 1999 (As Amended), where a Bill is presented to the President for assent, he shall within 30 days signify that he assents or withholds assent. Where he withholds assent and the Bill is again passed by each House by two-thirds majority, the Bill becomes law and the assent of the President shall not be required. There has been no expression by the President signifying that he assents or withholds assent. The simple implication of this is that up till this point, there still exists the possibility of some further amendments being included in the Bill, as the President can refer the Bill back to the National Assembly for further deliberations.While the amendment to the Act is appreciated, they are still insufficient. Some suggested further amendments to be made are:

a.   The provisions on employment of expatriates

The original Act contains provisions which require that Nigerians be given preference in employment opportunities. Some of the sections relevant in this regard are sections 10(1)(b),[2] 28(1),[3] 31(1)[4] and 33(1)[5]. Expatriates would only be allowed where Nigerians are not capable of performing the jobs, and where expatriates are brought in, they must have Nigerian understudies to take over from them after a duration of four years. However, there have been numerous instances where the employment of expatriates has been abused by oil companies. In July 2013, the Board introduced the bio-metric registration for expatriates in order to have a database of expatriates working in the industry to check the abuse. While this is important and to some extent successful, it is also important to limit the possibility of abuse through legislation.

To check this abuse of expatriate positions, it is suggested that sections 10(1)(b) and 28(1) be amended. The expression “first consideration” should be deleted from the section, as there is no meaning ascribed to that expression in the Act. The sections should provide that only Nigerians shall be given consideration for employments and training in any project executed by any operator. Where an operator believes that the existing capacities cannot be performed by Nigerians, then expatriates should only be brought in subject to section 33(1). Also, specific penalties should be made for violation of provisions on employment of expatriates. The general penalty regime of the Act makes enforcement in this regard treacherous.

b.   Rate discrimination

Another provision of the original Act deserving of amendment is section 31(2)[6] which provides for rate discrimination between Nigerians and expatriates. It is important to emphasise that rate discrimination is one of the factors that undermine development of local capacity in the Nigerian oil and gas industry. In some other jurisdictions, rate discrimination between locals and expatriates is not allowed in their local content laws. For instance, Article 5 of Angolan Decree-Law No. 17/09 prohibits any form of discrimination as regards the conditions of work between local and foreign personnel. It mandates operators to ensure that both Angolan and foreign personnel employed by them who have the same job grade and perform identical functions have equal rights, and as such enjoy the same benefits in respect of pay and welfare and also the same working conditions.[7]

It is important that this section is amended to eliminate discrimination in conditions of service between Nigerians and expatriates.

c.   Incentives for compliance

Section 48[8] of the original Act is the incentive section. Unfortunately, the provision of the said section on incentive is vague and doesn’t really incentivise. It is suggested that a more practical incentive regime be brought into the Act. Having implemented the Act for half a decade, the Minister as well as the Board should be able to determine what incentives are appropriate for compliance with the Act, and such incentives should basically be included in the Act.

d.   The penalty provisions

Another section deserving of amendment is section 68[9] of the original Act which provides for penalties for non-compliance with the provisions of the Act. It is submitted that the penalty regime created under the Act is one that is difficult to impose, especially where the violation is considered minute or not very grievous. For instance, would the Board have the moral strength to cancel a project or impose a fine of five per cent of the project sum if the operator as defined under the Act exceeded his expatriate quota by just two expatriates, or would the Board cancel a project or impose a fine of five percent because an operator as defined under the Act furnishes its office with imported furniture?[10] The penalty regime is so stringent that they become impracticable to enforce in instances where the violation is considered not deserving of such harsh penalty created under the Act.[11] For this reason, there are numerous cases where operators as defined under the Act have had their way with violations of the provisions of the Act simply because the Board could not impose the penalty provided under the Act in such situations. This has created the impression that the Board is too weak to enforce the provisions of the Act. It is important to state that the law would be better served if there are no penalty provisions, than where there are penalty provisions that can’t be enforced in all instances.

Accordingly, it is suggested that the penalty section should be more detailed than it is at the moment. Where there are sections creating obligations under the Act, the penalty section should state the penalty for a contravention of each of those provisions. That way, any violation under the Act, no matter how minute it might seem, would have a penalty attached thereto.

e.   Protection of whistle-blowers

The Act should be amended to provide for protection of whistle-blowers. In every company, employees are more disposed to have knowledge of violation of the provisions of the Act by their employers. The story of where companies with unapproved expatriates hide these expatriates and only present their Nigerian employees when the Board is to pay a scheduled visit lends credence to the fact that a special form of protection is needed for whistle-blowers in the industry. This provision should be without prejudice to any law on protection of whistle-blowers in the country.

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[1]  The National Assembly is Nigerian’s legislature and is comprised of the upper Chamber, which is the Senate and the lower Chamber which is the House of Representatives.

[2] Section 10(1)(b) provides that “Nigerians shall be given first consideration for training and employment in the work programme for which the plan was submitted”.

[3] Section 28(1) provides that “Subject to section 10(1)(b) of this Act, Nigerians shall be given the first consideration for employment and training in any project executed by any operator or project promoter in the Nigerian oil and gas industry.

[4] Section 31(1) provides “For each of its operations, the operator shall submit to the Board a succession plan for any position not held by Nigerians and the plan shall provide for Nigerians to understudy each incumbent expatriate for a maximum period of four years and at the end of the four years period the position shall be Nigerianised”.

[5] Section 33(1) provides “Upon the commencement of this Act, the operators shall make application to, and receive the approval of the Board before making any application for expatriate quota to the Ministry of Internal Affairs or any other agency or Ministry of the Federal Government”.

[6] Section 31(2) provides “All indigenous (Nigerianised) positions shall attract salaries, wages and benefits as provided for in the operator’s conditions of service for Nigerian employee”.

[7]   See also Article 5 of the Angolan Executive Decree 13/10.

[8]  Section 48 provides “The Minister shall consult with the relevant arms of Government on appropriate fiscal framework and tax incentives for foreign and indigenous companies which establish facilities, factories, production units or other operations in Nigeria for purposes of carrying out production, manufacturing or for providing services and goods otherwise imported into Nigeria”.

[9] Section 68 provides “An operator, contractor or sub-contractor who carries out any project contrary to the provisions of this Act, commits an offence and is liable upon conviction to a fine of five percent of the project sum for each project in which the offence is committed or cancellation of the project”.

[10] While inaugurating the offshore quarters built by EIFFEL Nigeria Limited, it was observed that the furniture and fittings at the living quarters were imported. No sanction was imposed as all the operator received was warnings of “severe sanctions”. See See ThisDay Live ‘Challenges of Enforcing the Nigerian Content Act’, n. 17.

[11] Section 39 provides “The operator shall submit to the Board, on quarterly basis, with respect to its R and D activities and the Board shall compare these activities to the operators R and D Plan”. What if an operator submits the R and D Plan on the 5^th month instead of on the 3^rd month? Would that in reality lead to an imposition of a fine of 5% or a cancellation of the contract?