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2010

Odujinrin &AdefuluChurch House

1st

Floor

29, Marina, Lagos

LOCALCONTENTKEYISSUESANALYSISSERIESPAPER1:

THENIGERIANCONTENTPLAN

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By Dr. Adeoye Adefulu & Aderemi Ogunbanjo*

ABOUT THE LOCALCONTENT KEY ISSUES ANALYSIS (LCKIA)SERIES The LCKIA series has been designed by the Energy Pract ice Team of Oduj inr in& Adefulu as br ief papers which provide pract ical analysis of the cr it ical

elements of the Nigerian Oi l and Gas industry Content Development Act 2010.

Some of the issues the Series is expected to cover are:

The Nigerian Content Plan Employment & Training Obl igat ions

The Nigerian Content Monitor ing &

Development Board

The Nigerian Content Development

Fund and the contractor s fundingresponsibi l i ty

Research & Development Obl igat ions Financial Services Obl igat ions

The papers shal l be avai lable on our website

www.oduj inr inadefulu.com/publ icat ions as they are publ ished.

*DrAdeoyeAdefuluisapartnerandMs.AderemiOgunbanjoisaseniorassociateintheEnergyPracticeTeamofOdujinrin&Adefulu.Theymaybereachedatfirstname.lastname@odujinrinadefulu.com.

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1. Introduction The Niger ian Content P lan is a key requirement of the Niger ian Oi l and Gas Industry

Content Development Act 2010 (NCA). This paper br ief ly examines the issues

which must be considered in preparing such a plan.

2. Scope of Requirement for Submission of Nigerian Content Plan Plan by Operators

Sect ion 7 of the NCA requires operators2 to submit a p lan showing compl iance with

the Niger ian content requirements of the Act, as part of the condit ion for b idding

for a l icence, permit or other oi l and gas interest and before the execut ion of any

project in the industry. Whi lst the wording of t his sect ion suggests the plan should

demonstrate histor ica l compl iance of an operator with the Act, sect ions 12 and 13,

which deal with the contents of the plan require a forward programme indicat ing

how an operator intends to comply with the provis ions of the Act. We suggest that

the latter interpretat ion is the correct one.

As stated in sect ion 7, a p lan would be required when . . .b idding for any l icence,

permit or interest. . . By v irtue of this provis ion a Niger ian Content P lan (the Plan)would be required to be submitted for government acreage awards. This would

mean that information regarding any bidding rounds must be made avai lable by the

government l icens ing body in suff ic ient t ime for a P lan to be drawn up, submitted

and approved. This is l ike ly to require up to two months.

A P lan is a lso required . . .before carry ing out any project in the Niger ian oi l and

gas industry. . . Whi lst this provis ion may seem very wide in the sense that i t covers

every type of project in which an operator might be involved in respect of a f ie ld

operat ion, we suggest that in pract ica l terms, i t would mean no more than the Plan

being required when such projects require some form of government/regulatory

approval. For example, a F ie ld Development Programme in an upstream project

2 Companies in this category include NNPC, its subsidiaries and joint venture partners and any Nigerian or foreign or

international oil and gas company operating in the Nigeria oil and gas industry under any petroleum arrangement. SeeSection 109 of the Act.

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would involve var ious other minor projects which would a l l be subsumed under the

major project requir ing a pr ior submiss ion of a P lan.

3. Plan Approval The Niger ian Content Monitor ing & Development Board (the Board) is empowered

to rev iew and assess any Plan submitted by an operator. The Plan is approved by

the issuance of a Cert i f icate of Author isat ion for the project, which is issued when

the Board is . . .sat is f ied that the Plan compl ies with the provis ion of this Act. . . 3

The Board is required to come to a decis ion no later than 30 days from the date of

commencement of their assessment of the Plan and a publ ic rev iew may be

conducted within that per iod. 4 Sect ion 9 only provides for an approval or denia l of

the Cert i f icate, i t does not speak to a process for seeking amendments to the Plan

submitted. We however bel ieve that the considerat ion process as a matter of

pract ice should leave room for the Board to communicate i ts reservat ions in respect

of a P lan for necessary amendments by the operator, to fac i l i tate an eff ic ient and

robust P lan approval system.

4. Contentofthe Plan The Plan must conta in provis ions giv ing:

a. f i rst considerat ion to the ut i l izat ion of serv ices provided from withinNiger ia and goods manufactured in Niger ia; and

b. f i rst considerat ion for the tra ining and employment of Niger ians in the workprogramme for which the Plan was submitted.5

It is interest ing that this provision does not specif ical ly mention services

provided by Nigerian companies 6 or Nigerian contractors, but has rather used

a term as vague as services provided from within Nigeria. The import is

3Section8oftheAct.4 Sections 8 & 9 of the Act.

5 Section 10 of the Act.

6 A Nigerian company is defined in section 109 of the Act as a company formed and registered in Nigeria inaccordance with the provision of Companies and Allied Matters Act with not less that 51% equity shares byNigerians.

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that the provision could be interpreted to mean either services provided by

Nigerian contractors or Nigerian service companies as def ined under the Act

(that is companies with 51% Nigerian shareholding) or services provided by a

company registered in Nigeria regardless of the percentage of Nigerian equity

in the company. The only pract ical interpretat ion however is that the Act is

referr ing to Nigerian contractors and service companies.

Addit ional ly, the concept of f irst considerat ion is not specif ical ly def ined in

the Act and is l ikely to be a subject of guidel ines issued by the Board. We

now consider below what we expect to be the boundaries of this concept.

5. Determining FirstConsideration In pract ice, we expect that f i rst considerat ion would require operators to look

first to the Niger ian market to meet their var ious goods, serv ices and employment

requirements where they meet industry standards in terms of qual i ty and market

value. 7 At the very least, an operator must indicate a process for ident i fy ing

Niger ian goods and serv ices provided by Niger ian companies. Subsequently, i t must

show how it proposes to give such bids f i rst considerat ion. For example, where

goods or serv ices are to be sourced through a bidding process, an operator may

show f irst considerat ion by tak ing into account the bid tenders from Niger ian

companies f i rst to see i f they meet the operator s requirements and where this is

the case, to l imit the award to such qual i f ied locals. In doing this , i t is expected

that the operator would a lso be looking at the f inancia l v iabi l i ty of the tender by

ut i l is ing the bid evaluat ion pr inc ip le enunciated in sect ion 16 of the Act to ensure

that such bid is not higher by a margin of not more than 10% to i ts fore ign

competitor. The important thing to note is that whi lst a general

def ini t ion/descr ipt ion of f i rst considerat ion may be given by the Board, the Act

indicates that i t is up to the re levant operator to demonstrate how it would show

first considerat ion in the Plan. Therefore each operator must ident i fy var ious ways

of showing f i rst considerat ion, analyse the impact of each choice on i ts operat ions,

choose one of the a lternat ives and lay out c lear ly in the Plan the choice i t has

7 Providing detailed analysis of this in the Plan would require operators liaising with their contractors on how thecontractors intend to meet these requirements in their service delivery and in engaging sub-contractors. This wouldgenerally also be part of the required documentation to be provided by bidders in an Invitation to Tender.

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made. Such a choice may be made with respect to a l l projects for which the

operator is involved in the Niger ian oi l and gas industry, or may be determined on a

project by project bas is .

6. Giving first consideration to Nigerians for Training and Employment

As a lready stated, the Act requires operators to g ive f i rst considerat ion for the

tra ining and employment of Niger ians in the work programme for which the Plan

was submitted.8

To achieve the f i rst considerat ion requirement of this provis ion, an operator which

has out l ined i ts hir ing needs in respect of a part icular project would be expected to

hire qual i f ied Niger ians f i rst where avai lable before looking to fore igners in the

event of shortages in the Niger ian labour force. 9 In provid ing project specif ic

tra ining requirement, we expect that the Act is referr ing to the tra ining of ex ist ing

employees of the operator as wel l as those to be recruited for a part icular project

and ensuring that Niger ians are considered f i rst for such tra ining programmes

where their qual i f icat ions and/or job prescr ipt ions within the organisat ion qual i fy

them for such tra ining.

7. Other ImportantConsiderations Whilst the Act states that the contents of the Plan should give c lear indicat ions of

f i rst considerat ion for Niger ians with respect to goods, serv ices, employment and

tra ining, there are other concepts within the Act, which are a lso important and

which an operator would a lso f ind useful to demonstrate within the Plan. These are:

Exclus ive considerat ion - required to be given to Niger ian indigenousserv ice companies which demonstrate ownership of equipment, Niger ian

personnel and capacity to execute projects involv ing work o n l a n d a n d

8 Ibid. See also section 28(1) of the Act.

9 This assumes greater importance in the light of the more stringent stance taken by the Act with regard to expatriatequota positions.

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s w a m p o p e r a t i n g a r e as .10 Whilst the term is not def ined in the Act, i t can

be taken to mean that only Niger ians can be considered for a project in this

operat ing area. Therefore inv itat ion to tender for such projects would only be

issued to Niger ian companies. This effect ive ly a l lows for sole sourc ing andthe pr inc ip le of exclus ive considerat ion would appear to apply i rrespect ive of

cost.

Full & Fair Opportunity11 - This means that not only must contract ingprocedures not unfa ir ly d isadvantage local suppl iers, but the operator should

be able to demonstrate that a l l reasonable efforts have been taken to ensure

that local suppl iers have been afforded ample opportunity to part ic ipate in

the contract ing process. Efforts would inc lude supply ing adequate and t imely

not ice and information in re lat ion to operators needs and requirements for

upcoming projects. This could a lso inc lude proper debrief ing of unsuccessful

b idders for purposes of future bids.

8. Concluding Remarks Overal l , the general idea behind the requirement for the submiss ion of a P lan is

that i t const i tutes a major avenue through which the Board can monitor and

regulate the act iv i t ies of operators to ensure compl iance with the Act. The abi l i ty of

an operator to develop a Niger ian Content P lan, which compl ies with the provis ions

of the NCA is cr i t ica l in ensur ing that the necessary approval is g iven in an eff ic ient

manner, as the abi l i ty to demonstrate f i rst considerat ion is the major e lement of

the Niger ian Content P lan, determining a process that works for each operator or

indeed each project type is imperat ive.

W e h o p e y o u f i n d t h e i n f o r m a t i o n c o n t a i n e d h e r e i n u s e f u l . Th i s N o t e i s f o r g e n e r a l

p u r p o s e s a n d g u i d a n c e o n l y a n d s h o u l d n o t b e r e g a r d e d a s l e g a l o r p r o f e s s i o n a l

a d v i c e . A n y q u e s t i o n s , c o m m e n t s o r c l a r i f i c a t i o n s m a y b e d i r e c t e d t o : D r A d e o y e

A d e f u l u t e l - + 2 3 4 8 0 2 2 2 4 0 8 8 8 e m a i l

a d e o y e . a d e f u l u @ o d u j i n r i n a d e f u l u . c o m

10See section 3(2) of the Act. Nigerian indigenous service companies can best take advantage of this concession bystructuring their organization to meet the specified conditions.

11 Section 15 of the Act.