Multiple Chapters on "Oil to What Extent Would the Nigerian"

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[EXCERPT] . . . .

Oil

To what extent would the Nigerian local content law improve capacity building in the oil and gas sector?

Nigeria local content

To what extent would the Nigerian local content law improves capacity build in the oil and gas sector?

A rather simple definition of the term local content is; "…the use of local skills and materials in constructing and/or maintaining an asset or service" (Local Content) This includes aspect such as employment and skills development as well as the important aspect of local procurement of goods and services, and "….enhancing the capacity of local suppliers and contractors…"( Local Content).

Another definition that is often encountered in the literature is; "local content is building a workforce that is skilled and building a competitive supplier base" (Asamoah ) the issue of local content that has many ramification both economically and politically.

From the point-of-view of developing countries like Nigeria local content has become an important issue in terms of national identity and the emergence and independence from the colonial past. The following quotation encapsulates something of the importance of the concept of local content.

It has become a very important issue due to the fact that in this day and age, every country would like its citizens to capture the commanding heights of its economy and thus assist to keep its wealth within its borders, as well as providing jobs to the ever increasing population. This is achieved through capacity building, creating SMEs as well as offering products and services locally.

(Asamoah)

Nigeria is an especially oil rich region, and an important area of oil exploration for upstream oil companies. According to the Organization of Petroleum Exporting Countries, the oil sector of the country "…provides 20% of the country's gross domestic product (GDP) and around 65% of budget revenues" ( Examining Nigeria's Local Content Act). It is ninth largest oil producer in the world, as well as being the fifth largest OPEC producer. The country also has extensive gas reserves (Adefulu).

Figure 1. Nigeria has the most offshore fields expected to come onstream in West Africa between 2011 and 2015.

( Source: http://www.epmag.com/Magazine/2011/3/item78470.php)

However, there has been a strong movement within the country in recent years towards the implementation of greater local control and indigenous control of the oil and gas industry; often as a result of what is perceived as being exploitation of their natural resources by outside companies.

In effect, the origins of the oil industry in Nigeria began in 1956, when oil was discovered by the Shell Company. Prior to this period the oil issues and exploration in the country was developed in terms of a concession given to Shell. Therefore, the Shell Oil Company has played a dominant role in the Nigerian Oil industry.

However, over the years there have been efforts by the Nigerian government and industry to exert a greater measure of control over this resource. These efforts also coincide with the countries' membership of the Organization of Petroleum Exporting Countries (OPEC) in 1971. After 1971 one sees the emergence of "…National Oil Companies (NOCs) across OPEC member countries, with the sole objective of monitoring the stake of the oil-producing countries in the exploitation of the resource" (Ameh ).

In the case of Nigeria, the Multinational Oil Companies (MNOCs) were "...allowed to continue with such operations under Joint Operating Agreements (JOA) which clearly specified the respective stakes of the companies and the Government of Nigeria in the ventures" (Ameh ). These Multinational Oil Companies included ChevronTexaco, Elf Petroleum (now Total), ExxonMobil, as well as Shell. These companies were operating under the Joint Operating Agreements with the NNPC.

Until recently these companies were the main players in the Nigerian oil industry.

To date, the above companies constitute the major players in Nigeria's oil industry, with Shell accounting for a just little less than 50% of Nigeria's total daily production, which currently stands at about 2.4 million barrels of oil per day

(Ameh ).

Recently there has been legislation implemented in Nigeria aimed at decreasing outside control of Nigerian oil and introducing local content requirements and provisions. This purpose and aims of this legislation is clearly summed up in the following overview:

The Nigerian Government has set a minimum local content target of 75% by 2010 for all works and contracts to be undertaken in or on behalf of all oil & gas companies operating in the Nigerian oil & gas industry. This target is fully supported by the oil & gas companies operating in Nigeria. To meet this target a number of processes are now in place including a contract evaluation and award criteria which favours bids which meet or exceed the minimum local content target. The Nigerian government, via the NCD (Nigerian Content Division) of the NNPC, has issued a list of 23 categories of work which must be executed in Nigeria.

The following chapters will explore the move in Nigeria towards local content implementation and its concomitant link to capacity building.

Chapter 2

In the past there was a relative lack of governmental and local interest in the oil industry."In the 1960s, government interest in the oil industry was limited to the collection of taxes, royalties and lease rentals" (Akinjide-Balogun, 2001). However, many developing countries like Nigeria began to exert pressure for more control over natural resourced like oil in response to the colonial hegemony of the past.

One could therefore link the origins of recent development towards autonomy in Nigeria, as well as in other developing countries, to the 1962 Resolution on Permanent Sovereignty over Natural Resources adopted by the General Assembly of the United Nations. This resolution stated that it is the right of people to "...freely use and exploit their natural wealth and resources is inherent in their sovereignty" (Akinjide-Balogun, 2001).

The spirit of this resolution could in turn be linked to the 1969 the Petroleum Act which "... vested the entire ownership and control of all petroleum in, under or upon all land or Nigerian territorial waters in the Nigerian government" (Akinjide-Balogun, 2001).

A central event in the progression towards greater control over natural resources like oil was when Nigeria joined OPEC or the Organization of Petroleum Exporting Countries in 1971. One should also bear in mind the 1968 and 1971 resolutions by OPEC, which were aimed at acquiring ownership in the concessions held by foreign companies.

Another important landmark was the establishment of the Nigerian National Oil Corporation (NNOC) in 1971. NNOC was empowered by the government of the country "...to acquire any asset and liability in existing oil companies on behalf of the Nigerian government, and to participate in all phases of the petroleum industry" (Akinjide-Balogun, 2001). This was to lead to a number of acquisitions that continue today and to the Local Content Act.

In essence, the Local Content Act that has recently been legislated in Nigeria is a legal process that provides for Nigerian companies to be given priority and primary consideration in the awarding of oil blocks as well as oil lifting contracts and "…any other contract available in the Nigerian oil industry" (Nigeria: At Last, the Local Content Act!, 2010). Furthermore, this Act "...demands that in bidding for any license, permit or interest or in the industry, an operator must show proof of compliance with the local content Act" (Nigeria: At Last, the Local Content Act!, 2010).

The consequence of this Act for the country seem be extremely positive. According to studies it will generate more than 30,000 jobs within five years (Nigeria: At Last, the Local Content Act!, 2010). It is also envisaged that the LCL will " also turn the fortunes of Nigeria around from a net importer of petroleum products, such as petrol, diesel, kerosene and others, to a self-sufficient oil producing country as obtains in other OPEC countries such as Iran and Venezuela"(Nigeria: At Last, the Local Content Act!, 2010).

2.2. Goals of LCL

Some of the initials goals of the LCL, as described in a 2005 report, were as follows:

Formalising the Nigerian content policy and pushing for its passage at the National Assembly

Defining technology levels to be awarded to indigenous companies to ensure steady growth in competence and capacity.

Encouraging Nigerian contractors to pool their resources together either as joint ventures, joint enterprises or new limited liability companies

Setting up a local content unit in the NNPC business units to monitor the implementation of graduated local content growth.

(Sheyin, 2005, p. 38)

More specifically, the aims the moves towards local content are: "To increase value… with regard to the local oil industry and especially to the distribution of funds provided by upstream oil companies within the country "(Examining Nigeria's Local Content Act). This has led to various reforms in the oil industry of the country and the Local Content Legislation and Act is paramount in this regard. (Examining Nigeria's Local Content Act)

The core and most important elements of the LCA are as follows:

The Establishment of a Nigerian Content Monitoring Board to monitor the achievement of… READ MORE

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