Energy And Mining Law Newsletter Dec08

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The Nigerian Content Development Bill: What Foreign Investors in the Oil and Gas Sector Should Look Out For. December 2008

Vol. 21: Issue 12

The liberalisation of the oil & gas sectors of the Nigerian economy and increased global demand for crude oil have combined to make Nigeria a key player in the global oil market. However, for decades, Nigeria’s oil and gas sectors have been dominated by foreign multinational entities with large expatriate workers deployed in both onshore and offshore locations in the country. The Nigerian government now desires enhanced indigenous participation in the oil and gas sectors of the economy. The policy re-direction in the oil and gas sectors is encapsulated in the introduction of “Local Content” elements in the oil and gas in terms of oil bids, allocation, exploration and production (E&P) and services. The Nigerian Content Development Bill is the legislative vehicle designed to achieve enhanced level of local participation in Nigeria’s oil and gas sector. The Bill has passed through the required third reading at the Senate of the Federal Republic of Nigeria. It was finally passed and gazetted by the Senate on 15 April 2008. The Bill now awaits passage by the second legislative

chamber of the National Assembly of Nigeria, the House of Representatives. It is expected that the Bill when finally passed into law will have farreaching implications for diverse range of actors in the oil and gas sectors of Nigeria. Expected to be directly affected by this new proposed legislation are the operators, contractors, subcontractors, and service providers in the oil and gas industries. In addition, professional services engagements including legal and financial services in the oil and gas sectors of Nigeria will be affected by the proposed policy. The notes in this newsletter are intended for those already in the Nigerian oil and gas market as well as those seeking to enter, to enable them anticipate and adequately prepare and/or seek professional advice as to how the proposed law may impact on their operations in Nigeria. Overview Provisions:

of

the

Important



By virtue of S. 7 of the proposed law, submission of Nigerian Local Content Plan (NLCP) shall form an essential component of bidding for any license, permit or interest in the oil and gas sectors in Nigeria.



Under S. 12 of the proposed law, the minimum Nigerian content of

©Blackfriars LLP 2008. All rights reserved. This document is for general guidance only. Definitive advice should be sought from counsel if required. Blackfriars LLP is a Nigerian law firm with a representative office in Toronto, Canada.

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any project in the oil and gas sector shall not be less than 50%. 

By S. 15 of the proposed law, Nigerian Local Content shall form the basis for evaluating contracts.

 S. 37 of the proposed law contains far-reaching implications on employee and directorship/management structure of oil and gas operators in the country. S. 37 (1) makes it compulsory for all operators and companies operating in the Nigerian oil and gas industries to “employ only Nigerians in their junior and intermediate cadres or corresponding grades designated by the operator or company.”(Emphasis added) 

Sub-section 37 (2) requires "all operators and companies in the Nigeria oil and gas industry to ensure that the number of Nigerians employed in its managerial, professional and supervisory grades or any other corresponding grades designated by the operator or company shall not be less than 95% of persons employed in those categories and further that Nigerians constitute a minimum of 60% of its Board of Directors” (Emphasis added)

 Section 54 (1) requires operators, contractors and subcontractors to retain or engage only Nigerian lawyers in business and transactions. Subsection (2) requires operators in the oil and gas sectors to file every 6 months, a comprehensive Legal Services Plan (LSP). 

Section 56 (1) and (2) requires same for financial services. Subsection (2) also specifically requires oil and gas companies to submit every 6 months, a comprehensive Financial Services Plan (FSP).

Penalties for Non-Compliance Section 69 of the proposed law provides that failure to comply with its provisions shall constitute an offence, and on conviction: 1)

Liable to a fine in value of 10% of the project sum for each project for which the offence is committed and/or cancellation of the project, where applicable. In addition, the operator, contractor and subcontractor’s operating license may be withdrawn for a period not less than three years.

2)

Section 70 makes it a case of strict liability for the officer who caused such contract to

©Blackfriars LLP 2008. All rights reserved. This document is for general guidance only. Definitive advice should be sought from counsel if required. Blackfriars LLP is a Nigerian law firm with a representative office in Toronto, Canada.

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be awarded and on conviction liable to 5 year imprisonment and/or 10% of the value of the contract or both. 3) By virtue of S. 71 of the proposed law, it shall be an offence for the operator, constructor or subcontractor to award contract or project in the oil and gas sector without the consent of the Board (Local Content Board). A conviction on this charge shall result in outright suspension or cancellation of such project.

For further inquiries, please contact: Ms. Nkeiru Onyeaso Tel: +234 808 718 0833 Email: [email protected] Fax: +234 1 2694781

Ms. Clara Ndive Email: [email protected] Tel: +234 803 323 1868 Fax: +234 1 2694781

Dr. Pius Okoronkwo Tel: +647 831 7487 Email: [email protected] Fax: +234 1 2694781

Conclusion It cannot be doubted that the proposed law is a radical attempt at increasing local participation in Nigeria’s lucrative oil and gas industries. This would have far-reaching implications on the operators, contractors, subcontractors and service providers including legal and financial services in the oil and gas sector. Notwithstanding the up-coming law, the Nigerian oil and gas sector remains one of the most attractive and profitable globally.

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©Blackfriars LLP 2008. All rights reserved. This document is for general guidance only. Definitive advice should be sought from counsel if required. Blackfriars LLP is a Nigerian law firm with a representative office in Toronto, Canada.