ENHANCING LOCAL EMPOWERMENT: A DEEP DIVE INTO THE NIGERIAN OIL AND GAS INDUSTRY CONTENT DEVELOPMENT ACT – BID EVALUATION AND CONTRACTS PERSPECTIVE

By

Ayakpo Marlon

Abstract:

The Nigerian Oil and Gas Industry Content Development Act, No.2 of 2010,  (“NOGICD Act” or “Local Content Act” or “Act”) has catalysed a seismic shift in Nigeria’s oil and gas sector, instigating profound changes in bid evaluation processes and contract engagements. This article explores the Act’s pivotal role in reshaping bid evaluations and contract dynamics, underpinned its core objectives of enhancing local participation, promoting technology transfer, and fostering sustainable development. By examining how the Act has revolutionised bid evaluations and contracts, this article unravels the mechanisms driving local empowerment and economic growth. It delves into the infusion of local content requirements and technology transfer mandates into bid evaluations, enabling a more inclusive playing field for both international and indigenous players. Moreover, the Act’s impact on contract engagements is dissected, spotlighting the ascendancy of Nigerian-owned companies and the cultivation of skill sets among the local workforce. While challenges such as enforcement and capacity building persist, the economic and social impact of the NOGICD Act’s bid evaluation and contract provisions has been profound, yielding job creation and technology advancement. As Nigeria continues to navigate its path towards self-sufficiency, these provisions serve as powerful beacons guiding the industry towards equitable growth and prosperity.

Introduction:

The Nigerian Oil and Gas Industry Content Development Act of 2010 has been a transformative force in the nation’s pursuit of greater local participation, technology transfer, and sustainable growth within its oil and gas sector. Among its many provisions, one crucial aspect of the Act is it’s impact on bid evaluation and contracts within the industry.

Categorisation of the Act;

General Obligations for Applicability:

The general applicability of the Local Content Act is to the:

1. operators and participants in the Oil and Gas Industry; or
2. activity within the Oil and Gas industry.

Operator, here refers to the Nigeria National Petroleum Company (NNPC) now Nigeria National Petroleum Company Limited (NNPCL)  , its subsidiaries and joint venture partners and any Nigerian, foreign or international oil and gas company operating in the Nigerian oil and gas industry under any petroleum arrangement^[1]

Implementing Authority and Attendant Responsibilities:

The Act establishes the The Nigerian Content Monitoring Board (“NCDMB” or “the Board”) as the implementing authority and tasked to undertake an effective monitoring of the implementation of the provisions of the Act^[2]. The NCDMB plays a crucial role in overseeing and promoting the implementation of the Local Content Act’s provisions. Its responsibilities encompass a wide range of activities that are aimed at ensuring the growth of local content, technology transfer, and sustainable development within the sector.

Bid Evaluation Reimagined:

The Local Content Act has infused bid evaluations with a distinct emphasis on nurturing indigenous capability and technology transfer, thereby redefining the landscape of industry competition.

Local Content Quotas: The Act mandates that operators and contractors in the oil and gas sector give priority to Nigerian companies in the award of contracts. Specifically, Section 3 stipulates that operators must ensure that “Nigerian independent operators are given first consideration in the award of oil blocks, oil field licences, oil lifting licences, and in all projects for which a contract is to be awarded in the Nigerian oil and gas industry.”

Technology Transfer: The Act places significant emphasis on technology transfer from international companies to Nigerian counterparts. Operators are required to submit plans detailing their strategies for transferring technology, skills, and knowledge to Nigerian companies and personnel.  It is vital to transfer technical knowledge and best practices in order for the industry to develop its own capabilities, improve operational efficiency and reduce reliance on external expertise. To allow Nigerian companies to take a leading role in innovation, it is possible to share emerging technologies for exploration, production, refining and environmental management.

Bid Evaluation under the Local Content Act:

The Act contains provisions enabling for consideration of Nigerian Content in the evaluation of bids and for advantages to be given to bidders based on the level of Nigerian Content in order to further the Act’s objectives for Nigerian Content.

Sections 14, 15, and 16 of the Local Content Act offer the broad guidelines in this regard. The Section clearly states as follows:

Section 14 – All operators and Project Promoters shall consider Nigerian content when evaluating any bid; where bids are within 1% of each other at commercial stage, the bid

containing the highest level of Nigerian content shall be selected provided the

Nigerian content in the selected bid is at least 5% higher than its closest competitor.

Operators and Project Promoters must evaluate bids based on Nigerian content, with the highest Nigerian content bid selected if it’s 5% higher than the closest competitor.

Section 15 – All operators and alliance partners shall maintain a bidding process for acquiring goods and services which shall give full and fair opportunity to Nigerian Indigenous contractors and companies.

Operators and alliance partners must ensure fair bidding for Nigerian Indigenous contractors and companies.

Section 16 – The award of contract shall not be solely based on the principle of the lowest bidder where a Nigerian indigenous company has capacity to execute such job, the company shall not be disqualified exclusively on the basis that it is the lowest financial bidder, provided the value does not exceed the lowest bid price by 10 percent.

Nigerian indigenous companies awarding contracts should not solely rely on lowest bidder principle, provided value does not exceed 10% of lowest bid price.

Nigerian local content is crucial in evaluating bids. The Board evaluates local content value and monitors implementation. Operators award contracts to bids with the highest Nigerian content, provided it is at least 5% higher than the closest competitor.

An operator must submit all proposed projects, contracts, subcontracts, and purchase orders that it estimates will cost more than $1,000,000 (USD) to the Board for approval. This includes advertisements, pre-qualification standards, technical bid documents, technical evaluation criteria, and proposed bidder lists.^[3]

The Nigerian Content Plan

A major requirement in bid evaluation is the Nigerian Content Plan, according to Section 7 of the NOGICD Act, operators and contractors involved in any project, operation, or activity in the Nigerian oil and gas industry are obligated to prepare and submit a Nigerian Local Content Plan to the NCDMB for approval. This plan outlines how the operator intends to maximise the utilisation of Nigerian resources, goods, services, personnel, and technology in the execution of the project.

The Nigerian Local Content Plan is a key factor in the bid evaluation process. An operator will be issued a Certificate of Authorization to move forward with the project upon favourable  review and assessment of the Nigerian Content Plan.

Upon approval, the operator is expected to implement the Nigerian Local Content Plan throughout the project’s lifecycle. The Act emphasises the importance of regular reporting to the NCDMB on the progress and implementation of the plan.

The Act’s Effect on Foreign Companies

First, Section 106 of the Act defines Nigerian Company as:

“A company formed and registered in Nigeria in accordance with the provisions of the Companies and Allied Matters Act with not less than 51% equity shares by Nigerians”

A foreign Company is a registered business with less than 51% equity shares owned by a Nigerian. Although Multinational Oil Companies has Nigerian subsidiaries, the Act is very instructive, and sincerely seeks to promote and develop Nigerian content. Section 41(2) stipulates that International and Multinational Oil Companies working through their Nigerian subsidiaries must demonstrate that a minimum of 50% of the equipment deployed for execution of work are owned by the Nigerian.

Conclusion:

The Nigerian Oil and Gas Industry Content Development Act (NOGICD Act) has charted a transformative course, shaping a more equitable, inclusive, and sustainable future for the nation’s oil and gas sector. Through a meticulous examination of bid evaluation and contract dynamics, we have unveiled the Act’s resolute commitment to local empowerment, technological advancement, and socio-economic progress.

In this journey, the Act’s provisions have acted as a beacon, guiding industry stakeholders toward a new era of collaboration, innovation, and shared prosperity. The infusion of local content requirements into bid evaluations ensures that Nigerian companies are granted the opportunity to meaningfully contribute, fostering a level playing field where domestic enterprises can flourish. The focus on technology transfer ensures that expertise is shared, bolstering local capabilities and reducing dependency on foreign know-how.

The emergence of Nigerian-owned companies, supported by the NOGICD Act, marks a turning point, as it elevates indigenous participation, fosters job creation, and fuels economic growth. The emphasis on capacity building has ignited a positive cycle, with a skilled local workforce poised to lead the sector into the future.

While challenges remain, the NOGICD Act exemplifies a commitment to addressing these hurdles, fortifying regulatory oversight, and refining mechanisms to ensure that the Act’s objectives are fully realised. The journey toward achieving a thriving, self-sufficient Nigerian oil and gas industry is ongoing, and it necessitates the unwavering collaboration of industry players, governmental bodies, and local communities.

The Nigerian Oil and Gas Industry Content Development Act, viewed through the lens of bid evaluation and contracts, stands as a beacon of progress, a testament to the nation’s determination to harness its resources, both natural and human, for the greater good. It is a model for other resource-rich nations, showcasing the transformative power of local empowerment, technology transfer, and sustainable development. As the industry continues its transformative journey, the NOGICD Act will remain a cornerstone, guiding the way towards a future where Nigeria’s oil and gas sector not only fuels economic growth but also empowers its people and contributes to a sustainable and prosperous nation.

References:

• Ayonmike, C., S. and Okeke, B. C. (2015). The Nigerian Local Content Act and Its Implication on Technical and Vocational Education and Training (TVET) and The Nation’s Economy. International Journal of Education Learning and Development 3(1) pp.26-35
• Abdulkabir, N. A., Shaufique, F.S., Azmawani, A.R. and Siong, H. L. (2016). The role of local Content Policy in local value creation in Nigeria’s oil industry: A Structural Equation Modeling (SEM) approach: www.elsevier.com/locate/resourpol
• Chinedu Kema,( Partner, Denton ACAS-LAW), Practical aspects of the implementation of the Nigerian Oil and Gas Industry Content Development Act 2010 : https://www.dentonsacaslaw.com/en/insights/articles/2022/april/20/implementation-of-the-nigerian-oil-and-gas-industry-content-development-act-2010
• Enang, W. (2021). Local Content should drive linkages, look beyond economics. The Guardian April 2021 Fred and Evans (2018). Nigeria: Local Content Participation in Nigeria. Fred-Young & Evans Legal Practitioners.
• Nigerian Oil And Gas Industry Content Development Act, 2010 Act No. 2
• Udoh V. (2020), The Nigerian Local Content Policy and Its Impact on Sustainable Economic Value Creation, available at  https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3689687.

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^[1] Section 106 of the Nigerian Oil and Gas Industry Content Development Act, 2010

^[2] Section 59 of the Nigerian Oil and Gas Industry Content Development Act, 2010

^[3] Section 17 of theNOGICD Act