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Local Content Policy: Law without penalties difficult, Ajumogobia

By Patience Saghana
All efforts set in motion by the Federal Government, National Insurance Commission and Nigerian insurance companies to sufficiently participate in the oil and gas insurance business in this country might just be a frustration of labour if there are no stiff penalties for cheats of the Nigerian local content policy.


Mr. Odein Ajumogobia, Minister of State for Petroleum Resources said that it will be difficult to enforce the Nigerian Local Content Policy unless there are penalties for violators.

Ajumogobia who paid a courtesy call to Vanguard’s head office recently stated that it would be hard to implement the Nigerian local content policy except there is a law penalizing defaulters.

According to him, “The Ministry of Petroleum is passionate about the Nigeria Local Content Policy but until there is a law that has penalties, it is difficult to drive the local content”

He said, “A law that will force multinationals and the Nigerian people to obey in its totality the Nigeria local content policy”

Although the Nigerian Local Content 2008 bill had been passed last year by both the Senate and the House of Representatives hence what is left is harmonize the differences between the versions passed by both houses of the National Assembly. And a process of reconciling the versions will have to be carried out before the bill can be presented for presidential assent, which is the final stage in the legislative process.

The 2008 bill may therefore be subject to further amendment. This is likely not just because of the criticisms, but in view of the fact that the bill overlaps considerably with the Petroleum Industry Bill 2009 which, if enacted, will have even greater implications for the Nigerian oil and gas industry in general and local content in particular.

More so, in 1969 when the Petroleum Act was passed, the federal government has initiated policies and measures designed to increase local capacity and participation in the petroleum industry. Increasingly, the government seeks to achieve this by requiring that a substantial portion of the activities in this prime sector of the economy – which accounts for over 95% of export revenues and 85% of government revenues – be carried out in Nigeria by Nigerian companies and Nigerian workers.

It is hoped that this will create jobs, build indigenous technical expertise, stimulate other sectors of the economy and ultimately increase Nigeria’s gross domestic product. By 1995, the stated objective of the ‘Nigerian content’ policy was to achieve a minimum of 45% Nigerian content in petroleum operations by 2006 – which was not achieved – and 70% by 2010.

Ajumogobia reiterated that businessmen do not obey rules for as long as they are benefiting from such businesses only when there are stance measures in place to force them to obey.

“But when there are penalties, you can be sure that it will speed up the local content target”, the Petroleum Minister said.

With the objective to giving legislative effect to these policies, the Nigerian Content Development Bill was first presented to the National Assembly in 2003, amended and re-presented in 2005 and again in 2008 as the Nigerian Oil and Gas Industry Content Development Bill.

The bill is yet to be passed into law, but has significant implications for all investors and stakeholders, and will potentially impact on market share, jobs, contracts and competence in the industry

Section 14 of the bill requires that operators consider Nigerian content when evaluating bids and provides that where bids are otherwise equal (in terms of price or quality), the bid with the highest level of Nigerian content be selected.

Section 16 goes further to give Nigerian indigenous companies (that is, 100 percent Nigerian-owned companies) a 10 percent price advantage over the bids of other companies.

In other words, the bid of such an indigenous company would not – if the bill becomes law – be disqualified solely on the basis that it is not the lowest bidder if the value of its bid does not exceed that of the lowest bidder by more than 10 percent.


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