THE NEED TO DEFINE “NIGERIAN INDIGENOUS COMPANIES” IN THE NIGERIAN OIL AND GAS INDUSTRY CONTENT DEVELOPMENT ACT
Author: O. M. Atoyebi S.A.N FCIArb. (U.K.)., Contributor: EFERAOMON ISEGHOHIME [1]
The mandate of the Nigerian Oil and Gas Industry Content Development Act 2010 (otherwise known as NOGICD ACT), is primarily to provide for the development of Nigerian Content in the Nigerian Oil and Gas Industry by encouraging the participation of Nigerians. Indeed, the true measure of the success of content development in Nigeria is in the amount and complexity of work, and the role played by Companies wholly owned and managed by Nigerians, whose focus is on developing Infrastructure and Technology in Nigeria, thereby encouraging profits to be retained and reinvested into our economy. Consequently, these Companies are building and developing capabilities towards ultimately exporting Nigerian products and services, rather than relying on importation, which is an absolute characteristic of Nigerian Indigenous Companies.
This article will share the focus of the Nigerian Oil and Gas Content Development Act, its omissions and recommendations.
The Focus of the Act
The focus of the Act primarily is on Nigerian indigenous companies. Therefore, any amendment to the Act must be to protect and encourage an environment for exponential increase in their numbers and rapid growth in size, so as to pull along the Nigerian economy. Just as the most developed Oil and Gas countries have done, they have prioritized the interests of indigenous companies by enacting laws that will foster and encourage their participation in the sectors that are driving their economy. The glass ceiling, which is preventing our economic growth, will go away when we prioritize indigenous companies in the dealings of the sectors that corner us the most revenue annually.
Omission
The Act has fallen short of providing a comprehensive definition as to what constitutes the entities regarded as “Nigerian Indigenous Companies”, rather it resorted to using indefinite terms such as “Nigerian Independent Operators” and “Indigenous Service Companies” in making reference to granting exclusive and first consideration to Nigerians as stipulated in the Act. It then went further to define in Section 106 (interpretation section), “Nigerian Companies” thus:
A company formed and registered in Nigeria in accordance with the provision of Companies and Allied Matters Act with not less than 51 % equity shares by Nigerians.
A cursory study of judicial pronouncements on the definition of what constitutes a Nigerian Company, will reveal that the meaning provided by the Courts over time, appears to be at a sharp variance with what the Act envisages, which apparently allows room for foreign ownership of equity shares in a company considered Nigerian. A classical case in point is SIKIRU AGBOOLA LASISI v. REGISTRAR OF COMPANIES [I176] LPELR-SC.301/1975 where the Supreme Court laid down the correct test for determining whether a company is a Nigerian association or not, in these words:
It is clear from the definition under Section 16(1)(c) of the Nigerian Enterprises Promotion Decree, 1972 that the correct test for determining whether a company is a Nigerian association or not is to discover the owners of its capital and other financial interests. If its capital and other financial interests are wholly and exclusively owned by Nigerian citizens, then it is a Nigerian Association. If, however, a portion of its capital or other financial interest is owned by an alien then, except as otherwise prescribed by or under the Decree, it is an alien association. (Underlined is for emphasis).
The Act has though, implicitly substituted the term “Nigerian Company” with the above-mentioned phrases, it nevertheless intends for the word “indigenous” to remain in the Act to portray its very meaning and objectives.
The ambiguity imported by the above-mentioned words opened the provision to different constructions, with industry stakeholders having to either hang their hats on their comprehension of industry best practices, or formally recurring to the Nigerian Content Development and Monitoring Board (the “Board”) for clarification in line with S. 70(1) of the Act, which permits the Board to “provide guidelines, definitions and measurement of Nigerian Content and Nigerian Content Indicator to be utilized throughout the Industry”.
On its part, the Bill attempts to cure this ambiguity by proposing to replace the terms “Nigerian Independent Operators” with “Nigerian Companies”, and “Nigerian Indigenous Service Companies” with “Nigerian Service Companies”. Regrettably, this has failed to fix the uncertainty occasioned by the Act, instead, it moved further away from the purpose the Act was designed to attain, which is the exclusive consideration and participation of Nigerians. Hence, the proposition by the Bill to outrightly erase, the term “Indigenous”, nullifies the true meaning and intention of the Act.
A means to rectify the omissions
Undoubtedly, what gauges the achievement of content development in Nigeria and especially in the oil and gas industry, rests on the intricacy and aggregate of works done, and the contributions made by Nigerian domestic companies concerned with the development of infrastructure, technology and building galvanized human capacity in Nigeria, thereby assuring the reflow, retention and reinvestment of profits in our economy. Accordingly, these Companies are forming and expanding the required competence geared towards the ultimate exportation and transatlantic trading of Nigerian goods and services, in place of protracted dependence on importation, which typifies the precise features of Nigerian Indigenous Companies.
A brief study of some oil-producing countries shows how their Local Content Laws focus on the participation of their citizens in the oil and gas sector and have reflected the same in their laws. We can take a cue from our sister nation, Ghana, having passed a similar law three years after the enactment of the NOGICD Act. The Petroleum (Local Content and Local Participation) Regulation, 2013 (Ghana), passed in 2013, was enacted with the purpose of enhancing the capacity of indigenous Ghanaian companies and promoting their participation in the Oil and Gas Industry.
Regulation 49 of the country’s Petroleum (Local Content and Local Participation) Regulations, 2013 defines an “indigenous Ghanaian Company” as
A company incorporated under the Companies Act, 1963 (Act 179) that: a) has at least 51% of its equity owned by a citizen of Ghana; and b) has Ghanaian citizens holding at least 80% of executive and senior management positions and 100% of non-managerial and other positions.
Similarly, resource-rich countries; Kuwait, Qatar, Saudi Arabia and the United Arab Emirates (UAE) etc. also focus on local content requirements to maximize the gains of foreign participation in their Oil and Gas Sectors. The aim is to provide opportunities for local industries to participate in Oil and Gas activities. Although several of these countries do not exactly define the term “local” in their Local Content Regulation (LCR), generally it means; nationals, and companies owned, or majorly controlled by nationals.
It is owing to this prevailing reason, that Nigerian Indigenous Companies must assume a central place within the covers of our Local Content Act. Therefore, any amendment must be anchored on providing and encouraging an atmosphere for a flooding increase in their numbers and rapid growth in sizes, to redefine the Nigerian economy.
Oxford dictionary defines the term “indigenous” to mean “originating or occurring naturally in a particular place; native”. In line with the definition of the term indigenous, this work recommends that the term “indigenous” be retained and consequently, the interpretation Clause of the Bill should interpret “Nigerian Indigenous Companies” to mean;
A company with 100% equity and assets owned by Nigerian Citizens with its head office/parent company located in Nigeria.
It is only a clearly worded and purpose-driven definition of this kind that can adequately foster the existence of a truly Nigerian Indigenous Company, and guarantees an all-round local content development in our oil and gas sector.
CONCLUSION
Conclusively, while we care about the returns on investing in the Oil and Gas sector, we must also care about taking care and maintaining the state of all indigenous Companies in the Sector.