According to a report issued by the Nigerian Stock Exchange in September 2019 , there was a 47.81 % increase in transactions by foreign investors in the Nigerian equity market and a total of $308.2 million, which was significantly higher than the transactions of local investors by 44.00%. Foreign participation has continuously brought about an increase in the investment portfolio of the Nigerian economy and cuts across several industries.
The oil and gas industry in particular, continues to record a steady inflow of non-Nigerian entities, who significantly contribute to the development of the sector. In order to encourage more local participation however, several legislative measures have been put in place over the years. More recently, the Nigerian Content Development and Enforcement Bill (“the Bill”) was sponsored by 7 members of the House of Representatives for legislative consideration. Although the Bill is currently in the 2nd reading stage, it is crucial for stakeholders to follow its development given the recent downward spiralling of the petroleum industry and its effect on the economy.
The Bill, which seeks to repeal the Nigerian Oil and Gas Industry Content Development Act 2010 (“the Act”), proposes additional requirements and guidelines to encourage indigenous participation in the petroleum sector. It also seeks to broaden the scope of its application to cover industries such as power, construction, mining, and ICT. Below, we have highlighted some salient provisions of the Bill in its current form and what they mean for future foreign participation in the oil and gas industry.
This provision under the Act required any contract exceeding $100 million to include a labour clause which mandated the use of a minimum percentage of Nigerian Labour in specific cadres. The Bill however proposes to reduce the budget requirement to $1 million in order to encourage indigenous participation in sector activities.
Compulsory Dispute Resolution
Another proposition the Bill brings is the requirement of any dispute that arises from any contract regulated by the Bill to be compulsorily resolved by an Arbitral panel whose composition is determined by the Chief Judge of the Federal High Court and is made up of a minimum of three members who shall be Judges of the Federal High Court . Although this provision may seek to encourage arbitration as a faster means of dispute resolution, it may place some restriction on the freedom of parties to decide the method and jurisdiction of settling contractual dispute.
Under the Act, the penalty for carrying out a project not compliant with the provisions of the Act is a fine of 5% of the value of the project. The Bill introduces a higher penalty for non-compliance of its provisions by increasing the fine to 15% and including a 5-year imprisonment term.
Impact on Foreign Participation in the Nigerian Oil and Gas Industry
It is hoped that while the Bill is under consideration at the House of Representatives, legislators will consider including more incentives to encourage foreign participation in the oil and gas industry in Nigeria.