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LADOL: Abuse of local content law by Nigerian companies must not be a barrier to foreign investment

Transparency and successful collaboration between Nigerian and international businesses is the key to unlocking Nigeria’s vast oil-wealth for the benefit of ordinary Nigerian citizens. However, local content provisions must not be a way for Nigerian businesses to appropriate foreign business assets. The spirit of the local content laws is to encourage collaboration with foreign business and investment, not misuse and appropriation.

In 2010 the Government enacted the Nigerian Oil and Gas Industry Content Development Act 2010 (the Act) to increase indigenous participation in the Nigerian Oil and Gas Industry. The Act prescribed minimum thresholds for the use of local services and materials and to promote the transfer of technology and skill to Nigerian workers. The Nigerian Content Development and Monitoring Board (NCDMB) was also established to implement and police the provisions of the Act.

The introduction of local content requirements under the Act allowed Nigerian companies to enter the market and play a significant role with international partners and co-ventures. One such example is the joint venture between Samsung Heavy Industries Nigeria (SHIN) and LADOL, the privately owned free-zone at the entry point to Lagos harbour. The joint-venture is SHI-MCI.

In 2010 SHIN tendered and in 2013, was awarded a contract by Total Upstream Nigeria Ltd (Total) for the engineering, procurement and construction of the floating production storage and offloading vessel (FPSO) for the exploration and drilling of the Egina oilfield 130km off the coast of Nigeria. SHI-MCI was one of the major subcontractors to SHIN in its execution of in-country fabrication and integration works. This was a crucial local content component of the Egina Project.

However local content law is open to abuse and manipulation by Nigerian businesses if not, policed properly, by a robust and independent regulator. While LADOL has benefited hugely from the introduction of local content in the oil and gas sector and its joint venture with SHIN, it has also sought to challenge its shareholding in SHI-MCI in the courts. It claims that a shareholder’s agreement between SHIN and LADOL reached on 1st July 2014 and signed by the parties should be set aside. LADOL wrongly argues that its own equitable interest in SHI-MCI should be increased to reflect local content provisions SHIN has been forced to resort to the international court of arbitration in London to protect its equity.

Local content laws must not be misused or interpreted in such a way to enable Nigerian businesses to appropriate foreign assets to the detriment of foreign investment and ultimately, the Nigerian economy. This is against the intended purpose of the Act, which is designed to encourage collaboration, not appropriation. It is against the Nigerian Governments promotion of Nigeria as friendly and safe for foreign business.

Exploitation of local content laws by Nigerian businesses will see a return to graft, corruption and the accumulation of oil wealth into the hands of a small number of Nigerian businesses and individuals.

A careful balance must be achieved to encourage foreign investment and expertise, which is essential for the sector to grow and contribute revenue. The Egina project could not have been achieved without the international expertise of SHIN in FPSO construction, and Total in deep-sea extraction.

However, abusive manipulation of Nigeria’s local content laws by indigenous companies will not only prevent foreign investment in Nigeria but also risks chasing away existing investors like SHIN that have contributed greatly to the Nigerian economy and to the jobs of ordinary Nigerians. 

..Akpan-Etukudo, an investment advisor, writes from Warri


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3 Comments

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  1. Nice update. The content is viable and infomative

  2. This has been on my mind for a while now

  3. We really need to work towards the way of our dealings with people, instead of damaging our image, we should try to correct our mistake and for us to be straightforward and truthful.

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