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The National Insurance Commission has issued its Guidelines for Oil and Gas Insurance Business, with the dual objective of establishing a uniform set of rules, regulations and standards for insurance contracts within the oil and gas sector and facilitating compliance with the Nigerian Oil and Gas Industry Content Development Act 2010.
The new Oil and Gas Industry Content Development Act entrenches the evolving initiative to increase - and, in certain cases, to make exclusive - Nigerian participation and the use of Nigerian resources in the oil and gas industry. To the extent that they are not already compliant, industry participants will have to rethink their structures and approach to doing business in the sector.
Nigeria recently announced a bid round for the award of oil exploration blocks. It remains to be seen whether the promoters and regulators of the proposed 2010 bid round will take into consideration the lessons learned from earlier bid rounds to achieve a balance between the need for technical knowledge, financial capacity and greater revenues for the development of national capacity and participation, and the preservation of transparency.
The Oil and Gas Industry Content Development Bill was 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 activities in this sector be carried out in Nigeria by Nigerian companies and workers.
Nigeria's historical preoccupation with the exploitation of its oil sector to the detriment of other key sectors has been described as another manifestation of the 'resource curse', where a country rich in natural resources is less economically developed than other countries with comparatively fewer resources. The government is promoting a Gas Master Plan to address the under-development of the gas sector.
In February 2008 the federal government announced the cancellation of various fiscal incentives granted to multinational oil corporations operating as upstream producers in the petroleum sector. One major implication of this reform is that companies operating in the upstream sector are no longer exempt from paying petroleum profit tax at the statutory rate of 85% of the company’s chargeable profits.
The Senate recently instructed its Committee on Gas and the Environment to investigate the failure to achieve numerous gas flare-out deadlines and to produce a comprehensive legal framework that will eliminate gas flaring. This is a significant development since Nigeria flares an estimated $2.5 billion-worth of associated gas every year, which is about 24 billion standard cubic feet.
Criticism and strike action following the deregulation of the downstream petroleum sector has prompted the recently elected president to re-examine the privatization of government-owned oil refineries and establish committees to reform the petroleum sector’s legal and regulatory framework.
Over the years the federal government has taken various measures to promote the concept of local content within the oil and gas sector. Among other things, the Local Content Bill provides for an integrated legal and operational framework for the development of local content in the oil and gas industry. The bill complements existing laws and policies and provides a definition of 'Nigerian content'.
An act has been passed which ensures that revenue derived from natural resources located offshore will be included when computing the money that states receive from the federation account. Though 'offshore revenues' were to be those derived within 24 nautical miles of the adjoining coastal state, this has been extended to within the 200 metre water depth isobath contiguous to the state.
The Nigerian Court of Appeal has indefinitely deferred its judgment in a government suit against the Nigerian Labour Congress, launched in response to a threatened nationwide strike. The court had earlier ordered the suspension of both the strike and the government's fuel levy, the charge which had incited the proposed industrial action.