Nigeria is known as one of the oil and gas exploration and producing countries in the world. Despite the huge oil and gas reserve and the amount of revenue that has been generated for decades from the oil and gas industry, the level of poverty has continued to increase. According to statistics released by the National Bureau of Statistics, the poverty level in some states is as high as 87.7% as of 2019 and up to 82.9 million Nigerians are poor. In this small write up of mine, I will try to address the local content policy in the Oil and gas Insurance in Nigeria. This is but my small contribution to the many other contributions from scholars in Nigeria.
The need for proper Local content in oil and gas insurance should be one of the Nigerian government’s aims at maximizing the benefits of oil and gas exploration and production in Nigeria. The need for a good local content policy is to address the issues of foreign control of the oil and gas industry in Nigeria which led to the underutilization and lack of local skills and inputs which weakens other sectors of the economy. It Is important to state that the Nigerian economy has not reaped the benefits of oil and gas even though production of oil commenced in commercial quantities since the 1950s.
The Local Content in Oil and Gas development.
There have been attempts in the development of Nigerian content policy. The first local content in Nigeria is traceable to the Mineral Oils act which was later replaced by the Petroleum Act. This Mineral Oils Act mandates foreign Oil licensees to train and recruit Nigerians within a reasonable time. This Act had flaws such as the none inclusion of targets for the training and recruitment and there was no mechanism to ensure compliance. This also was the problem with the Petroleum Act, although foreign oil companies recruited and trained Nigerians based on the provisions of the Act, there is no record of any regulatory action taken against any company in the 1960s or 1970s in connection with Nigerian content.
Undoubtedly, the Nigerian government has sought to develop and include the concept of local content within the oil and gas sector over time, there was the Petroleum (Drilling and Production) Regulations, the establishment of the Petroleum Training Institute, the Nigerian National Oil Company, the Nigerian Content Development Division and Nigerian Oil and Gas Industry Content Development Act (NOGICDA) 2010. These were good attempts from the government to improve the local content development.
The Nigerian Oil and Gas Industry Content Development Act
The NOGICDA 2010 made some interesting provisions such as the provision of section 3(1) of the Act, which is to the effect that first considerations shall be given to Nigerian independent operators in the award of oil blocks, lifting licenses, etc. and in all projects for which contracts are to be awarded in the Nigerian Oil and Gas industry; from the act, there is a requirement for submission of a local content plan by operators for all projects to be carried out in the Nigerian Oil and Gas industry; also, section 39(2) is of the effect that Nigerian indigenous service companies which demonstrate ownership of equipment, Nigerian personnel and capacity hall be given exclusive consideration in the allocation process. The Act has some issues which need to be addressed such as no consideration of existing legislation which may create conflicts and uncertainty in the legal framework of Oil and Gas Development in Nigeria, the minimum content requirements prescribed under the Act were made without regard to lack of local capacity.
Local content in Oil and Gas Insurance.
As it is with the Oil and Gas development, there is a need for local content in oil and gas insurance. Insurance content according to para. 3.1 of the guideline for Oil and Gas Insurance Business issued by the National Insurance Commission (NAICOM) is seen as the aggregate capacity of all Nigeria registered insurers and reinsurers which shall be fully exhausted before any application for approval to reinsure any Nigerian Oil and Gas risk overseas. Also, like the attempts on the Local content in oil and gas development, there have been a lot of attempts on the local content in Oil and Gas Insurance, and it is obvious that the local content policy will have a revolutionary impact on the insurance industry in Nigeria.
Insurance Content under NOGICDA
The Act noted insurance content requirement for participation of local underwriters in underwriting oil and gas risks. One of such provisions is Section 49(1) and 50 of the Act, which provided respectively, that, ”All operators, project promoters, alliance partners and Nigerian indigenous Companies engaged in any form of Business operations or contracts in the Nigerian oil and gas industry, shall insure all insurable risks related to its oi and gas business, operations or contracts with an insurance company, through an insurance broker registered in Nigeria”.
“ No insurance risk in the Nigerian oil and gas industry shall be placed offshore without the written approval of the National Insurance Commission which shall ensure that Nigerian local capacity has been fully exhausted”.
By the import of Sections 49(2)(3) of the Act, the oil and gas companies in order to ensure compliance are mandated to submit to the Nigerian Content Monitoring Board (NCMB), a list of all insurance companies and brokers through which insurance covers were obtained in the past six months, the class of insurance cover obtained and the expenditures made by the operator and the report must include insurance requirements in the next six months, forecast and annual premium budget.
The Act has it’s problem, the Act was made without due regard to the provisions of the Insurance Act which already made exhaustion of local capacity mandatory and allows offshore reinsurance with the approval of NAICOM.
Some other challenges that affect the Nigerian oil and Gas Insurance local content policy.
These challenges also affects the maximization of the benefits of oil and gas exploration and production as a whole in Nigeria.
- Corruption and regulatory inefficiency
- High Cost of Reinsurance
- Division in the Industry due to the struggle to attain a share of premium from oil and gas insurance by local underwriters and brokers in Nigeria.
- Non-involvement of many local brokers and loss adjusters
- High value denominated in foreign currency and high estimated maximum loss.
- The Act failed to define local capacity.
- Lack of skill and inadequate capital
- The no consideration of the international advantages of oil and gas insurance by the policy, and many more.
In conclusion, there should be a drastic approach towards the correction of the Acts dealing with insurance, such as NOGICDA, to create certainty in the implementation of the local content policy in the insurance sector. The issue of corruption is paramount to the development of oil and gas insurance and the entirety of the exploration and production of Oil and gas in Nigeria, this should be addressed by putting a functional regulatory framework. And finally, our Insurance industries need to become more market-driven through the pooling of resources such as mergers and acquisitions to build requisite capacity and developments to accommodate the Oil and Gas industry in Nigeria.