On 28 February 2024, the President of the Federal Republic of Nigeria issued a directive on the Reduction of Petroleum Sector Contracting Costs and Timelines (“the Directive”) aimed at encouraging investment in the Nigerian oil and gas industry by shortening contract approvals timelines and to enhance the ease of doing business in Nigeria by reducing bureaucratic bottlenecks.
The Directive was issued pursuant to Section 5 of the Constitution of the Federal Republic of Nigeria 1999 (as amended); Section 3 of the Petroleum Industry Act (PIA) 2021 and Section 100 of the Nigeria Oil and Gas Industry Content Development Act 2010.
The President’s directive was published in a Federal Government Gazette on 6 March 2024.
Highlights of the Directive:
- NNPCL to raise Financial Approval Thresholds
Where the provisions of a Production Sharing Contract (PSC) or Joint Operating Agreement (JOA) stipulate a financial value threshold for award of contracts and procurements which requires prior consent, the Ministry of Finance Incorporated (MOFI) and Ministry of Petroleum Incorporated (MOPI), being shareholders of the Nigerian National Petroleum Corporation Limited (NNPCL) shall take steps to procure NNPCL to amend the PSC or JOA to raise the contract approval thresholds to not less than $10 Million or its Naira equivalent. This threshold is subject to review depending on inflationary trends on an annual basis.
- Single level of approval for contracts and procurements
NNPCL and the Nigerian Upstream Investment Management Services Limited (“NUIMS) shall in collaboration with the Nigeria Content Development Monitoring Board (NCDMB) simplify contract approval processes in the industry and adopt a single level of approval for each contract stage i.e. pre-qualification, technical, commercial stages.
- Processing of consent/approval applications within 15 days of submission
NNPCL and NUIMS shall communicate their decision on applications for consent or approvals for each contract stage within 15 days from the date of submission, failing which the application for consent or approval shall be deemed granted.
Where NNPCL or NUIMS require additional information or clarification, same should be requested within the 15-day timeframe and the applicant shall have 7 days to respond.
- Deemed approval for Nigerian Content Plan
NCDMB shall review any Nigerian Content Plan (“NCP”) submitted to it within 10 days of submission, failing which the NCP will be deemed approved. Where NCDMB requires additional information or clarification, the same should be requested within the 10-day timeframe and the applicant shall have 7 days to respond.
- Expatriate quota applications
The NCDMB has the power to regulate the employment of foreign personnel in the oil and gas industry and its pre-approval is required for expatriate quota approvals. The Directive mandates NCDMB to within 10 days of receipt of application for ex-patriate quota pre-approval, communicate its approval or otherwise and direct such application to the Ministry of Interior or any other agency responsible with the grant of expatriate quote. NCDMB shall, provided all supporting documents are in place, be deemed to have granted such pre-approval if it fails to communicate its decision to the applicant within the stipulated 10-day period.
- NCDMB deemed approval for applications with no specific approval timelines
NCDMB is required to communicate its decision on any application for approvals, satisfactions or consents within 15 days of receipt of such application where there are no stipulated response timelines in the NOGICD Act.
- Increased duration of third-party contracts
The Directive increased the duration of third-party contracts awarded pursuant to a PSC or JOA from 3 years to 5 years with the option to renew for an additional 2 years after the expiration of the initial 5 years. Parties to existing third-party contracts may leverage on this provision to vary the terms of their agreement by increasing the duration to 5 years.
The implication of the directive on the Nigerian oil and gas industry
The Directive is the latest presidential intervention in the oil and gas industry which is part of the objective of the Federal Government to enhance contracting processes by shortening approval timelines, costs, give more powers to operators to award contracts by increasing threshold amounts, and reduce the practice of balkanising contracts to avoid time-consuming approval processes under the JOAs and PSCs.
We expect the Directive to simplify the approval processes and reduce approval timelines of NCDMB and NUIMS which should lead to a streamlined tender process at the NCDMB and the Nigerian Petroleum Exchange (NIPEX).
We are available to provide clarity or advice on any of the issues discussed in this article. For more information on how we can assist you with advice on the Presidential Directive, please contact: Oghogho Makinde, Olagoke Kuye and Michael Iwuoha.
