Академический Документы
Профессиональный Документы
Культура Документы
Nigerias proposed oil and gas licensing round: two key legislations for DPR to consider
Dr Adeoye Adefulu
1. Introduction
The Department of Petroleum Resources (DPR), through its director, Mr Osten Olorunsola recently announced the governments intention to hold a new licensing round before the end of the year.1 It is not yet clear whether the licensing round will be focused only on marginal fields, full acreages or both. Whatever the focus, DPR will need to consider the legal implications of at least two federal legislations which have been signed into law since the last licensing round in 2007 the Nigerian Oil and Gas Industry Content Development Act 2010 (the Local Content Act) and the Public Procurement Act 2007. This Note will consider the effect of provisions of these Acts on the proposed licensing round(s) and suggest steps which the DPR may take to ensure its compliance in the process. The Note begins by reviewing the relevant provisions of the Local Content Act, before analysing the effect of the Public Procurement Act and drawing general conclusions for DPR.
Sweet Crude, Nigeria plans new licensing round http://sweetcrudereports.com/2012/03/05/nigeria-plans-newlicensing-round/, last visited on the 27th of April, 2012, Chika Amanze-Nwachukwu, Finally, FG to hold Oil Licensing Round this Year, http://www.thisdaylive.com/articles/finally-fg-to-hold-oil-licensing-round-thisyear/110676/ last visited on the 27th of April, 2012. 2 Nigerian content is defined as the quantum of composite value added to or created in the Nigerian economy by a systematic development of capacity and capabilities through the deliberate utilization of Nigerian human, material resources and services in the Nigerian oil and gas industry. See section 106 of the Local Content Act. 3 See section 1 of the Local Content Act.
www.odujinrinadefulu.com
4 5
Emphasis added Section 106 of the Local Content Act 6 See www.cnsopb.ns.ca and www.cnlopb.nl.ca for details on the local content regimes in Nova Scotia and Newfoundland & Labrador Provinces respectively. 7 See <http://www.cnsopb.ns.ca/pdfs/ProvAct.pdf> last visited on the 9th of May 2012.
www.odujinrinadefulu.com
8 9
See section 45(3) of the Accord Act Benefits Plans are the equivalent of the Nigerian Content Plan. 10 Operator is broadly defined as including any Nigerian, foreign or international oil and gas company operating in the Nigerian oil and gas industry under any petroleum arrangement. See section 106 of the Local Content Act.
www.odujinrinadefulu.com
3.1. The Public Procurement Act and the Disposal of Public Property
Sections 55 and 56 specifically provide for the disposal of public property. Section 55 provides that open competitive bidding shall be the primary source of receiving offers for the purchase of any public property offered for sale.14 The section also grants the Bureau certain powers in relation to the disposal of public property, subject to the approval of the Council. Such powers include: The ability to determine the applicable policies and practices with respect to the disposal of all public property; and The power to issue guidelines which detail operational principles and modalities to be adopted by all procuring entities engaged in the disposal of public properties.15
For the purposes of the Public Procurement Act, a procuring entity shall also be a disposing entity. 16 Procuring entities have been defined as any public body engaged in procurement and includes a
11 12
Section 9 of the Local Content Act Section 10 of the Local Content Act 13 Since the passage of the Public Procurement Act in 2007, the Council has yet to be inaugurated. See News Diary, Senate urges Jonathan to inaugurate National Council on Public Procurement, <http://newsdiaryonline.com/senate-urges-jonathan-to-constitute-national-council-on-public-procurement/>, last visited on the 9th of May 2012. 14 See subsection 3. 15 See subsection 4. 16 Section 55(2) of the Public Procurement Act
www.odujinrinadefulu.com
The most appropriate heading with respect to oil acreage is 55(5c) and in particular the proprietary rights element of the subsection. Proprietary rights denote entitlements that accrue from ownership. 3.2.1. Disposal under the Procurement Act The Public Procurement Act provides for the means of disposal of public property to include: (a) (b) (c) (d) (e) sale and rental; lease and hire purchase; licenses and tenancies; franchise and auction ; transfers from one government department to another with or without financial adjustments; and (f) offer to the public at an authorized variation. 3.2.2. Oil Acreage as Public Property Under the Nigerian constitution and the Petroleum Act 1969, ownership of petroleum on Land, Territorial Waters, Continental Shelf and the Exclusive Economic Zone is held by the Federal Government. The Federal Government thus has ownership or proprietary rights over petroleum in situ. The DPRs right to award acreage derives from the Ministers powers under section 2 of the Petroleum Act. Under the Act, the Minister may grant a licence or a lease to, amongst others, prospect and exploit petroleum in situ. The licence/lease is an exclusive right over a fixed period to find, develop and carry away, petroleum which otherwise would have belonged to the Federal Government. The licensing of acreage for development by private investors may thus be validly regarded as the disposal of public property.
17
www.odujinrinadefulu.com
The Public Procurement Act imposes a number of obligations on the Procuring Entity and provides certain rights for bidders in relation to the disposal of public property. (a) Open Competitive Bidding: As previously stated Section 55(3) provides that open competitive bidding shall be the primary source of receiving offers for the purchase of any public property offered for sale.18 This provision recognizes that public property may be disposed by other methods. Where other methods are to be used in a licensing round however, DPR as the procuring entity would need to show, at a minimum, that it has explicitly considered using open competitive bidding and that for good reasons, this method would not be satisfactory. Where such an explicit process is not undertaken, the entire round may be open to an administrative review as discussed below.
The Act defines open competitive bidding as the offer of prices by individuals or firms competing for a contract, privilege or right to supply specified goods, works, construction or services.19 This definition appears to apply to procurement as opposed to disposals by a procuring entity. An additional description of open competitive bidding may be found in section 24(2), which provides that Any reference to open competitive bidding in this Act means the process by which a procuring entity based on previously defined criteria, effects public procurements by offering to every interested bidder equal simultaneous information and opportunity to offer the goods and works needed. Whilst this description appears also skewed in favour of a procurement exercise, the purport of the provisions for a disposal process may be elicited. In relation to a disposal exercise, open competitive bidding will require: Previously defined criteria by the procuring entity; and Equal, simultaneous information and opportunity to, in this case, acquire a license/lease
Where either of those two factors is absent, open competitive bidding under this Act has not taken place.
(b) Independent valuation: Section 56 of the Public Procurement Act requires the Accounting Officer20 of the procuring entity to authorize the preparation of a valuation report by an independent evaluator or any professional with the appropriate competence to carry out the evaluation of the public property to be disposed. DPR will need to assess the value of the acreage to be disposed before carrying out a bidding round.
18 19
Emphasis added Section 60 of the Public Procurement Act 20 The Accounting Officer is defined as, the person charged with line supervision or the conduct of all
www.odujinrinadefulu.com
(f) Obligations on procurement officers: The Public Procurement Act places obligations and responsibilities on public officers involved in the disposal of public property. These include: an obligation to act on the basis of the principles of honesty, transparency, accountability, fairness and equity in the disposal of public property.24 A responsibility to ensure that there is adequate time to prepare offers and to act in accordance with the provisions of the Act and any derivative regulations.25 A requirement to maintain the highest standards of ethics in their relationships with bidders.26
21 22
Section 6(I)(i) of the Public Procurement Act Section 6(I)(ii) of the Public Procurement Act 23 Section 6(I)(iv) of the Public Procurement Act 24 Section 57(5) of the Public Procurement Act 25 Section 57(7) of the Public Procurement Act 26 Section 57(8) of the Public Procurement Act
www.odujinrinadefulu.com
4. Concluding Remarks
The provisions of the legislations discussed above impose binding legal obligations, which DPR and its officers must consider in preparing for future licensing rounds. They limit the absolute discretionary power which the Minister had hitherto held regarding acreage awards, and help to foster transparency and accountability in the award process. Additionally, the provisions will help to encourage indigenous participation in exploration and production activities in the oil and gas industry. The powers of the Minister under section 3(1) of the Local Content Act also provide an opportunity to facilitate the emergence of a crop of indigenous companies with the financial and technical expertise to carry out oil and gas operations. It should be noted that DPR officials may be subject to penalties under the Public Procurement Act for any breach. Additionally, the failure to fulfil the obligations under both Acts may lead to a cancellation of the process by the Bureau or to intervention by NCDMB. The Acts also provide a foundation for aggrieved bidders to seek judicial and or administrative review of the actions of government officials.
We hope you find the information contained herein useful. This Note is for general purposes and guidance only and should not be regarded as legal or professional advice. Any questions, comments or clarifications may be directed to:
27
Section 57(9), (10), (11) & (13) of the Public Procurement Act
www.odujinrinadefulu.com