“How Not To Do It”
I recently came across the word, “circumlocution” and further engagement with it led me to discover Charles Dickens fictional Circumlocution Office which he invented in his book, Little Dorrit, that was published in 1857.[1] According to Charles Dickens, the Circumlocution Office was “the most important Department under Government”, dedicated to one principle, being “How Not To Do It”. Whatever the public needed and for whatever purpose a rule was meant to serve, the Circumlocution Office could be relied upon to find the most elaborate way of achieving the opposite.
As the title suggests, this article is clearly not about the Charles Dickens’ fictional Circumlocution Office. It is about the 1% Nigerian Content Development Fund (“Fund”) levy under Section 104 of the Nigerian Oil and Gas Industry Content Development Act, 2010 (“NOGICD Act”). The provision creates an obligation on specific participants in the Nigerian oil and gas industry to collect a percentage from contracts awarded in the industry, remit to the Nigerian Content Development and Monitoring Board (“NCDMB”), who then should apply the same towards the continual development of Nigerian capacity in the industry.
But how has this been applied in practice? An operator awards a contract, 1% is deducted. The contractor then subcontracts, and 1% is deducted again. The subcontractor, in turn, engages suppliers and service providers for different aspects of the project with multiple contracting points and participants who may never see the initial upstream project, never signed anything connected to it, and whose only link to the oil and gas industry is that someone, somewhere up a long chain, once drilled a well. By the current application of the provisions of Section 104 of the NOGICD Act by the NCDMB, these supply and service contracts are still subject to the 1% levy. As such, we have the same contract value with different hands and multiple bites. While each deduction may technically arise from a separate contract, ultimately, the total amount received into the Fund is effectively in excess of the 1% of the original contract sum that was awarded. That cannot be the intention of a legislation that was primarily enacted to promote Nigerian capacity in the oil and gas industry. The rigid interpretation and application of Section 104 that effectively increases costs on all participants each time value passes through the service and supply chain appears to be inconsistent with the objective of the law.
To be fair, NCDMB has not been entirely rigid in its application of Section 104. Under the NCDF Guidelines[2], NCDMB made several adjustments that show some awareness of the limits of a purely mechanical approach to the interpretation of Section 104. For example, deductions and remittances are made at the point of invoicing rather than at contract award, meaning that the levy follows actual payments rather than mere contractual obligations. Intra-company transactions within the same corporate group are treated as exempt. Over-the-counter purchases made directly without a third-party contract fall outside the scope of the levy. Similarly, sundry office expenses, salaries and emoluments of permanent staff, staff training and medicals are excluded. Where exploration activities are involved, NCDMB may agree to a deferred remittance arrangement. Also, where overpayment occurs, a reconciliation procedure exists for refund claims.
Most of these positions reflect what a reasonable reading of Section 104 would suggest anyway. However, what is most interesting is the language that NCDMB uses to describe them. The invoicing model is described in the Guidelines as a “concession granted to the industry.” Deferred remittance for exploration activities is something the Board “may, at its own discretion” permit. The exclusion of salaries and sundry office expenses is framed as an exemption by NCDMB , rather than costs that should not be read into the provision in the first place. Exemptions, across the board, are described as matters the Board “determines”. Taken together, the language reads more like a regulator doing the industry favours and this tells us how NCDMB understands its own authority and the breadth of its mandate under Section 104.
There is one position in the Guidelines that goes further than the language. The Guidelines acknowledge that, in some cases, the levy was deducted and remitted on the full value of manpower contracts, including salaries and allowances that should never have been caught by the levy. One would reasonably expect that where such deductions were made in ‘error’, the appropriate response would be a refund or credit. Instead, the Guidelines state plainly that no back-claims or recovery is allowed for deductions already made on that basis. This is simply the opposite of what concessions mean.
The NOGICD Act was enacted to bring Nigerians into the industry, with Section 104 expected to create a fund to support that process. This article asks whether the current application of that provision is doing what it set out to do, or whether, somewhere along the way, the Circumlocution Office found its way into the process.
The NOGICD Act and Responsibility of the Board
The purpose of the NOGICD Act is clear from its long title which describes it as an Act to provide for “the development of Nigerian content” in the oil and gas industry. Section 5 requires that NCDMB should implement the provisions of the Act “with a view to ensuring a measurable and continuous growth of Nigerian content in all oil and gas arrangements, projects, operations, activities or transactions in the Nigerian oil and gas industry”.
NCDMB’s own mandate under Section 70 shows that its primary task is to supervise, coordinate and monitor Nigerian content development. NCDMB is also required to assist local contractors and Nigerian companies to develop their capabilities and to conduct studies and researches that further the goal of developing Nigerian content.
The levy created under Section 104 is required to be paid into the Fund for the purpose of funding the implementation of Nigerian content development in the Nigeria oil and gas industry. It should be applied to projects, programmes, and activities directed at increasing this Nigeria content. Against this backdrop, tt is not a means to collect from the industry but one aimed towards assisting NCDMB in increasing Nigerian content.
The Provisions of Section 104 of NOGICD Act
Section 104(2) of the NOGICD Act establishes the Levy and provides as follows:
“The sum of one per cent of every contract awarded to any operator, contractor, subcontractor, alliance partner or any other entity involved in any project, operation, activity or transaction in the upstream sector of the Nigeria oil and gas industry shall be deducted at source and paid into the Fund.”
The NCDMB’s position, as reflected in the Guidelines, is that the provision applies to every contract that can be traced back to an upstream activity. Under this interpretation, the contracting chain has no natural end point. This article questions such an expansive approach to the interpretation of the provision.
Firstly, the provision lists four categories of persons that are bound by the provision. These are operators, contractors, subcontractors and alliance partners. They are the primary participants in an upstream project, each with a direct and identifiable relationship to that project. The phrase “any other entity” that follows this list must be interpreted in accordance with the established principle of statutory interpretation that general words that follow specific ones take their meaning from the company they keep.[3] “Any other entity” should therefore mean any other entity of the same character as those expressly named, meaning a direct participant in an upstream project. It should not extend to a supplier through a remote contractual relationship, whose only connection to that project is that someone further up a long chain has a connection.
Secondly, the provision requires that the entity be “involved in any project, operation, activity or transaction in the upstream sector.” The word “involved” in this context connotes direct participation, something which the NCDMB’s current application of the section quietly sets aside. Otherwise, and if the intention was to cover every entity whose contract could eventually be traced back to an upstream activity, the provision could have said “connected with,” “arising from,” “related to,” or “emanating from” an upstream project, each of which could have had a wider interpretation.
Finally, even if the provisions of Section 104(2) were considered ambiguous, the purpose of the Act provides a clear guide to its interpretation and settles the question of intent. Nigerian courts have long recognised that statutes should be interpreted in a manner that advances their purpose rather than frustrates it. The purpose of the NOGICD Act is to grow Nigerian capacity and an interpretation that multiplies the levy burden on companies (including Nigerian companies) each time they engage one another cannot be said to advance that purpose.
How the Expanded Interpretation in the Guidelines Harm Nigerian Contractors
The NOGICD Act goes to considerable lengths to bring Nigerian companies into the industry. Section 3 gives Nigerian independent operators first consideration in the award of oil blocks and licenses. Section 12 requires first consideration for Nigerian goods and services. Section 15 mandates that bidding processes give Nigerian indigenous contractors full and fair opportunity. Section 16 goes a step further, providing that a contract shall not be awarded solely on the basis of the lowest bid where a Nigerian company has the capacity to execute the work, and that the Nigerian company shall not be disqualified on price alone provided its bid does not exceed the lowest by more than 10% percent.
Against that backdrop, the expanded application of the provisions of Section 104 of the Act reflected in the Guidelines can be concluded to be a practical contradiction to the ethos of the Act. Having worked so hard to help Nigerian companies win contracts, the interpretation in the Guidelines then imposes a levy that follows those same companies through every tier of the contracting chain.
The Guidelines are explicit that deductions apply to the end of the contracting chain and uses the word “infinity”. What this means in practice is that a Nigerian small or medium-sized enterprise sitting at the third or fourth tier of a contract, doing work that may have little or no direct connection to the original upstream project, is still subject to the levy. These are precisely the companies the Act seeks to develop and grow. They are not the multinational operators at the top of the chain who can absorb such costs.
The economic effect of the cascading application makes this clearer still. When a Nigerian contractor is awarded a portion of a project, 1% is deducted from what is paid to it. When that contractor engages a Nigerian supplier for materials or services, 1% is deducted again from what is paid to the supplier. The same original contract value has now been levied twice. If the supplier in turn engages another company, it is levied a third time. The levy therefore grows larger down the chain on the same primary contract value, in excess of the statutory 1%.
There is a particular kind of absurdity in a development framework that ends up penalising the companies it was designed to develop. A large contractor that has the capacity to perform all aspects of a contract in-house would generate only a single deduction event. In contrast, a smaller Nigerian company must subcontract the portion of the work it cannot yet execute alone. Every subcontract it awards generates another deduction from the same pool of contract value. The practical consequence is that the burden of the levy falls more heavily on smaller indigenous companies.
NCDMB also refuses to apply a minimum threshold to contracts that would be subject to the levy. The Guidelines confirm that the levy applies to contracts of any value. This is notable because the Act itself, under Section 17, sets a threshold of 1 million US dollars for contracts that require NCDMB supervision. This shows that there is a distinction between contracts of material significance which are worth watching and contracts not worth watching, but no such distinction exists when it comes to collecting from them.
It is not entirely clear whether NCDMB actively pursues levy obligations on contracts of negligible value in practice. Enforcement resources appear naturally finite and NCDMB’s attention is presumably drawn toward larger transactions. However, the absence of a regulatory threshold means that what is not excluded, can be pursued by the Board. In theory and potentially in practice, NCDMB can extend the enforcement to every contract in the chain regardless of value.
This is precisely the kind of situation where one would expect NCDMB to exercise some discretion by introducing a formal threshold. The Board has shown willingness to grant concessions elsewhere in the Guidelines, describing the invoicing model and deferred remittance arrangements as things it chooses to allow. If NCDMB can frame those positions as exercises of discretion, the absence of a threshold on contract value is a clear gap.
The limiting language of Section 104 must however be noted. The provision uses the words “every contract” without qualification and does not confer an express power to exempt categories of contracts based on value. If a threshold is to exist, it may need to come from the legislature rather than from NCDMB’s administrative practice. However, similar arguments could be made for instances where NCDMB has chosen to grant concessions. For example, “every contract” would technically include employment contracts and the fact that NCDMB has on its own excluded such contracts from the purview of Section 104 means it could similarly introduce a threshold on the contract value that the provision covers.
Recommendations and Conclusions
This article does not seek to make an argument against the levy itself but rather against the overreach that has grown around it. The Fund remains an important mechanism for financing and promoting the development of indigenous capacity. This is however an attempt to remind NCDMB that the levy is merely a means to an end, and that end is the continuous building of Nigerian capacity in the oil and gas industry.
A useful starting point would be to address the cascading effect of multiple deductions from the same contract value. One cannot honestly describe the deduction as a 1% levy when it is deducted at the operator level, again at the contractor level, and again at the subcontractor level, each time from the same original contract sum. A single deduction event per contract chain, applied once at the point of the primary upstream contract and not replicated as value moves through the chain, is both arithmetically fair and consistent with the Act’s purpose. Where a contract is subsequently varied, the levy may appropriately apply to the extent of the variation, since a variation introduces new contract value that was not captured in the original deduction. However, where the contract sum remains unchanged, one deduction should be enough. This approach would ensure that the levy funds development without penalising the local subcontracting relationships the Act is designed to encourage.
A more lasting fix would be a legislative amendment to Section 104. Such an amendment should expressly limit the levy to entities directly involved in an upstream project, since the current wording leaves too much room for the cascading interpretation this article has challenged. It should also fix a minimum contract value below which the levy does not apply, mirroring the threshold the Act already uses for NCDMB supervision under Section 17. While a legislative fix remains the right step to address the issue in principle, the industry may be waiting a while for it given how past attempts to amend the NOGICD Act have stalled in the National Assembly for years without success. This is why the interpretive points made in this article still matter in the meantime.
Charles Dickens’ Circumlocution Office continues to be relevant as a fictional institution because what it depicts is real. Sometimes, the rules designed to serve people find ways of serving themselves instead. It does not always happen through bad intention but through the slow accumulation of interpretive choices. These interpretative choices may be defensible in isolation but the combined effect may be a drift away from the original purpose.
The NOGICD Act remains one of Nigeria’s most important pieces of economic legislation. Its ambition is real and its necessity was never in doubt. The NCDMB has done meaningful work in building Nigerian participation in the oil and gas industry, and that work deserves acknowledgment.
However, the levy that funds part of that work appears to have been stretched beyond what the Act intended. The question this article has asked is whether the current application of Section 104 serves the purpose of the Act. One hopes that the answer is not such that requires a visit to Charles Dickens’ Circumlocution Office to find.
- By Adeleke Alao
[1] https://dickens.ucsc.edu/government-how-not-to-do-it/, https://www.online-literature.com/dickens/little_dorrit/11/
[2] Nigerian Content Development and Monitoring Board, Guideline on Deduction of 1% Nigerian Content Development Fund (NCDF) Levy, issued by the Executive Secretary/CEO, October 12, 2021.
[3] The ejusdem generis rule.
