LOCAL CONTENT BILL STRATEGY

C O N F I D E N T I A L SECTION 01 OF 03 LAGOS 000034

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E.O. 12958: DECL: 12/31/2019
TAGS: ETRD ECON PGOV WTRO USTR NI
SUBJECT: LOCAL CONTENT BILL STRATEGY

Classified By: CG Donna Blair for reasons 1.4 (b & d)

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SUMMARY
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1. (C) The Local Content Bill passed both the Senate and the
House of Representatives. The Senate and the House versions
now need to be reconciled. There will be a third and final
reading scheduled once the reconciliation process has been
completed. Speculation is that it could happen as soon as
the first week of February 2010 and be signed into law before
the end of the first quarter 2010. The Local Content Bill
requires oil companies to use a majority, if not 100 percent,
Nigerian labor and materials in conducting their business.
The Coalition of Service Industries plans to respond by
coordinating with the U.S. Mission to formulate a position
paper on why the Local Content Bill is bad for Nigeria and
Nigerians. The American Business Council will coordinate
with the Nigerian-American Chamber of Commerce to organize a
roundtable on the negative effects of the bill. Results of
the roundtable will be worked into
a position paper to be presented to relevant committees in
the National Assembly. END SUMMARY

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CURRENT STATUS OF LOCAL CONTENT BILL
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2. (SBU) The Local Content Bill (LCB) passed the Senate on
April 17, 2008 and the House of Representatives on October
22, 2009. The Senate and the House versions now need to be
reconciled. The House has nominated members for the
reconciliation, but the Senate has not designated its
members. Once the nomination process has been completed,
there will be a formal reconciliation and a third and final
reading scheduled. Speculation is that it could happen as
soon as the first week of February 2010 and be signed into
law before the end of the first quarter 2010. One issue
concerns retaining five percent of management positions as
expatriate positions. ExxonMobil has stated that this is
unrealistic given that the average international oil company
(IOC) joint venture (JV) interest is 40 percent. The IOCs
would like to see 15 to 25 percent expatriate managers.
Another issue deals with operators who carry out a project
contrary to the provisions of the LCB. The current language
states that the IOCs are liable to a fine of five percent of
the project sum or cancellation of the project upon
conviction. The IOCs want to know who determines
non-compliance and who convicts. (NOTE: The IOCs do not
execute projects that are not approved by the Nigerian
Content Division which is the industry regulator charged with
implementation of the Nigerian content policy. END NOTE)

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CSI: LOCAL CONTENT BAD FOR U.S. INDUSTRY
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3. (C) Members of the Coalition of Service Industries, (CSI)
including Bob Vastine, Eric Toy, and Bob Moran from
Halliburton, Brian Petty from International Association of
Oil Drillers, and Tim Richards from GE, participated in a
conference call with the Ambassador and other members of
Mission Nigeria to discuss the recently passed Local Content
Bill (LCB) on December 22. The CSI members expressed their
concern about the impact that the LCB will have on their
businesses in Nigeria. They specifically referred to the
schedule attached to the bill that requires up to 100 percent
local content for certain materials and labor covering most
of the processes involved in drilling for oil in Nigeria.
Moran also commented on the technology transfer requirements
of the LCB and said that Halliburton would either leave
Nigeria because of these requirements or would bring in
inferior technology which would limit the company,s
efficiency.


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AMBASSADOR: SHOW WHY LOCAL CONTENT IS BAD FOR NIGERIA
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4. (C) CSI stated that they had been in discussions with Dr.
Egbogah, the Special Advisor to the President on Petroleum
Matters. The Ambassador pointed out that this was most
likely the wrong point of contact since Egbogah would be most
effective if the LCB had originated from the executive. The
Ambassador suspected that the LCB originated in the
legislature, thereby limiting Egbogah,s potential impact.
(NOTE: The LCB originated with the Obansanjo regime according
to Nigeria Oil and Gas Monthly business editor Solomon
Ugbodu. END NOTE) The Ambassador continued by stating that
CSI should focus on why the LCB is bad for Nigeria and
Nigerians. Currently, CSI has a "side-by-side" analysis that
explains why each section of the bill is bad for U.S.
industry. This "side-by-side" was created 18 months ago and
was based on the Senate version of the LCB. The Ambassador
suggested that CSI update their analysis to include the more
current House version and the potential impact of both bills,
or a consolidated version of both bills, on Nigeria.
Complaining about how the LCB impacts foreign companies will
fall on deaf ears in the National Assembly. The Ambassador
committed the Mission to procure a copy of the latest copies
of both the House and Senate versions of the LCB and to
forward these to CSI.

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STRATEGY TO ENGAGE NATIONAL ASSEMBLY
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5. (C) The Ambassador suggested that CSI team up with the
American Business Council (ABC) in Nigeria as well as the
Nigerian American Chamber of Commerce to form a team of both
U.S. and Nigerian companies. This team would produce
analysis as to why the LCB is bad for Nigeria and Nigerians
using the most current legislation. The Ambassador
identified three areas where this team could have an impact.
The first area was in the harmonization committee.
Currently, the House and Senate versions of the LCB have
minor differences that must be resolved before the bill is
signed into law. The second area is the implementation
committee. As the LCB is implemented and regulations are
formulated it is possible to influence how that is done. The
third area is to contact Dr. Egbogah in the hopes that he
could have some influence on the process. The Ambassador
committed the U.S. Mission to contacting Dr. Egbogah.


6. (C) The Ambassador met with Nigerian-American Chamber of
Commerce (NACC) President Laolu Akinkugbe on December 23.
Akinkugbe stated that his SME members were in favor of the
bill, but there was not much support beyond that. The
Ambassador followed up by asking what happens if the LCB
comes out badly? Akinkugbe responded that, in that case,
joint advocacy would be required between the United States
and the NACC. The NACC would see what happens in the first
quarter and would plan on explaining to members the impact of
the bill, Akinkugbe continued. A joint ABC-NACC position
should be formulated at that time. NACC has yet to begin
working on this. The Ambassador queried if Mission Nigeria
could help the NACC
in working on a position paper and Akinkugbe said yes.


7. (C) All agreed on holding a roundtable during the first
part of 2010. After the roundtable, a group
of ABC and NACC members would approach the appropriate
committee jointly. ConGen Lagos will contact ABC President
Dick Kramer to seek for his assistance in this matter.

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OIL COMPANIES NOT DOING THEMSELVES ANY FAVORS
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8. (C) The Ambassador met with Citibank Managing Director
Emeka Emuwa on December 29. When asked how he felt about the

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LCB, Emuwa stated that it is not a "today issue." The
industry set itself up by not investing enough in the past.
If things had been done right in the past, there would have
been no problem today. It was entirely possible that not "a
dime" of contract monies flowed to Nigerians before the LCB.
Emuwa saw no problem with letting more value creation be made
in Nigeria. The issue is "how far do you push?" The
Ambassador countered that the schedules are too aggressive.
"Not surprising," Emuwa replied. He continued that there is
not much sympathy for Shell. They were the first company to
find oil and could have very easily spent a little bit more
in the communities. The attitude at Shell was that they paid
their taxes and it was up to the GON to deal with the
community. Shell has been more involved in community
relations in recent years but their activity has not been
seen as genuine. Exxon Mobil does not have the same problems
in that they have managed their community relations better
than Shell. Chevron is somewhere between the two. "When you
see an advantage, you cannot take 100 percent," opined Emuwa.


9. (C) Oil services companies with a short history will
leave Nigeria, predicted Emuwa. The ones with a longer
legacy will stick it out because there still is money to be
made in Nigeria. The case of the LCB is similar to the case
of the PIB. NNPC and Nigerians overall push hard in
negotiations. "The IOCs must not back down but see the
process through," Emuwa insisted.
BLAIR