Introduction

Among other functions, the Department of Petroleum Resources monitors and ensures compliance with petroleum industry laws and regulations. In discharging this responsibility, the department has historically issued guidelines, procedures and requirements in relation to issues such as oil and gas industry services permit applications, the import of petroleum products and crude oil export permit licences.

The recent global oil price fluctuations and their impact on Nigeria's heavily oil-dependent economy - particularly on companies operating within the petroleum sector - appear to have spurred the revival of interventionist policies by regulators such as the Central Bank of Nigeria and the department, along with historical controversies regarding the validity and efficacy of such policies. Neither the interventionism nor the resulting debate is new.

1997 circular

On February 6 1997 the Ministry of Petroleum Resources issued Circular PR5061/B/V.2/181 to oil producing, oil marketing, and oil service companies in Nigeria. Entitled "Release of Nigerian workers from employment in the petroleum industry and utilisation of expatriate quota", the circular required addressees to apply for the official approval of the minister of petroleum resources prior to releasing any Nigerian employees from employment. Critics argued that neither the Petroleum Act, (Chapter P10), Laws of the Federation of Nigeria, 2004 nor its regulations empowered the minister to regulate terms and conditions of employment between parties to employment contracts. Other controversies concerned whether the minister's purported exercise of the powers conferred under the circular exceeded the scope of his authority under the Petroleum Act, and the propriety of the issuance and execution of the circular by the department rather than the minister.

2013 publication

A trend of protectionism and indigenisation has been ongoing since the enactment in April 2010 of the Oil and Gas Industry Content Development Act. The Nigerian Content Development and Monitoring Board (NCDMB) - which was established to implement, monitor and enforce compliance with the act, among other functions - released a public notice on expatriate quota management in the oil and gas industry on December 11 2013.

In addition to reiterating the requirements of the act that first consideration be accorded to Nigerians for employment in the Nigerian oil and gas industry, and that prior approval be sought in relation to expatriate quota approvals from the NCDMB, the notice required operators and service companies intending to embark on any form of staff rationalisation to notify the NCDMB of such scheme, providing details of the justification for the exercise andits impact on the Nigerian workforce of such companies. The rationale for this was expressed in the notice as a measure to curb the "systematic substitution of experienced Nigerian (workers) with expatriates".

2015 guidelines

The present debate and the department's protectionist intervention in private employment contracts involving employees in the Nigerian petroleum sector are therefore not new. The issue of whether and to what extent the department's issuance of guidelines and procedures for the release from employment of staff in the Nigerian oil and gas industry, which took effect on March 5 2015, may be said to fall properly within the purview of its statutory or regulatory functions has once again arisen.

Scope

The guidelines impose various conditions and prescribe new requirements and processes for obtaining the mandatory consent of the minister of petroleum resources prior to the release of workers. 'Workers' are defined as Nigerian nationals employed not only by holders of oil mining leases, licences and permits issued by the minister through the department further to the act and its implementing regulations, but also to department-registered providers of any services to such licensees, lessees and permit holders.

'Release from employment'

The term 'staff release' is defined at paragraph 3.1 of the guidelines as:

"the removal of a Worker from the employment of the holder of an oil mining lease, licence or permit (or an interest therein)... or any person registered to provide any services in relation thereto in a manner that permanently separates the Worker from the company."

The paragraph provides a non-exhaustive list of non-specific instances of staff release, including dismissal, retirement (whether voluntary or forced), termination, redundancy, release on medical grounds, resignation, death and "abandonment of duty post".

Employer's obligations

Any employer that wishes to release a worker from employment must first submit a written application for consent to the director of the department, stating:

  • the nature of, and reasons for, the proposed release;
  • the manner of release;
  • compensation due to the worker; and
  • details of the proposed replacement for the worker (if any).

The application must be supported by copies of documents relevant to the worker's employment, including the employer's conditions of service, defined by the guidelines as:

"any document by whatever name which states the relationship between the employer and the worker. Such document shall include collective bargaining agreements, letters of employment, conditions of service, corporate policy and procedure guides etc."

There are exceptions to the mandatory requirement for the department's prior consent purported to be imposed by the guidelines. Paragraph 5.3 of the guidelines provides that the employer's obligations are limited to formal notification of the department where the release occurs as a result of the worker's voluntary retirement, resignation, death or abandonment of his or her duty post. In the event of abandonment of the worker's duty post, the employer may release the worker two weeks after notifying the department. However, the guidelines are silent on the timing of the worker's release in all other instances envisaged by the guidelines.

Worker information

In relation to workers who are already employed, the guidelines require all employers to furnish documentation to the department within 60 days of the date on which the guidelines were enacted. In respect of a new worker, every employer must provide documentation to the department within seven days of his or her employment. The documentation to be provided must include the worker's name, date of birth, date of commencement of employment, designation at commencement of employment, current designation (in the case of current workers) and a colour passport photograph.

Penalties for non-compliance

The guidelines provide for the imposition of penalties on any employer that fails to comply with their provisions. Save for the prescribed penalties suspending or cancelling oil mining leases, licences or permits, the guidelines are unclear as to whether the following penalties are cumulative.

Failure to submit new worker's information
A defaulting employer will be liable to:

  • a letter of indictment from the department;
  • suspension of permits or approvals; and
  • a fine of N100,000 for every day that it fails to submit the information after the seven-day period followed by a three-month grace period has elapsed.

Failure to submit current worker information
An employer that fails to submit information on the employment of current workers to the department is liable to:

  • a fine of N150,000 for every day that it fails to submit the information after the 60-day period followed by a three-month grace period has elapsed; and
  • suspension or cancellation of its oil mining lease, licence or permit.

Failure to obtain prior consent to release
A defaulting employer is liable to:

  • a N10 million fine;
  • reinstatement of the worker until the department has reached a decision on his or her release; and
  • suspension or cancellation of its oil mining lease, licence or permit.

Publication of release information without consent/failure to implement decision following application
A defaulting employer is liable to a fine of N5 million and, in case of a failure to implement a decision issued by the department, suspension of its oil mining lease, licence or permit.

Validity of guidelines

Critics have challenged the authority of the department - as distinct from the minister - to issue guidelines generally and contend that, even where it may be possible to argue that such authority exists, its ambit must be limited to matters that are expressly authorised by statute. As with the 1997 circular, those who question the validity of the 2015 guidelines argue that Nigerian law preserves the sanctity of employment contracts negotiated by employers and employees, subject only to mandatory terms and conditions relating to such matters. Parties are generally at liberty to decide on the terms and conditions of contracts of employment, including their termination, subject to certain minimum terms and conditions prescribed to protect manual and clerical workers under the Labour Act (Chapter L1), Laws of the Federation of Nigeria, 2004, and to protect all employees in relation to issues such as compensation for injury and death of employees during the course of employment, pensions and life insurance.

Regulations 26 to 29 of the Petroleum (Drilling and Production) (Amendment) Regulations 1988, introduced pursuant to Section 9 of the Petroleum Act, merely require licensees and lessees to submit Nigerian employee and recruitment training programmes at all phases of petroleum operations for the approval of the minister and to submit periodic reports on the execution of such programmes. The language of these statutes and regulations is fairly clear. They contain no provisions that specifically authorise the prescription of the kinds of terms imposed by the 2015 guidelines (or indeed the 1997 circular) into employment contracts.

The guidelines are expressly stated to be issued by the department pursuant to Regulation 15A of the Petroleum (Drilling and Production) (Amendment) Regulations, which provides that:

"the holder of an oil mining lease, licence or permit issued under the Petroleum Act 1969 or under regulations made thereunder or any person registered to provide any services in relation thereto, shall not remove any Worker from his employment except in accordance with guidelines that may be specified from time to time by the Minister."

Statutory provisions presented in support of the validity of the 2015 guidelines include assertions of Sections 9(1)(b) and 12(1) of the Petroleum Act, as well as Section 10 of the Nigerian National Petroleum Corporation Act (Chapter N123), Laws of the Federation of Nigeria, 2004, which provides that any regulatory function conferred on the minister pursuant to the Petroleum Act or any other enactment shall be deemed to have been conferred upon and to be discharged by the director of the department. Section 10(2) in particular empowers the minister to delegate such powers as may be conferred on him under the Petroleum Act to the chief executive officer of the department (ie, its director).

As with earlier prescriptions issued by the department, the 2015 guidelines have not been formally challenged by aggrieved petroleum sector participants either making representations to the minister requiring his intervention to stop the department from implementing the guidelines or seeking a Federal High Court order declaring them null and void.

While the extent of compliance and implementation is unclear, historical precedent suggests that, in practice, the guidelines may not readily be challenged in this manner. First, Nigeria's new government is yet to appoint a minister of petroleum resources, prompting speculation that the responsibilities ascribed to this strategically important position may be discharged by the new president himself, as was the case under the Obasanjo regime. Much also depends on the current extent of implementation by the department, which is not immediately clear.

Until such time as the 2015 guidelines are set aside or a court determines that their issuance and execution were null and void or beyond the scope of the statutory and regulatory powers discussed above, the exigencies of the current economic climate suggest that they will remain in place. Sector participants will therefore need to weigh the possible benefits of undertaking a regulator challenge and risking penalties including suspension and cancellation of authorisations (at least in the short term) for non-compliance against the need to find measures that ensure that their businesses will remain viable in the current climate.

For further information on this topic please contact Folake Elias Adebowale, Dolapo Adesina or Dare Agbelese at Udo-Udoma & Belo-Osagie by telephone (+234 1 263 4831) or email (folake.adebowale@uubo.org, dolapo.adesina@uubo.org or dare.agbelese@uubo.org). The Udo-Udoma & Belo-Osagie website can be accessed at www.uubo.org.

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