Nigerian Content: The journey so far

*Nigerian metal worker.

*Nigerian metal worker.

*NCDMB management committed, optimistic
*Experts claim policy has achieved little success
*Content Development Fund grows to $600m

Oscarline Onwuemenyi

11 December 2016, Sweetcrude, Abuja – Since the 1960s the Nigerian oil and gas industry has played an oversize role in the country’s economic growth and development. The sector generates about 95 percent of total export revenue and 80 percent of total national income. In addition, it expends about $10 billion annually in servicing its operations. Sadly, a significant proportion of this amount is paid to foreign contractors for services like fabrication and engineering procurement, resulting in capital flight and leaving very little to develop the country’s technological and industrial base.

To forestall this phenomenon, the government introduced the ‘Local Content Development’, LCD, policy aimed at championing the course for higher indigenous participation in the sector and value addition for the nation. One of the major thrusts of the policy was to promote higher participation of small and medium-sized firms within the oil and gas industry and beyond.

Investigations by SweetcrudeReports reveal that the policy has achieved very little success in enhancing more contract awards to local firms and spurring few joint venture arrangements; issues such as inadequate financing, ineffective supervision, cumbersome pre-qualification requirements and disjointed oil and gas law structure, still hinder the policy efficacy.

Despite the huge investments made by the Nigerian government in the oil and gas sector, an average of $10 billion per annum, the sector’s contribution to the national Gross Domestic Product, GDP, is minimal at best (at an average of less than 30%). This abysmal contribution of the oil and gas sector is often attributed to the high foreign content and low inputs by Nigerian firms or low local participation in the sector.

Experts have lamented that despite the introduction of local content policy since 2006, and enactment of the Nigerian Oil and Gas Industry Content Development, NOGICD, Act in 2010, Nigerians have enjoyed a very little share of the oil and gas business over the years with just 14% participation. A lot of the poor showing is blamed on the inability of the Nigeria Content Development and Monitoring Board, NCDMB, and the previous regulatory agencies to bridge the funding and capacity gap, besides other structural issues such as the delay in passage of the Petroleum Industry Bill, PIB, which has hindered oil and gas multinationals from complying with the Nigerian content directives.

Success Story

The NCDMB recently announced that indigenous participation in the nation’s oil and gas industry has increased to about 35 percent in the past six years.

The Manager, Strategy and Policy Development Division at NCDMB, Mr. Abdulmalik Halilu, who revealed this during a visit by a delegation from Uganda, stated that the percentage of Nigerian Content in the oil and gas industry had increased from less than five percent before 2010 to 14 percent in 2014 and 35 per cent in 2015.

He added that the Board’s interventions were expected to increase local content levels to 50 percent by 2017. According to him, contracts awarded by operating companies to Nigerian service companies had also increased from about 40 percent of total contracts before 2010 to 75 percent in 2015 while the target was to achieve 85 per cent by 2017. He encouraged the Ugandans to decide on the model that would encapsulate their local content aspirations.

The NCDMD recently stated that Nigeria was the only country that enacted a dedicated law for local content whereas other jurisdictions have local content provisions subsumed in existing laws guiding their oil and gas industry.

The Board stressed that the Nigerian Content Act has helped the government and the Nigerian people reverse the flight of industry spend to foreign countries in the form of personnel, materials, equipment, fabrication and engineering designs. It further explained that the Nigerian Government was the driving force behind the implementation process, stressing that strong political will was necessary to overcome powerful forces opposed to the implementation of local content.

The Nigerian Content Development Fund

Speaking at the just-concluded Practical Nigerian Content Forum, in Abuja, the Executive Secretary of the NCDMB, Simbi Wabote stated that the Board was working to close skills, infrastructure and assets ownership gaps in the oil and gas industry.

He explained that the Nigerian Content Development Fund, NCDF, which is funded through the one percent deducted from the value of all upstream contracts, is underpinned by Section 104 of the Nigerian Oil and Gas Industry Content Development Act.

The fund was designed to provide partial guarantees and 50 percent interest rebate to service companies that obtain facilities from commercial banks for asset acquisition and projects execution. The Act provides that the funds be used for the development of capacity in the oil and gas industry.

The NCDMB Executive Secretary said, “Any time you assemble a gathering and you talk about the Nigerian Content Development Fund, everybody wants to know what will become of the fund. What this current board will assure you is that within the shortest time possible, we will come out with a clear blueprint on how that fund will be utilised to promote local content development in our industry.

“We will no longer have a situation where people continue to wonder what is happening to that fund; if it has been put into political use or into local content development. One thing I can assure you is that very soon, a transparent process of accessing that fund will be made known to all stakeholders.”

Noting that the fund had grown over the years, Wabote said six Nigerian companies had tapped it for capacity development. Said he, “It bothers the mind of key stakeholders when you look at the Nigerian Content Development Fund that they started contributing since 2010, when the Act was enacted. I must say that the fund has grown over the years. Probably, we have an approximate figure of $600 million in the fund.

“As far as I am aware, the fund has benefitted about six Nigeria companies that have tapped into that fund for capacity development, but I must say it is not directly giving money to those Nigerian contractors.

Though he did not mention the names of the beneficiary companies, he also admitted that not much has been deployed for capacity development.

Wabote added, “I must say that it is not directly giving money to those six Nigerian contractors; it is about guaranteeing some of the loans that they got from the banks because we are not a funding institution. Not much has been expended from that fund for capacity development. Part of the strategy of this new board is to come out with a very transparent process through which genuine Nigerian contractors involved in the oil and gas sector will have access to the fund.”

According to him, “While the people who are contributing worry about the fund they have contributed, there are a lot of Nigerian companies that are not making their contributions as enshrined in the Act”. This board will look at strategies to make them comply with the provisions of the Act, he said.

Wabote further explained that the NOGICD Act seeks to develop Nigerian content across the oil and gas value chain – upstream, midstream and downstream sectors.

He said, “There is an opportunity for demand-driven investments across the oil and gas industry value chain. Today, a lot of people ask me, why is Nigerian content not also focusing on the downstream and midstream activities? My response is simple: with the new board and the council, our focus will go beyond the operators in the upstream sector; our activities are all-encompassing as enshrined in the Act.”

The NCDMB boss said one of the interventions the board had put in place to attract investments and stimulate domiciliation of manufacturing activities was the Equipment, Components Manufacturing Initiative, ECMI. He said the ECMI was developed to promote the local manufacturing of equipment, components, spare parts and other accessories for the Nigerian oil and gas industry.

 

He said, “So far, we have issued 1,430 certificates as of October 31, 2016. This translates to investment commitment value of about $2 billion as of today. The board ensures that the commitments are complied with before reviewing or issuing certificates to companies. Some other initiatives that the board has put in place to stimulate domiciliation of manufacturing and other value-adding activities include the establishment of the oil and gas park that will serve as the manufacturing hub for equipment and the provision of funding support for local manufacturers of the LPG cylinders.”

Crude oil lifting

Also, he explained that contracts for lifting Nigerian crude oil will begin to yield tangible benefits for the Nigerian economy going by the renewed commitment by the NCDMB, the Nigerian National Petroleum Corporation, NNPC, the Nigerian Maritime Administration and Safety Agency, NIMASA, and other stakeholders in the oil and gas industry.

In achieving this, the Board would be aiming to prevent the situation in the past whereby Nigeria lost huge income due to foreign-owned tankers carrying Nigeria’s crude. The Board, for instance, estimated in 2013 that the Nigerian economy lost over $100 billion in five decades by allowing its crude oil to be carried exclusively by foreign-owned tankers.

But rising from a recent workshop convened by the Board in Lagos on ‘Crude Oil Off-takers Nigerian Content Deliverables’, the NCDMB, NNPC, NIMASA and other stakeholders pledged to grow the quantum of Nigerian Content in the lifting of Nigerian crude oil by working with Nigerian shipping stakeholders to develop in-country assets capacity that meets international standards.

They also agreed to ensure that companies that have invested in ownership of crude oil lifting vessels are given first consideration in line with the provisions of the Nigerian Oil Industry Content Development Act.

According to a statement at the end of the workshop, NCDMB, NNPC and NIMASA also committed to exploring the possibility of a joint fund as part of waiver mechanism which can be used to purchase or finance the building a Nigerian owned Crude Oil Lifting Tankers.

Another decision taken at the workshop was to properly define what constitutes “spend” in crude oil lifting contracts for the purpose of complying with the target of 90 per cent industry spend within the Nigerian economy set for Very Large Crude Carriers, VLCCs, by the NOGICD Act.

Are banks stifling the NCDF?

The Nigeria Oil and Gas Industry Content Development (NOGICD) Act of April 2010 established the Nigerian Content Development Fund, NCDF, for the sole purpose of funding the implementation of Nigeria Content programmes within the Nigeria oil and gas industry. The Fund which represents one percent of every contract awarded in the upstream sector is set aside and employed to support contracts, projects and programmes of the Nigeria oil and gas service companies and related indigenous operators within the industry under a defined framework.

However, some operators have alleged that a number of the banks appointed to disburse the fund have posed more as an obstacle than a bridge to accessing the funds, a fact that has led to very minimal traction in the growth of local services for the oil and gas industry.

Erstwhile Executive Secretary of the NCDMB, Mr. Ernest Nwapa, in an interview with SweetcrudeReports, however, denied the allegation that the banks are meddling with the Fund, stressing that the Fund is not meant to be given out as a grant to indigenous operators. He also observed that there has been an appreciable ‘uptake’ on the fund by operators in the industry.

According to Nwapa “The money is accessible for operators. The money is meant to facilitate funding agencies to give money to indigenous operators. That is the way the fund is designed, at least at this phase. You remember that this fund came in as a zero fund. So, we designed it such that in the first five years of the fund, it will only be a fund that people will see as a guarantee, believing that it will grow.

Confirming that the fund has been accessed successfully by some Nigerian service companies, while some other companies are at various stages of processing their applications, the Executive Secretary said the Board was working with the Fund managers to fine-tune the conditions to be met for prospective beneficiary companies so as to make it more accessible.

“We are not satisfied with the level of access to the fund and we are working to review the administration process,” he said.

He, however, clarified that the delays in accessing the Fund emanated mostly from the processes in the banks and how the companies packaged their proposals, adding however, that some conditions were introduced to ensure that beneficiaries were serious service companies who had bankable plans.

He underlined that during his time at the helm, the Board decidedly appointed a fund manager and constituted an advisory committee, which comprises representatives of international oil companies, Petroleum Technology Association of Nigeria, PETAN, Oil and Gas Trainers Association of Nigeria, OGTAN, and the Bank of Industry, BoI, in an effort to create a structured and transparent process for accessing the funding.

The current conditions require the benefiting company to tie-up an arrangement with its bank for a facility meant for financing the acquisition of assets and ensure that it draws down the loan and services it successfully. The Fund will then kick in to offset 50 per cent of the interest charged by the bank.

Nwapa added that “The fund is growing and it has grown to the point where we are looking at remodelling it because now, there is cash in that fund but it will never be a fund that people will treat as a grant. It is something that people will take in a structured way. Many of the banks that are funding operations are funding because that fund is there. The fund is there as a collateral sitting in many banks and the banks are linking the loans they are giving to stakeholders to that fund. So, if you expect the NCDMB to have a vault somewhere so that when you want to do something, you will come and the Executive Secretary will approve $10 million for you, it does not work that way. The banks are designed to give those monies out.”

Breaches to Local Content

Like anything novel which rubs against company conventions and organisational management norms, there have been breaches to the implementations of the Nigerian Local Content law. Only last month, some Nigerians working with an American oil and gas service firm, Weatherford International, raised the alarm over gross abuse of local laws and sharp practices being perpetrated by the Nigerian subsidiary of the company, Weatherford Nigeria, against them.

A source at the company, who spoke on condition of anonymity to our reporter, said the firm has carried on with many anti-Nigerian policies such as mass sack on flimsy excuses and appointment of a foreigner as Country Manager in clear violation of Nigerian Local Content Act, which is one of the significant developments aimed at localising management and control of oil and gas industry.

The source said apart from the fact that there were many qualified Nigerians capable of running the firm as Country Manager, the foreigner who was appointed, Manuel Hernandez from Venezuela, came into Nigeria via Business Visa and has been working as an expatriate without the necessary work permit.

Going down history of the firm, the source said a Nigerian, Femi Thomas was appointed as Country Manager of the company and was there for about two years before he was redeployed as Vice President for Africa, while another Nigerian, Femi Akarikiri, was appointed to succeed him, only for the said Akarikiri to be demoted after just a year in office and replaced with Hernandez.

According to the source, “The first issue is that this is not an industry where you can claim there are no qualified Nigerians for the job because oil and gas industry in Nigeria is fully sophisticated. Number two is that for the fact that you have had Nigerians in that position, the position has been nationalised and so you cannot go back and revert to say that you now need to bring an expatriate.

“The third issue is that you lay off a lot of Nigerians because you claim the industry is bad and you have no money to pay but yet the question is how can you afford to pay expatriates if you have laid off Nigerians who earn a fraction of what the expatriates earn?

“By the time you look at that picture, what you see is a company that does not have any commitment to Nigeria or any respect to the ideals of the country. They want to get paid, they want to drill for oil, they want to make money, but where is the growth for Nigerians in that process? The average Nigerian employee in the company earn less than $1,000 a month, but the average expatriate earns $20, 000 a month or more. How can you afford one expatriate if you lay off Nigerians on the basis that you can’t afford to pay them,” the source queried.

Already, the source said the Nigerian Content Development and Monitoring Board (NCDMB) had been notified of the development, but that there was great need to raise the alarm over the mass sack of over 100 Nigerians and other deliberate plots of the company against Nigerians for prompt action by the Nigerian government and other key stakeholders.

Interestingly, the National Assembly has been at the forefront of the fight to ensure that oil and gas companies, including government organisations, adhere to the local content mandate.

The House of Representatives’ Committee on Local Content said it has been in running battles with Korean firms – Hyundai Heavy Industries, HHI, and Samsung Heavy Industries, SHI, over violations of the Nigerian Oil and Gas Industry Content Development Act of 2010.

The committee has also accused Nigerians of aiding foreign companies to flout the Nigerian content law, adding that every infraction in the oil and gas industry is aided by a Nigerian company.

Speaking at a special panel session of the Sixth Practical Nigerian Content Conference that ended recently in Abuja, the Chairman of the Committee, Hon. Emmanuel Ekon alleged that some of the companies have violated Section 33 of the NOGICD Act by abuse of expatriate quota.

Ekon identified HHI and SHI as the main culprits in the violation of the NOGICD Act.

According to him, Section 33 provides that the companies should seek approval from the NCDMB before deploying expatriates.

“In the course of our oversight function of the oil and gas industry, we discover that some of these companies bring in expatriates, who are somehow not qualified to work in the industry or who do not have the requisite skills as stated in their quota,” he said.

He also alleged that in some instances, some of the expatriates overstay in their positions, which they are supposed to have relinquished to Nigerians.

Ekon said the NCDMB was empowered to have information on all the professionals working in Nigeria’s oil and gas industry, stressing that approval is supposed to be obtained from the board by the companies on behalf of the expatriates.

The Committee Chairman argued that the implementation of the NOGICD Act will provide social security and dividends of democracy to Nigerians, and called for effective collaboration among the NCDMB and the Ministry of Interior to check the abuse of Nigerian Content.

The committee chairman disclosed that they had visited the facilities of HHI and Samsung where Ekon condemned the two companies for their alleged flagrant abuse of the NOGICD Act.

“The Local Content Committee three weeks ago frowned at the attitude of Samsung in bringing over a hundred welders and fitters that we have in abundance here. That is a complete violation of Section 53 of the Local Content Act. The essence of our touring these facilities is to see where these companies have violated our law and then try to enforce those companies to comply with our laws,” he said.

“We started engaging Hyundai Heavy Industries (HHI). We found out that HHI violated the law by bringing in expatriates without valid papers. How they came into the country we do not know. And these are people that are coming in to take jobs who are meant for Nigerians. What we did was to invite the Immigration Services into HHI. They started their investigation that lasted about a month. At the end of it all, HHI was found guilty. As I am talking to you now, the managing director was deported last week; the country representative was deported and another officer was deported for 10 years. That means they cannot come into this country for the next 10 years. Now we have about 31 more that are working in Chevron Excravos still HHI expatriates. They are under investigation right now; their passports have been seized and by Tuesday next week, Immigration Services will also come out with result of their investigation. If they are found guilty, all of them will go the same way,” Ekon explained.

On its own part, the Senate Committee on Petroleum (Upstream) has tasked the Ministry of Petroleum Resources to take advantage of the local content in its effort to deliver on its mandate.

The Chairman of the Committee, Sen. Omotayo Alasoadura, who stated this while on an oversight function at the ministry headquarters, Abuja, noted the need for the oil sector to adopt local content than relying on foreign machinery and import, regretted the non-utilisation of local content in the oil sector which is in large quantity in the country.

Sen. Alasoadura further noted that efforts are being made to pass the Petroleum Industry Bill (PIB), even as he urged the ministry to develop a strategy to resolve the Niger Delta crisis, which it said have adversely affected oil production in the region.

The committee asked the petroleum ministry to take advantage of the availability of bitumen in some parts of the country.

Fielding questions from the members of the committee, Minister of State for Petroleum, Dr Emmanuel Ibe Kachukwu who reeled out some of the challenges of the ministry urged the senate to hasten the consideration of the PIB.

The PIB albatross

Many experts believe that for Nigerians and the local economy to benefit from the multi-billion dollar investments in the oil and gas industry, and for the robust implementation of the Nigerian Content law, concerted efforts must be made to pass the Petroleum Industry Bill.

Speaking at the panel session organised by the Petroleum Technology Association of Nigeria, PETAN, at the Offshore Technology Conference in Houston Texas, United States earlier this year, the former NCDMB boss, Nwapa said there was an urgent need to expand discussions around the proposed legislation beyond the fiscal terms.

He warned that failure to sufficiently domicile the service and manufacturing ends of industry operations would mean that investments would flow into the country, but take flight in the form of overseas procurement of equipment used for operations and remuneration of expatriate personnel working on the projects.

He explained, “It is expected that when PIB is passed, it would result in massive investment flow and those investments will yield revenue for Nigeria. But what we are looking for is a kind of impact that can give us employment on top of the revenue. That type of impact would only come from the investments that result in domiciliation. It is a good thing we have had a three-years head-start in the implementation of the Local Content Act which has enabled us create some capacities in Nigeria such that as the PIB is being passed and investments are coming, we would then have jobs arising from the investments being executed locally.”

The Executive Secretary also canvassed for industry support for the Board’s initiatives especially the Nigerian Oil and Gas Industrial Park Scheme and the establishment of a new pipe mill to support the existing SCC Mill in Abuja.

He explained that when the initiatives are successful, Nigerians will reap immense benefits from the PIB as more industry activities would be domiciled.

He added, “It is a good thing to get the investments in because we need to increase our revenue intake from oil production, but the real endgame for us is to ensure that when as we are getting revenues, we are getting our people to work. Government agencies can only employ a few thousands, but the real employment can come from commercial activities that would arise from our preparedness to expand operations.”

Throwing further light on the relationship between the Nigerian Content Act and the PIB, the erstwhile Executive Secretary said there was an urgent need for the big multi-nationals and other companies operating in Nigeria to encourage the establishment of facilities where components of industry equipment can be manufactured locally. He added that local manufacturing holds the key to creating jobs in the oil and gas industry.

He added, “The responsibility of the Nigeria Content Development and Monitoring Board is to work with the industry to drive the establishment of these manufacturing facilities and that is why the Federal Government is pushing for the launching of the Nigerian Oil and Gas Industrial Park Scheme.”

He said the Board would use the Nigerian Content Fund to create industrial parks close to the oil fields and get original equipment manufacturers to mentor small and medium scale enterprises to manufacture components of their equipment used in the industry. “The big manufacturers would come to the park and select a local partner that would manufacture their components.”

At the PETAN OTC panel session, which had its theme as “Post PIB Regime: Challenges and Opportunities for Investment in the Nigerian Oil and Gas industry”, stakeholders agreed on the need to ensure that the PIB which is presently on the floor of the National Assembly is passed speedily.

They also concurred that the new law should be infused with provisions that will among other things, ensure increased take for government from industry operations without discouraging investments, while providing incentives for local refinery and investments in gas.

Operators eye $600m Local Content Fund

With the Nigerian Content Development and Monitoring Board set to ease access to the $600 million Nigerian Content Development Fund, industry operators have expressed interest in the fund.

The Chairman, Petroleum Technology Association of Nigeria, Mr. Bank-Anthony Okoroafor, told our correspondent that many members of the association had applied for the fund, but the modalities had been the challenge.

He said, “I think what the board is trying to do is to make it easier to access. None of our members has really been able to access it because of the too many hurdles. But now, the new board is coming up with clear guidelines for accessing the fund.”

Okoroafor, who noted that it was difficult to borrow money from the banks because of the high interest rates, said, “If you have any fund whose interest rate is lower, and if you make it easy for people to access, a lot of people will be interested. But what matters is the conditionality attached to it.

“Whoever wants to access the fund, the people managing it must find out whether what the fund will be used for is in line with the objectives of the fund, which include building capacity and adding to your facilities.”

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