15 November 2014, Sweetcrude, Lagos – Mr. Ernest Nwapa, the Executive Secretary of the Nigerian Content Development, Monitoring Board, NCDMB, has successfully etched his name in the psyche of the country’s oil and gas industry as a consummate promoter of local content. An outstanding engineer of no mean repute who earned his stripes putting in years of meritorious service at the NNPC, the Board’s helmsman has a deeper appreciation of the need to ensure the oil and gas industry catalyzes growth of the wider economy. In this interview with Hector Igbikiowubo and Kunle Kalejaye both of SweetcrudeReports, he speaks on the Board’s plan to facilitate collaboration between original equipment manufacturers, OEMs, and local small and medium scale enterprises, SMEs; the establishment of ‘Parks’, and the administration of the Fund.
Excerpts:
May we know what the Board’s Original Equipment Manufacturer, OEM, fair is about?
The Original Equipment Manufacturer, OEM fair is an intervention we have brought into play to deepen the Small and Medium-scale Enterprises, SMEs, understanding of the oil and gas business, the way we have structured it under the Nigeria Content Act.
The whole idea is to organise an international fair where international OEMs will come in and have a fair where SMEs especially those that have manufacturing brand will come and show their attributes and activities so that the OEM will start to understand their weaknesses and challenges and the banking opportunities for them to join the partnership that is being developed in the country.
This is not particularly new; already the companies have organised a fair where match-making is organised between local SMEs and international OEMs.
The whole idea is that we want to attract the OEMs to start doing some of the manufacturing for their companies in Nigeria. The model we are trying to promote is one where the actual company manufacturing is done by the SMEs or even by what we call the local service company with the OEM supervising and monitoring them.
The first fair will be organised in Bayelsa and we are going to have a couple of fairs, we are targeting November. This is all preparatory to the commencement of the industrial park operation.
We want to prepare a place where the OEMs and the SMEs will meet to the extent that when the industrial park comes on stream, there will be people that are sufficiently mobilised and knowledgeable who can identify the components of the manufacturing programme.
So that is actually what we are trying to do with the SMEs.
Do you have any specific date in mind?
We are looking at the first week in November and we have actually arranged with a consultant to work with the in-house team that will liaise with the IOCs.
The IOCs will be giving us the list of the OEMs that have substantial supply in the country, the SMEDAN is also going to provide us with a list of over 100 SMEs.
From those SMEs we must take 50 to work with because of the pre-qualification system, that will fit into the system we are trying to focus on and that is going to leverage on the collaboration we have already established between some of the agencies of government and private organisations that are involved in this kind of business.
This whole activity is also anchored on a close collaboration with the Bank of Industry and other sectors that are interested in manufacturing.
So like I said before, by the time we take on the SME fair and work with the development of the industrial parks, we will get a seamless transition of these SMEs in doing some basic manufacturing into more serious manufacturing that we have in the oil and gas industry.
How do you plan to get the industrial park up and running?
What is commonly called industrial park, for us we call it the Oil and Gas Park Scheme. We are trying to emphasize the ‘Park’ and de-emphasis the ‘Industrial’ because it is actually a place where much more is going on than just industrial activities.
We will have the service companies operating there, infact the eco-system of that park is such that services will be there, logistic will be there, manufacturing, intellectual activity, promoting innovation and social activity.
So the place will be so developed such that the OEM will feel at home. The effort we are making today is to acquire land in the size range of 20-25 hecters.
We will develop the land in phases, we will create basic infrastructure like roads, power supply, water supply telecom facilities and ICT.
Once we do that in the first phase, we will begin to attract these OEMs that we have been engaging with for over four years.
Because we understand that manufacturing is very important and it is the only thing that can actually sustain the impact of the local content policy base, We have been pushing the original equipment manufacturers to do manufacturing of their equipment in Nigeria but their push back has always been that there is ‘no dedicated location’, ‘no infrastructure’ and no capacity of the locals to do this manufacturing.
So rather than bringing these OEMs to come here and asking them to start sourcing for land and developing them, we have taken the responsibility to stimulate that by doing some of the basic things.
We believe that when we do the infrastructure, when we keep them in a cluster, when we invite them in and use the leverage that we have as a statutory agency of government to push the operators into the parks, the OEMs will then come along with their support system; and when they come along with their support system into this place, we will also inject some SMEs.
A good example of that is what GE is doing in Calabar. GE has a characteristic of not moving alone, they come in with a lot of their support infrastructure that moves with them.
They understand that it is even easier to bring people from the locality (Nigeria) into their supply chain complex rather than bring everybody from abroad and to assist them , we want to put some organisation in place for them.
These organisations will be carefully selected such that the amount of work they will need to do to prepare the SMEs will be properly done.
So the consultant we are working with is not just organising an event, the consultant is also going to prepare their modules of arrangement where the SMEs will be prepared to collaborate and inter-face with such major OEMs.
That is the connection between the OEMs and SMEs
When will the park be ready and how much will it cost the Board?
The park will be developed in phases, we have designed the concept of the park already in 3D model but for the phase one of it, we intend to break ground before the end of the year.
We have an aggressive programme where we want to break ground before the end of this year then acquisition efforts are already at an advanced stage. We have advertised for the construction so we are already tracking for the phase one.
Where is the park located?
One is located in Bayelsa state, the other one is located in Oguta, Imo State, Rivers state and the third one is located in Calabar, Cross Rivers state. These three are the first sets that have been selected but by the time we enter the second phase, we will do the remaining six oil producing states.
We believe that by starting very close to the oil fields, it will make the most impact in the local economy of these oil producing states and it makes more sense even to the oil companies that they get their input as close to the oil fields as possible.
This is a tradition we have seen going round the world and we want to promote that. It is not to build industrial areas like the ones in commercial and state capitals, but we want to build facilities near the oil field so that it will energise the local people and bring them into the industry not just as security men or contractors supplying little things but as people who are underpinning the foundation of oil and gas industry.
So it is very important for us that these facilities are located in areas where the oil companies will feel that they are actually putting structures where they are operating.
This is a requirement of the Nigeria Content Law; there is a segment that says we must put a project office in the area of operations. We interpret that to mean for instance if you are doing activities like manufacturing in that area, you have already established your presence and if you contribute as an IOC to the ongoing project within these parks, that is equivalent to having your presence in that area.
So we are doing so many things in supporting that basic philosophy of the Act in that one scheme that we are proposing because our strategy is that if we put down the road network, put down one or two major workshops, the other designated workshops can be taken up by the operating companies.
They have clearly stated that they are in support of the scheme, they understand the importance of this scheme, they have done something like this before in other areas. Like I pointed out earlier, a company like GE is not waiting for us, they have gone ahead of us.
Therefore, if we manage to get the operators to get involved in this thing, we can leverage their participation as a way of complying with the other requirement of having more presence in the location of operation.
I have a concern and this concern is not with the initiative, rather, it is with continuity. Have you been able to address the likely impact of the lack of continuity that characterises our national life? In the event that your management is not in place tomorrow, do you think the scheme will be pursued the way you have outlined it?
The thing about continuity for me is not too much of a transition issue, it is structural, it comes with shared vision, it comes with how you have structured your mission.
We have been very careful right from the beginning of the implementation of this programme to build it on a collaborative model. So before we even start anything, we sit down with all the major stakeholders.
This issue of an oil and gas park did not start today, we have tinkered with it for years, we have gone to operators, we have gone to NCCF, we have gone to the banks and other major stakeholders, including government agencies that have nothing to do with industry. So it does not depend on one individual, this is so important that we have created a phased implementation and we are putting it in the hands of participants in the industry. You can imagine the number of stakeholders I have already mentioned.
A company like GE is interested in how they can strengthen power supply but more importantly, we believe that within the NCDMB, the vision to drive this scheme is shared and it is drawn from the vision of Mr. President himself to bring manufacturing and to industrialise the country.
These are the things that help create sustainability, the first one is the structure, the second thing is that it is based on shared vision across the industry, the third one is that we are bringing in all aspect of the industry to participate and finally the private sector will be involved.
So regardless of who is in the leadership of NCDMB, this project is moving forward. We believe that if we start off, people will begin to see the immediate impact and that too will help to sustain the continuity.
There is also concern that there is confusion over your oil and gas park scheme and the Ministry of Trade and Commerce’s industrial park initiative. Do you have any communication in place to clear the air on that?
The issue is that we are all working for the same government and the administration has an industrial policy which Mr. President has recently launched and that is where the Ministry of Trade and Investment keyed in.
There is also a Nigerian Content Act that mandates the NCDMB to build capacity in certain ways. Therefore like I pointed out earlier our whole operation is so collaborative that what we do in the oil and gas industry, we have been able to see linkages of it to the other sectors.
In the same way whatever we are doing that has industrial input, we must align it with industrial policy of the government which is anchored by the Ministry of Trade and Investment. So I have frequent meetings at the level of the other agencies.
In fact I have frequent consultation with Minister of Trade and Investment to make sure that we are all moving in the same direction. But this is an oil and gas park, this goes beyond just manufacturing.
There is going to be education and training in the park, there is going to be facility to provide services. So when it comes to things regarding marine services, we will call on the likes of NIMASA to make sure that we are in line with their own policy.
When it comes to education and training, we will meet with agency like NUC, the head of ministry of Education, when it comes to things around manufacturing, we will rely on the policies that the Ministry of Trade and Investment will provide.
There are things that the Ministry of Trade and Investment can provide for people who are investing in the park, things around incentives that helps investment to move but globally because it is pure oil and gas activities, it has to be superintended by people who have the authority to call the shots with oil and gas companies and oil and gas stakeholder.
We will have banks in the park, so it is a very complex arrangement inside there but remember that we will build this thing organically from the ground. So the first thing we want to focus on now is not who is controlling it but we need to do the work, we need to meet the people we know in the oil and gas industry, we need to create the interest and make sure people understand what we are doing.
The very first phase is the education phase, assembling key stakeholders and getting them to buy into it and making sure that like you said if there is any issue around continuity, it is properly addressed.
May we know other accomplishments recorded by the board?
Anytime I am asked this question, I like to start from the soft issues. I think the achievement this Act has recorded is bringing about ‘change of mind’. The ability of Nigerians to say we can do it, and not just saying it, but actually going out to show that they can do it.
There are so many things we never contemplated that we can do starting with ownership of assets, what I mean by asset is oil bloc. It is not today that we started to talk about marginal field and Nigerians owning them but if you go and look at the way those blocs were run and operated in the past, it was just by name.
Today we see Nigerians really owning the assets, raising funds to buy these assets doing the legal work to get the best legal position, getting the technical know-how and managing the resources. So you have Nigerian assets, Nigerian thinking, Nigerian strategy and Nigerian ownership of the main foundation of the oil and gas industry, the E&P side of it.
Beyond that we have seen a major increase in the work load done in Nigeria by Nigerians, be it in fabrication, engineering, and the number of Nigerians that are involved in marine transportation.
Before now if you check our marine transport support in the industry, we relied completely on foreign vessels. Like during the Niger Delta crisis for instance if the few foreign vessels that were attacked eventually pulled out completely, the few vessels remaining there are Nigerian vessels. But that number has increased.
Today we have 60 per cent of the vessels operating in our water owned by Nigerians, so if any such thing happens, we will not have much of a problem. If we listen to some of the international news you will hear that flight from African countries with Ebola cases should be stopped.
If that kind of scenario should happen, we can manage and sustain the industry, we can manage the drilling, we can manage the technology, and we can manage the support services around the whole operation. So it is very important for a country to be able to say that we now have the capacity to do some of the things we were not doing before.
The only area that we are not yet strong is the area of manufacturing because when Nigerians get the job to supply and procure these equipment they still go to foreign economies to procure them and that is why it is important for us to start from the grassroots and start building up manufacturing capacity.
To do that is not by making a law, we have to actually take steps and that is the beauty of the mandate of the Board. A lot of people say the Board is a regulatory Agency but beyond regulation, this Board has the objective and mandate to build capacity and that is why it is called ‘Development Board’. We take the development aspect of our mandate very seriously.
The number of Nigerians working in the oil and gas industry not necessarily with an oil company has more than doubled over the years. We have clear evidence that the engineering work being done in Nigeria by Nigerians has increased.
The amount of investment, both local and foreign that is trapped in the Nigerian economy is so much that you will hear figures like five billion dollars. That’s the number we just calculated of the major ones we can isolate.
I will give you an example, before the Nigerian Content law, nobody wanted to do integration in Nigeria, nobody wanted to build integration facility but the moment we started talking seriously about integration many started putting facilities down for integration.
A yard like Onne started extending their quay, what were they thinking of? They were thinking of a facility where they can receive big vessels from the ocean. Integration is not only applicable to FPSO, the integration is applicable to bringing some vessels into the country and fitting in the cluster.
So in Onne they’ve spent over $250 million doing up the facility to support the new type of work, same thing for Niger Dock, the amount of investment there runs into millions of dollars. A few weeks ago we went to Ladol.
Ladol is commencing in partnership with Samsung a major integration facility which is going to cost about $250 million. Then when you go to Calabar, GE is putting up a $1billion facility there. All these are things that are being done to meet the capacity requirement the law has created.
When you look at marine vessels, any of these deep vessels you see is not going to cost anything less than $50 million. So you could say that we have 40 Nigerian vessels coming in. I have commissioned about 12 of these vessels.
These vessels are bought for the Nigerian economy, that is an investment for the Nigerian economy because the amount of money about $3 billion a year that is paid for using the services of these vessels will no longer be paid to foreign owners, they will be paid into the Nigerian economy and we have required that the owners of these vessels should demonstrate to us that they own the vessels not by showing us the title but by showing us the source of their funding and we see some of these vessels being funded by Nigerian banks.
Most times that we go to the yards where these things are built, we go in the company of bank staff that are supporting the investment.
From marine vessels to rigs, to fabrication to education and training, we have trained over seven thousand Nigerian youths that have pass through one form of training or the other.
If you look at the number of firms participating in the direct attachment associated with these training it is over a thousand because right now anybody who wants to do any oil and gas project has to set aside a number of man power for training and this training is not class room training, it is not so much of funding the training, it is to create opportunities where Nigerians will be attached to the project.
So you train people for about six weeks, a graduate of engineering or geology is a fresher but the key training is to put them on track record where they will actually practice. We have seen a lot of people migrate from unemployment to employment.
This is consistent with the chat Mr. President had with the Ijaw few weeks ago, it was focused on training, training and more training, thinking beyond training and where these people will work after training, that is the founding philosophy of what we do, our own strategy.
In terms of impact, I can tell you that this whole policy has impacted the industry within the four years of operation beyond what other things we have done in the past 40 years, that is why you see the telecom sector waxing stronger not only in the Nigeria Content policy but in the implementation models that was used to push it this far.
This same thing is happening to power, we are in constant engagement with the ministry of power to see how we can make things happen, like you know from the successful transition of the power sector from public to private hands, the demand for investment has gone high and apart from the investment that the government is pushing from within, coupled with what the private sector is doing, you will begin to see multiple of funding coming in.
These things will not be possible if we don’t have the capacity in oil and gas industry to receive this investment because it is the same engineers that we are training on oil and gas technology that can very easily adapt to the technology that is going to be used in the power sector.
For instance anybody that can make valves for oil and gas fluid can make meters for electricity because it is the same philosophy. If you can make oil pipes for transmission, you can make pipes for the gas to supply power plants.
If we continue to push this for a number of years, you will see that the industrialisation that Mr. President talked about is already taking place.
Some foreign investors feel that the Nigerian Content Act was set up to deny them businesses, what’s your take on that?
I agree that there is need to continue deepening the education. I want to say that one of the first major concerns that the international business community may have is that Nigerian Content is an indigenisation policy and it is going to threaten the foreigners’ participation in the oil and gas industry.
That is very far from the truth, the fact is Nigeria recognises its role as a leading member of the global community and Nigeria responds very responsibly to its duties to the international community. Therefore, the law is very well designed to make sure that it strengthens the protection of the right of foreign investors and Nigerians to participate in the economy. The same law does not take foreigners out of business.
So the law is very carefully balanced on that. There are areas in this law that creates freedom, in fact, they call international support to help build the capacities of local people, and the facilities in Nigeria.
Everything that I have described here, the changes that are being made in Ladol are being made by international companies, using the funds coming out of the contracts that they won on Nigerian project. So you can see a win-win thing there.
The oil companies that are controlling the business, out of the five or six majors that are operating in Nigeria, two are American companies the other ones are European and these are the people that are working with us to promote this capacity building arrangement.
What is happening is that everybody that has been doing stuff in a particular way for 40 years will feel a bit threatened when we are trying to change, so change is always like that.
We have gone to many international forums to explain the key focus of the Nigerian Content Act. It is so simple and whenever we have the opportunity to discuss it with people in authority in this area, they come out and say that they practise something like this in their own country.
What we continue to insist on is that Nigerians are going to be part of this enterprise; we have to be brought in, in a meaningful way. Therefore, we have Nigerians who are partnering with American companies who are into drilling. We have Nigerian companies who are partnering with Austrian firms in engineering, we have Nigerian companies who are partnering with Korean firms in fabrication, we have Nigerian firms partnering everywhere in the world.
Nigerians go to India to buy pipes which is not what we should be doing, we should do business with Indians and get them to set up some facilities to manufacture pipes in Nigeria with Nigerians. So we get some input from Indians and we add value to it in Nigeria where we have a lot of capacity.
What I mean is that we have a lot of people who can work on these facilities to change things. So it is a continuous debate that we will continue to have just the same way other countries accused America of over protecting their economy.
The philosophy of all countries is to protect the interest of their economy and that is what we are trying to do under the leadership of the minister of petroleum for the implementation of this Act and as you know, we are completely in line with global perspective in implementing this Act.
We also have clear evidence that a company like GE is not doing anything they have not done before. What we are asking other multinationals to do is not different from what they have done before in other countries.
What GE is trying to do in Nigeria today is a model they have done in India years ago, there are countries that are trying to replicate what they have done in Angola and they are trying to copy that for Nigeria.
There is nothing that this law is demanding from the international community that hasn’t been done elsewhere. Schlumberger has all sort of programme around the world to put facilities where they do their business. They have arrangements in Brazil similar to what we are asking them to do here.
In Nigeria we are asking that we should allow Nigerians who have money become part owners of rigs that operate in Nigeria. The Brazilian model requires that the rig must be built in Brazil.
We are not yet at the level where we can insist that rigs must be built here because the technology is still a bit ahead of us but that is the destination. The destination is to try to get as much to be done. So it is not as if we will just copy what Brazil is doing that all rigs must be built here, rather, we will want to see bits and pieces of practices keying into the implementation of this law to the extent that our people begin to learn, our people begin to participate in the big things that happens in the oil and gas industry.
Is there a scheme in place to continue to provide this kind of explanation so as to minimise the risk of alienation and is this perhaps one of the reasons the NCDMB is behind the Nigeria Content Investment Forum NCIF?
One of the written aspects of the law for us is to educate and disseminate information about the opportunities of the Act not only for the locals but also for international players. Therefore it is our responsibility under the law to continue to educate key stakeholders.
This has local, national and international dimension. Locally we use our organisation that is associated with the Board for example the RFC, we prepare them by giving them some materials and providing some logistic support from time to time to move into communities alongside our people to talk to interest groups.
When we did the Practical Nigerian Content, we designated a whole day for educating the young lads, career guidance, how to handle them, what to ask for when negotiating with oil companies, their expectations from government. That is at the local level.
We are constantly in touch with affected communities, communities that feel they are being short-changed by industry activities and we play a role on managing those relationships and educating these communities and stakeholders about the real import of local content and where the opportunities are and what the issues can be.
At the national level, it is also our role to mobilise the entire economy in such a way that the oil and gas industry begins to link into their activities. The oil and gas industry has been known for years to be operating in silence but by opening it up to every Nigerian, we have demonstrated that there is no part of it that is a no go area for Nigerians.
Every Nigerian knows from the work we have done in disseminating information by clear demonstration of past successes that Nigerians from every part can come in and work.
We have also shown that the opportunities for business and growth does not necessarily reside in the operating companies but in the servicing companies. That is where you can generate employment, that’s where you can create innovation and that’s where technology resides.
At the international level, we recognise that the local investors here cannot drive Nigerian Content Development Act, we need major international players to be able to generate the support and input that will now make this whole thing blossom.
That is why every year, in the past OTC has become a normal exhibition where Nigerians go to have a good time but there is no active focused engagement with international investors that will have an interest in coming to Nigeria. There are international investors, there are people who look at investment as going to play in the stock market, there are investors that put their boot on ground.
To get those investors, it is not something you do by presentation, you have to really engage them, get their questions, give them analysis of what is on ground, point them in the direction they need to go.
That is why at next year’s OTC, we are going there with a different idea, we are going with a focused programme where people will move ahead of the OTC and isolate interested investors who have the pedigree for going outside America to invest because we have some companies who have the culture of not investing outside their economy but there are companies that have gone to Kenyan, they have gone to Isreal.
These are the kind of companies that we are looking for, put them together and bring Nigerians to meet these companies who have succeeded even on their own to show them that there are Nigerians who have done this type of business before and if you work with them there are opportunities.
That is the message we will now use for the international dimension. So the public affairs department has a lot of work to do, in fact, most of us are public affairs people because we are capacity building people.
Stakeholders want to know what the law says about this, from the engineers to the accountant they are all busy explaining what the Nigeria content is all about and how it is applied, it is a continuous exercise because we have the mandate to continue educating people about what we do.
How have you been able to ensure compliance?
Compliance is getting people to come along with you, so it is either you do that by persuasion or by coercion. We took this job seeing that the Act was an ambitious piece of legislation at the beginning. People have been doing business for very long and all of a sudden you are bringing them to a narrow path
The first thing we had to do was to create a collaboration with industry people to trust us and we are going to work with all the key players in the industry to make sure we don’t disrupt activities while insisting on complying with the provisions of Act. That approach has worked like magic.
What we have done with the ministry was to identify areas of difficulty and work together to clear those areas. Having done that for about two years, we came back to the same stakeholders and told them that we have now cleared some of those issues, the ones they cannot clear, the Board has worked out ways to manage them, so there are no excuses.
We have set up over 20 guidelines interpreting the areas of the law that was a bit hazy at the beginning; therefore we did not expect the operators and the servicing companies to do things out of ignorance.
Within those two to three years we also began to build a lot of capacity. So if you are telling someone that you cannot import pipes from abroad and he asks you where will he get pipes from, we can tell you where you can get a proportion of the pipes, we are able to tell you to go and work with X factory to promote their investment so that they can finish their own investment and start off producing but in the meantime you can bring in pipes from abroad.
So those specific interventions have been discussed and worked out between the Board and major stakeholders. One of the key things that we insisted on doing is that we will not disrupt operations in the industry but in that whole situation we also have people who were hell-bent in disobeying the law and we managed to get them back on track
Today we have successfully removed people who have refused to comply with the provisions of the Act, we have stopped companies from executing their projects until they come back online. So there are big successes in that regard and our objective is not to show how many people we have punished, our objective is to show how many people we have been able to bring back to compliance.
Can you throw more light on your funds and how it operates?
The Nigeria Content Development Fund is a none partisan deduction from the contract sum of any contract award to any contractor in the in upstream sector of the oil and gas industry.
Therefore we have a fund that started at the beginning as a zero fund but over the years it has grown from a $20 million fund to $50 million, then to $100 million and that is a substantial amount of money.
We have to grow it strong by insisting that the fund will not be depleted; rather the fund will serve essentially as a guarantee upon which banks will leverage to give loans to deserving Nigerian companies in the sector.
So we have had that for a model – dual segment. The one segment is made up of 70 per cent of the fund and that is meant to play a guarantee role and support the interest loan.
What I mean by interest loan is that when you take loan and your bank puts your interest at 20 per cent for instance, the fund pays you back 10 per cent as you pay your loan. So the next interest rate that we will use for that transaction is 70 per cent.
We will deliver that on a single digit interest rate to people that are using the fund. What the board does is to participate in the legal documentation and in the guarantee terms and we make sure that the banks themselves put their own form of guarantee to ensure the safety of the funds.
So as of now, the guarantee that the fund gives is about 30 per cent, we believe that the stakeholders are looking at 50 per cent.
The 30 per cent side of the fund is for direct intervention, it is from there that we carry out our training, our capacity building projects like the business, like the oil and gas park. The board also decided to stimulate the construction of pipe lines, we have succeeded in stimulating interest by showing that we are putting government support in promoting this and the industry has been attractive, where Shell is putting an estimated profit of $20 million incentive to support that.
The fund has dual application, one part of it is handling guarantee while the other is handling intervention and what we are doing today is that we are issuing letters to the banks that have the money and giving them six weeks ultimatum to show evidence that they are supporting the industry by using the fund that has been leverage.
What is happening is that we are getting feedback that banks are not enthusiastically using, promoting the fund….
