How Local Content Law Is Galvanizing Oil, Gas Industry Activities

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Nigeria’s Oil and Gas Industry is forward looking with major oil companies promoting indigenous participation in various aspects of activities as enunciated by the Nigerian Oil and Gas Industry Development (NOGICD) Act, CHIKA IZUORA writes.

From basic understanding and experience, local content policies largely offers exciting new potential for economic development and particularly in Nigeria the policy is significantly encouraging economic activity, value addition, and job creation. Industry operators share the belief that the Nigerian content law if judiciously implemented may finally be able to make the country’s oil wealth a blessing instead of a curse.

Almost three years after the passage of the landmark Nigerian Oil and Gas Industry Content Development Act (the Nigerian Content Act or NOGICD Act) in 2010, significant progress has been made. Nigeria has been working to implement local content through the Nigerian Content Development and Monitoring Board (NCDMB), an agency that has an enormous task ahead of it. Upon its creation, the Board had to immediately begin receiving and reviewing Nigerian content plans and dealing with numerous applications for approvals.

At the same time, it had to set policies and guidelines while embarking on an ambitious programme to improve Nigerian content through capacity building initiatives while it was still establishing itself as an independent agency and sorting out its physical space, staffing needs, budget, and internal processes.

In terms of concrete deliverables, the NCDMB has an ambitious agenda for Nigerian content development and large capacity building projects. Local content has immense potential to transform the Nigerian economy. By creating jobs and substituting the importation of goods and services with in-country manufacturing, Nigerian content can allow the country to avoid the so-called ‘resource curse’ and transition to advanced capitalist development.

The Board as a matter of fact, has set a target for itself to become the instrument for the industrialization of Nigeria, and despite the fall in crude oil prices since 2014 the agency is steadily pushing to achieve a number of set objectives geared towards reinvigorating the Nigerian Content Implementation. One of such policies is the streamlining of the contracting cycle which has been protracted challenge over the years as well as establishing Community Content Guidelines which provides pragmatic steps for incorporating and engaging community contractors as a critical delivery point.

However, realising the objective of the law requires addressing two critical areas which are skill acquisition and capacity building of the local firms being projected to undertake key industry jobs and secondly giving them access to finance. The local content policy objective and the overall obligation imposed in respect of transactions within the Oil and Gas industry are set out in Section 3 of the Act.

Unveiling The Local Content Support Fund

The Nigerian Content Development Fund (NCDF) seeks to create access to funds as this has inhibited the ability of Local Firms to undertake contracts in the sector. In its attempt to increase indigenous participation in the oil and gas sector the agency initiated and unveiled the fund which was recently re-launched with an enlarged pool of $200 million.

The fund is available for lending to eligible indigenous players in the country’s oil and gas industry. The money is expected to strengthen the hands of indigenous companies and ultimately increase the proportion of the total activities in the oil and gas sector carried out by local operators.

The $200 million intervention fund – also called NCI Fund – would be disbursed directly by the Bank of Industry BoI at eight per cent interest rate and repaid within five years. The objectives include helping to keep indigenous service providers in the oil and gas sector busy with project execution, as well as reduce the costs incurred by operators in the course of carrying out projects.

At the signing of Memorandum of Understanding, MoU, between the Agency and BoI, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, explained that the fund would, in addition to a condensed contracting cycle, contribute to efforts at driving down the cost of producing oil and gas in Nigeria.

Kachikwu said government targets to drive the amount up to $1 billion soon, adding that with such capacity, indigenous service providers will be far better. Kachikwu stated, “I congratulate you, it is a huge milestone. It is our hope that this, as small as it is –$200 million, in the purview of a $16 billion type activities is very small – will ginger everybody to begin to look at how to expand this fund.

“My goal for this fund is $1 billion, and once it is launched today, I will have to set up a team that will work internally to first of all get to BoI and ask what their counterpart support for this is because the fund is not just going to sit in BoI. I expect the BoI to support as well as the oil industry.”

Speaking on the government’s expectations from the fund, Kachikwu noted that it aimed to achieve geographical and sectoral spread, in addition to being used to fund projects that involve cutting-edge technologies, among others. He explained that the fund should be able to provide indigenous players in the industry some cutting edge solutions to their challenges of finding cheap funds to execute their projects.

According to him, “Today’s event is significant for the oil and gas industry and the Nigerian economy because the NCI Fund being launched today has been long expected and will go a long way in addressing the funding challenges which hamper the growth and success of indigenous manufacturers, service providers and other key players in the sector.”

Kachikwu added, “Over the years, Nigerian companies have found it difficult competing with their counterparts from jurisdictions where funding is accessible for five per cent or less as compared to our market where bank lending rates hover around 20 per cent.”

The minister explained that because Nigerian banks were unable to give out loans to service providers in the sector, as well as understand the operations of the industry, the BoI was chosen to manage the fund and give out loans at discounted rates to jumpstart the industry.

He stated, “Some Nigerian banks are still unable to provide long-term financing required by the local supply chain to build needed capacity; the banks also lack sufficient knowledge of the oil and gas sector. The pedigree and operating model of the Bank of Industry is expected to close this gap.

“It is a known fact that the exorbitant cost of funds in our market is partly responsible for the high cost of service delivery by Nigerian Oil and Gas Service Providers (NOSPs) and this feeds into the unacceptable high cost of our crude oil production.”

The Executive Secretary of NCDMB, Mr. Simbi Wabote, at the forum disclosed that part of the immediate targets of the intervention fund was to support the efforts of the government to end importation of petrol by 2019, by providing the financial backbone for the fabrications of modular refineries in the country.

Wabote stated that already, the board had engaged Original Equipment Manufacturers (OEMs) on this. He said, “We have also keyed into the drive of the Minister of State for Petroleum Resources to put a stop to the importation of petroleum products. For us in the NCDMB, our strategic initiative is to achieve 100 per cent local fabrication of our modular refineries.

“We have commenced discussions with OEMs and local fabricators to make this a reality. We have set aside areas in oil and gas back scheme for practical training on operations, maintenance and running of modular refineries as a sustainable business model and for fabrication of the units.”

Kachikwu stated that he expected an effective application of the $200 million fund to contribute positively to Nigeria’s plan to reduce the cost of producing oil from $32 per barrel to $15/b. He explained that at a single-digit lending interest, the fund will address the funding challenges which he said had hampered the growth and success of indigenous manufacturers, service providers and other key players in the country’s oil sector.

Speaking further on the target of the fund, the minister requested oil companies in Nigeria to work hard to cut down their cost of producing oil from the average of $32 per barrel to $15. He maintained that with the availability of cheap finance for service providers, oil companies’ repeated excuses of militancy as part of the reasons for high production costs would no longer be tenable. According to him, Nigeria’s target to produce a barrel of oil at $15 is crucial for it to compete favourably with other members of the Organisation of Petroleum Exporting Countries for oil market share.

Kachikwu said, “A lot of debate about the cost of production is on. $32 was the figure quoted from me, and $23 which the NNPC has quoted. The reality is that production in our offshore is in excess of $32 per barrel, no doubt about that, and production onshore was ranging about $28. NNPC has done a good job of bringing it down to $23, but that is not over yet. Where we are headed is $15 and not $18.

The minister said that contracting cycle for projects in the industry must come down to within six months to reflect on the production cost, adding, “I have been very frank from day one that there is no reason why this country should have a contracting cycle that is in excess of six months.

“Today, we have moved it from 18 to 24 months, down to 13 to 14 – it is still struggling, but we must put speed to this because it costs money and has a direct linkage with my philosophy that we must reduce the cost of production.”

Boosting Local Technologies

The NCDMB to further localize and retain in-country jobs says it has doubled efforts in its Equipment Component Manufacturing Initiative, ECMI, a key enabler to drive Industrial revolution in the country. Since the initiative was introduced in 2011, 1,478 certificates have been issued to Original Equipment Manufacturers representing over $2.045 billion Investment commitments.

The Board also conceived the Local Manufacture of Liquefied Gas Cylinders Initiative that will help stop LPG cylinder importations. It is considering deploying funds to boost cylinder manufacture in country to meet local demand which stands at over 3 million annually against current production of about 400,000 by a company called T&G Industries located at Isheri-Oke, in Ogun State.

With survey report which reveals flight Of over 90 per cent of expenditure in the maritime segment of the oil and gas industry to foreign economies where ownership of the various assets are domiciled, the NCDMB has also initiated the Marine Vessel Ownership Strategy.

Another milestone is the establishment of Nigeria Oil and Gas Park Scheme, NOGaPS, to help develop world class Oil and Gas Parks in each of the nine oil producing states of Nigeria. Also being developed are Offshore Rig Acquisition Strategy, Pipemill Scheme, Pipe Coating facilities in country and boosting research and development to support skill acquisition strategy.

Oil Majors Compliance

There are key indications to show significant compliance of international oil companies of the law. It was learnt that the Nigerian Agip Oil Company (NAOC) has spent $5.4 billion to grow and develop Nigerian content.

The firms Vice Chairman and Managing Director, Mr. Massimo Insulla, said the oil major spent the money over the last six years adding that the multinational is in the forefront of the marine initiative.

He said during the petriod, the company embarked on a number of activities including, but not limited to internship arrangement with Nigerian Content Development and Monitoring Board (NCDMB) to provide mandatory practical sea time experience for cadets.

Agip is equally implementing a number of projects in the Nigerian oil and gas as well as energy sector including the Zabazaba deep offshore project, ongoing feasibility for the construction of a brand new 150,00 barrel of oil per day (bpd) refinery, support for refurbishment of Port Harcourt refinery, efficiency of the national grid, alternative energy mix.

It is training 10 subsea engineers in collaboration with the NCDMB as well as various project-based training which has so far benefitted 204 trainees nominated from NCDMB as well as impacted host communities.

Similarly, the General Manager, Policy, Government and Public Affairs, Mr. Esimaje Brikinn, confirms that Chevron plays an active role in the Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce and Industry (LCCI), working with the Nigerian Content Development and Monitoring Board (NCDMB) and legislators on NCD issues.

Chevron has a four-prong approach to NCD – which is inspired by the commitment to ensuring Nigerian entrepreneurs (both at the community and state levels) acquire the right competencies and capabilities to compete for business opportunities with their contemporaries at national and international levels.

The approach includes selection of qualified local contractors; facilitation of partnerships and alliances between indigenous companies and foreign firms; capacity building; and development of local competencies.

CNL Chairman/Managing Director, Jeff Ewing, explained the company’s stand on Nigerian Content Development. He said: “At Chevron Nigeria Limited, we demonstrate our commitment to the socio-economic development of Nigeria by building mutually-beneficial partnerships, and supporting the policies of government on Nigerian Content Development. We have helped in building the capacities of several Nigerian businesses by allocating substantial scopes of our major capital projects to Nigerian companies. Chevron is also helping to grow the economy by contributing to the development of communities in the areas of our operation. We do all this, not just because it is required by the law, but because it is the right thing to do.”

Indigenous Firms In Focus

Drawing energy from the policy and in line with local participation in oil industry contracts, AVEON Offshore recently completed and unveiled its 257 tons Egina Subsea Production Manifold in Port Harcourt, Rivers state.

Speaking at the ceremony, Group Managing Director, Nigerian National Petroleum Corporation, NNPC, Dr Maikanti Baru said the development has reaffirmed the commitment of the company to the implementation of Nigerian Content Act. He said the six manifolds constructed by Aveon Offshore with each weighing 257tons were the heaviest so far built in Africa.

“The Egina 6 slots production manifolds are the first of its in Nigeria. Subsea production manifold deployed for previous deep water projects has maximum 4 slots. “By today’s event, we have reaffirmed our commitment to the Nigerian Content Act. We celebrate today a clear demonstration of the growing efficacy of the Nigerian content act.’’

Another milestone in Indigenous participation is in the lubricant sector, where the Nigeria’s local content drive in the oil and gas sector received major boost. Eterna oil an Indigenous firm took a bold step to end distribution of Castrol oil which it imports alongside its foreign partners. The company decided to expands its investment in the sector to boost production of variants of Castrol oil.

Eterna was importing and distributing Castrol Lubricants in Nigeria, before it set up a robust marketing structure with increased market sales, which culminated in the manufacture of the lubricants locally through a third-party facility on an interim basis.

The aim was always for the company to own its blending facility and this dream became a reality when it secured a $940,000 loan from the International Finance Corporation (IFC) in 1995 to construct what was to eventually become one of the best and most modern lubricant manufacturing plants in Africa. Castrol designed the plant and provided the required technical support during construction ensuring that the plant met global standards.

The company’s managing director Mahmud Tukur while briefing the media on its investment drive ahead of the official launch of the Made in Nigeria product, said Eterna currently operates a 15,000, metric tons, MT, capacity state-of-the-art lubricant manufacturing plant, which is fully owned through its subsidiary Eterna Industries Limited, which is one of the only 3 Castrol accredited blending plants in Africa.

LEADERSHIP Sunday reports that the plant which is equipped with a state of the art laboratory to support the blending activities as well as used oil analysis services for customers, can blend up to 45,000 MT, if it runs three full shifts.

I am proud to announce that the latest addition to the Castrol GTX family “Castrol GTX Essential” was produced for the first time in the world at our plant in Sagamu this August. This is a clear demonstration of the confidence reposed in our manufacturing capabilities by Castrol.

He explained that the Castrol GTX Essential was developed in response to specific market requirements in Nigeria/Africa (and other regions with similar climatic conditions) and is an example of how globally developed technology is brought to bear in ways that address local conditions, meet engine manufacturers’ specifications whilst remaining affordable and cost effective.

“Between 2009 and 2015 post the acquisition of Castrol by BP, Eterna was majorly active in the Marine and Energy sectors, providing premium lubricants to tanker vessels, supply vessels, port operators, FPSOs and drilling rigs.

In 2015, we commenced further discussions with Castrol to extend our licencing rights to cover the Automotive and Industrial Sectors, culminating in the signing of a sole distributorship agreement in February 2017 for the Automotive and Industrial range of Lubricants for the Nigerian Market”, Tukur said.

Eterna Plc is the only company licenced to manufacture and distribute ALL Castrol products in Nigeria and are duty bound to protect all the inherent intellectual property rights. Range of the products produced locally include, Castrol Edge: Fully synthetic oil with Fluid Strength Technology, Castrol Magnatec: Semi-synthetic oil Instant Protection from the start and Castrol GTX Essential: Trusted Protection for engine.

Tukur said in the next few months the company will be rolling out sales points nationwide, appointing distributors in strategic markets, partnering with independent retailers and constructing our own mega stations in key cities including Abuja and Calabar.

Looking Forward

The Minister of state for petroleum resources, Ibe Kachikwu though satisfied with progress recorded in the short time has set a new target for the NCDMB at the Nigerian Content Workshop organised by New Planets Projects in conjunction with the Senate Committee on Petroleum Resources Upstream.

He said the Federal Government expects that over the next 10 years, the Nigeria oil and gas industry, in collaboration with foreign investors would have developed in-country capacities and capabilities to produce all its offshore platforms locally.

Noting that the Nigerian Content achievement in engineering services had hit 80 percent, the Minister insisted that performance in offshore aspects of the industry was still substantially low and charged international and local operating oil companies to collaborate with NCDMB in achieving the new target.

On industry’s capacity building initiatives, the Minister directed NCDMB, the Petroleum Technology Development Fund (PTDF) and the Petroleum Training Institute (PTI) to collaborate and develop a plan for training youths who are involved in pipeline vandalism, illegal refining and other illicit activities in the oil and gas industry. The training programme will focus on improving their skillsets and getting them to embrace productive activities.

 

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