Consolidating gains of one decade of local content development
Nigeria’s first decade of local content development has been with gains, pains, and some gaps. Indeed, as the Nigerian Content Development and Monitoring Board (NCDMB) powered a five to 31 per cent boost in local content development in the oil and gas industry, stakeholders say reasonable successes have been recorded within the period under review even as there is room for improvement. KINGSLEY JEREMIAH writes.
Before the enactment of the Nigerian Oil and Gas Industry Content Development (NOGICD) Act 2010, also known as the Nigerian Content Act, most operations in the nation’s oil and gas space were executed by International Oil Companies (IOCs). The glaring lack of technical know-how in-country led to the importation of skills, with the affected expatriates being remunerated in the United States dollar. This cost the country capital flight to the tune of $380b.
Besides, the level of local content in the oil and gas sector then was a mere five per cent, and at least two million jobs were reportedly lost due to the absence of legislative backing for local participation in the sector.
Nigeria, one of the first African nations to discover oil has indeed remained a leading producer of crude oil. Therefore, apart from focusing on the export of only crude oil and importing end products, scant attention was paid to derive maximum benefits from the sector despite activities in that area starting as far back as 1903 with the Nigerian Bitumen Corporation.
Put differently, the dismal contribution of local content to the sector pre-NOGICD was much more painful because the oil and gas sector, which accounted for 90 per cent of the nation’s revenue, contributed less than 38 per cent to the nation’s Gross Domestic Product (GDP).
This huge imbalance between what the sector contributes to revenue and the GDP is an indication of failure to harness the economic activities around the sector maximally.
Over the years, the absence of local capacity in the industry has been blamed for the repatriation of over $10b yearly abroad. The major implications of this manifest in less revenue accruing to the government; job losses; lack of skills/ technological know-how transfer; high cost of products; long project cycle and over-dependency on foreign countries among others.
This, however, is not to say that attempts were not made for the inclusion of local content in the sector. Agitations along this line gave birth to the local content act. Just like the Petroleum Industry Bill, which is still laboring on the floor of the National Assembly, it took the country decades to muster the needed political will to create the NOGICD. Like other initiatives, including the buy made in Nigeria campaign, other local content policies before NOGICD were never effective because of the absence of legislative backing.
How NOGICD Changed The Game
IN 2001, former President Olusegun Obasanjo inaugurated the Presidential Committee on Local Content in the Oil and Gas Industry, and in the process mandated the Nigerian National Petroleum Corporation (NNPC) to drive the policy and set certain targets.
The NNPC in turn set up the Nigerian Content Division, which gave directives on Nigerian content to industry stakeholders. The Ministry of Petroleum Resources, the NNPC, and other industry stakeholders then pushed for the development of the Nigerian Oil and Gas Industry Content Development (NOGICD) Bill at the National Assembly.
President Goodluck Jonathan signed the bill into law on April 22, 2010. This development gave birth to the NCDMB, with Dr. Ernest Nwapa, a former staff of the Nigerian Content Division of NNPC as its pioneer executive secretary. He was in office from April 2010 to May l, 2015. He was succeeded by Denzel Kentebe. In September 2016, Simbi Kesiye Wabote was appointed as the substantive executive secretary of the board.
NOGICD, which complemented the Petroleum Act was designed to foster Nigerian content development, especially in the oil and gas sector.
Enforced by the Nigerian Content Development and Monitoring Board (NCDMB), the legislation paved the way for the Nigerian content plan, supervision, coordination, monitoring, and implementation of local content and other related matters.
The Nigerian Content Act applies to all regulatory authorities, operators, contractors, sub-contractors in the nation’s oil and gas industry. It creates a preference for Nigerian content in Section Three and puts a threshold of, at least, 30 per cent local content in most projects.
NOGICD prioritised a Nigerian content plan in Section Seven thereby ensuring that local content is considered before companies bid for a permit, license, or carry out projects. It went further in sections 14 and 15 to create a preference for bids with local content. With this development, any bid with the largest local content carries the day.
Apart from requiring oil companies to promote research and development in education, make room for attachments, training, research, and development, the legislation in Section 28 gave preference to Nigerian personnel in employment and training. In section 32, the Act limited expatriate management positions to five per cent in respect of each project carried out by an operator. The NCDMB is, however, allowed to increase the limit.
In Section 43, the Act compels operators to ensure a technology transfer plan, and they are further compelled in Section 44 to submit yearly, a plan of activities aimed at promoting the effective transfer of technology from operators and alliance partners to Nigerian individuals and companies.
The Act, which sets out penalties for defaulters of up to a fine of five per cent of the project sum for each project in which the offence is committed, or cancellation of the entire project, according to Section 68, provides that all operators, project promoters and contractors engaged in the oil and gas industry must carry out all fabrication and welding activities within the country.
The Act also compels the use of indigenous insurance, legal, and financial services providers. This is provided for in sections 49, 51, and 52. It equally makes the submission of content performance report compulsory.
The legislation in sections 55 and 56 provides for the establishment and maintenance of a Joint Qualification System (JQS), which is expected to comprise industry databank of available Nigerian content levels and capabilities.
THE primary role of the NCDMB is to guide, monitor, coordinate and implement the provisions of the NOGICD Act, having been designed to catalyse the industrialisation of the oil and gas industry and its connecting sectors. Specifically, its mission is to promote the development and utilisation of in-country capacities for the industrialisation of the country through the effective implementation of the Nigerian Content Act.
As stipulated in its core responsibilities, the NCDMB should also review, assess and approve Nigerian Content plans developed by operators; set guidelines and minimum content levels for project-related activities across the oil and gas value chain; engage in targeted capacity-building interventions that would deepen indigenous capabilities in human capital development, infrastructure and facilities, manufactured materials and local supplier development, and to grow and manage the Nigerian Content Development Fund.
The NCDMB is also charged with the task of establishing, maintaining, and operate the Joint Qualification System (NOGICJQS) in conjunction with industry stakeholders, to monitor Nigerian Content Compliance by operators and service providers and to award Certificate of Authorisation for projects that comply with Nigerian content provisions. The board is also meant to conduct studies, research, investigation, workshops, and training aimed at advancing the development of Nigerian content.
A Decade-long Journey
THE growth of local content development from five per cent in 2010, to 28 per cent in 2017, and 31 per cent currently is seen by many as a remarkable feat. It also means more money for the nation’s economy, improvement in local capacity, retention of foreign exchange hitherto spent on the hiring of expatriates, and completing jobs abroad. The development, which also translates to timely delivery of projects, indeed makes the country self-reliant and a net exporter of skills to emerging oil and gas countries, not only in Africa but in other parts of the world.
Only recently, the NCDMB commissioned a 17-Storey building as a testament to what it has achieved in local content development within 10 years. The structure located in Yenagoa took five years to be erected and was executed by an indigenous civil construction company, Megastar Technical & Construction Limited.
In terms of crude oil production and exploration, companies like Eroton, Seplat, Aiteo, Oando, First E & P, as well as the Nigerian Petroleum Development Company (NPDC) are success stories to refer to. These local companies have been able to compete with majors, growing the level of activities and output in the period under review.
Seplat, which made its first acquisition in 2010, for instance, has risen to become a leading indigenous oil and gas operator in the country. Its gross operated liquids production at OMLs 4, 38, and 41 at the time of acquisition was 14, 000 bopd. But the company has grown this to a peak rate of over 84, 000 bopd.
The NPDC has, on its part, emerged as the leader in the Upstream Sector and it currently operates about 28 concessions. About 21 of which are OMLs and 7 OPLs. It has 100 per cent ownership of five blocks, including OMLs 64, 65, 66, 111 & 119. It also has a 60 per cent participatory interest in four blocks- OMLs 60, 61, 62 & 63. The company also has 55 per cent equity in nine blocks- OMLs 4, 26, 30, 34, 38, 40, 41, 42 & 55, and regarded as the fifth-largest crude oil producer in the country.
Nigeria has also recorded successes in the area of fabrication as reflected in the rising number of fabrication yards scattered across the country. Indeed, the construction of the topsides of the Egina FPSO modules was integrated by Samsung Heavy Industries Limited (SHI-MCI) at LADOL Yard, in Lagos.
The development also gave rise to two world-class pipe mills – the SCC Pipe Mill with an installed capacity of 270, 000 MT per annum, and the Yulong Pipe Mill, with the capacity to manufacture 400, 000MT HSAW line pipes per annum.
In the area of line pipes, Nigeria has seen the establishment of several world-class pipe coating plants. A circular by the NCDMB had banned further importation of coated pipes, which has led to the establishment of pipe coating plants/factories and has resulted in capital retention, job creations, and skill enhancement for Nigerians. The growth in the number of service companies in the oil and gas sector is also a plus for the Act as indigenous services providers now play major roles.
The NCDMB had noted that before the Act, there were only 44 registered PETAN companies, the association of leading indigenous service companies in the country, but currently, the number has risen to 93, which adds to over 8,000 other Nigerian oil and gas service companies captured on the NCDMB’s JQS portal.
In terms of asset ownership, rigs and marine vessels owned by Nigerians constituted less than five per cent before the introduction of NOGICD. This has reportedly increased to 40 per cent.
There is also a $50m Nigerian Content Research & Development Fund aimed at driving the development of indigenous technology and innovation.
Stakeholders’ View Of Progress Made
THE founder of Nextier, Patrick Okigbo believes that local content development in the country is a success story, especially looking at the growing list of Nigerian companies in the sector. He however called for an assessment of the progress.
“It is clear that the local content law has been a success. The next step is to conduct an impact assessment to understand what worked well and what didn’t. It is that analysis that will inform how to extend the law to other sectors,” he noted.
The Chairman/Chief Executive Officer, International Energy Services Limited, Diran Fawibe, equally stated that the NCDMB deserves commendation over the progress made in the sector.
While lauding the corresponding understudy of projects in the sector to improve local participation, Fawibe observed that the collaboration between the board and industry players remains a welcome development.
The Deputy Managing Director, Deep Water, Total Upstream Companies in Nigeria, Ahmadu-Kida Musa, said since the company believes in the development of local capacities, it would continue to work with all stakeholders, including the NCDMB to ensure sustainable economic development of the country.
He disclosed that of the over $40m the firm spends yearly on Corporate Social Responsibility (CSR), the bulk of it is on investment in capacity development, employability, health, education, as well as infrastructure.
He singled out EGINA FPSO as an example of the company’s commitment to local content development. The vessel is the largest in Total Group, and the first to be fabricated and integrated in Nigeria with 77 per cent engineering man-hour done in-country.
Musa further stated that 100 per cent of the project’s management man-hour is performed in the country. A Professor of Law and Deputy Vice-Chancellor, Afe Babalola University, Ado Ekiti, Damilola Olawuyi sees the local content law as innovative and pro-poor legislation that is aimed at maximising the use of local and in-country goods and services in oil and gas operations.
To him, while the law has brought about a measure of progress over the last 10 years, a lot more can be done in terms of ensuring strict implementation and enforcement of some of its key provisions.
“When you contrast the progress made with the real economic potential of the industry, you would notice a huge gap. For example, while the law specifies the portion of total expenditures that must be comprised of locally sourced goods and services, lack of available capacity, technologies, and materials at the local level often mean that a significant proportion of goods and services in the oil and gas sector, especially the core and technical upstream services, remains foreign-sourced,” Olawuyi said.
Despite Challenges, Future Still Bright
THE NCDMB targeted increasing local content to 70 per cent in the next 10 years in a bid to retain as much as $14b in the country yearly and to create as much as 300, 000 jobs. Consequently, the NCDMB intends to pursue and bring to fruition, projects that would promote in-country manufacturing, domiciliation of work, employment generation, capacity enhancement, and capital retention.
But that may remain elusive if local content development fails to go beyond tokenism, specifically, where IOCs celebrate the employment of a few Nigerians or awarding contracts to suppliers in low-skill segments that do not advance in-country expertise and skill acquisition, Olawuyi had noted.
He also stressed the need to address capacity barriers that prevent Nigerian entities and people from securing highly skilled employment; winning procurement bids, or meeting the knowledge, and technical requirements to compete favourably in the oil and gas industry.
“For example, the Local Content Fund should be widely accessible to more local contractors who win bids, but do not have the upfront mobilisation to execute the projects, with some ending up in debt, or losing the contract entirely,” Olawuyi said.
Placing the progress recorded in Nigeria alongside what has been achieved in countries like Norway, Qatar, Brazil, and Argentina that have made significant progress in local content, he called for focus, and resources to be committed to local suppliers. He also canvassed for contractor finance schemes, favoruable term loans for equipment acquisition, as well as improved training opportunities through active partnerships with universities, research institutions, and training institutes.
“The recently announced Nigerian Content Research and Development Fund is a good starting point that can advance skills acquisition. However, the expertise of a broad range of research-intensive private and public universities should be actively leveraged to maximise its full potential.
“There is also a need to address gender gaps in the industry. Recent studies show that the industry remains a predominantly men’s club. Local content should result in more opportunities for women to attain senior leadership positions,” he stated.
The Director of Shell Nigeria Exploration and Production Company Limited (SNEPCo), Bayo Ojulari, noted that there are areas that the country can quickly close gaps identified in local content implementations.
Apart from calling for increased support and stricter regulations to ensure full compliance by companies, he said collaboration among Nigerian companies remains a very reliable way of harnessing the different skills that will grow the industry.
Said he: “Collaboration is key to unlocking values. Don’t do it all alone because there are always plenty of benefits from partnering.”
He urged indigenous companies to continue to invest in improving the quality of their products and services, saying, “we cannot implement local content at the expense of quality. Don’t compromise on quality or safety. Instead, have a system in place to manage both quality and safety,” Ojulari said.