By Pita Ochai
For A Country With Over Four Decades’ Experience In Oil And Gas Exploration And Production Activities And Proven Recoverable Reserves Of About 37 Billion Barrels, Her Inability To Use The Resource Wealth As A Means For National Development And Poverty Reduction Has Perhaps Been The Greatest Challenge Facing Successive Administrations. These Challenges Have Their Expression In How Nigeria Can Derive Maximum Benefits From Oil And Gas Operations Through Optimal Use Of Local Competences And Resources As Practiced In Indonesia, Brazil, Norway And Venezuela, For Example. Although These Countries Started Oil Exploration And Production Activities After Nigeria They Have Largely Recorded Remarkable Success In Their Efforts To Grow The Local Content In This Strategic Industry.
The need for resource-rich Nigeria to assume control of the exploration, exploitation and production activities in the oil and gas sector and to harness the potentials of this most strategic industry in order to generate more value-added, seems to be receiving much desired attention from all the stakeholders. This need is equally expressed in Nigeria’s desire to domicile a substantial amount of the average $18 billion per annum exploration and production spending and stem the tide of capital flight which, over the years, has made Nigeria a junior partner in her joint venture arrangements with the International Oil Companies (IOCs).
But the Nigerian Local Content story after 5 years of its operation is a soaring one. According to most industry stakeholders, much has been achieved in the industry. Ernest Nwapa, the Executive Secretary of the Nigerian Content Development and Monitoring Board (NCDMB), said that over $5 billion worth of investments have been made in Nigerian yards since the signing of the Nigerian Content Bill into law by President Goodluck Ebele Jonathan in 2010, especially by member companies of the Petroleum Technology Association of Nigeria, (PETAN) and other firms like Aveon Offshore, Cameron, LADOL, Nigerdock, FMC Technologies, Tenaris, EWT etc while about 40,000 technical jobs were being created per annum
One of the areas the huge investment steamed by the local content Act has been very visible are in the development of entrepreneurship, manufacturing of equipment, employment generation, etc. One of the areas that has become noticeable of recent is the ocean business where more Nigerian companies have venture into areas initially believed were impossible.
One of such feat is the recent acquisition of DP2 Saturation Diving Vessel by the Petrolog Group, which is believed to be the largest of its kind in Sub-Saharan Africa. The vessel, christened DSV Vinnice, is valued at $170 million and is equipped for shallow and deep water operations and can be used for construction, repair and maintenance of oilrigs and other offshore naval constructions.
During the unveiling of the vessel, Dr. Ernest Nwapa, the Executive Secretary of the Nigerian Content Development and Monitoring Board, (NCDMB), described the acquisition as another affirmation that indigenous oil servicing companies have developed capacity to acquire and operate hi-tech assets and could participate in every segment of the oil and gas industry notwithstanding the challenges. He said the emergence of a new breed of Nigerian investors and the quanta of investments they are making have erased any doubts that government and the people of Nigeria were resolute with the implementation of the policy.
According to Nwapa, real Nigerian Content accomplishment would only come when vessels such as DSV Vinnice are constructed in Nigeria, expressing hope that any other such vessel to be acquired by a Nigerian investor would be outfitted at the Naval Dockyard Lagos and some of the components manufactured in-country.
Commenting on the giant stride by his company, Dr. Joseph Ebuh, the Chairman of Petrolog Group, described the Nigerian Content Act as the greatest boost to the company’s growth. He stated that “since the Act came into effect, we have been emboldened to take giant steps and risks to meet existing demand.” He commended the NCDMB for its implementation of the Nigerian Content Act, which, according to him, has created opportunities for indigenous companies to thrive.
Another company that has made success of the local content policy in the ocean business is Total which has invested over $1billion in the Egina deep water project. The Egina-Total Exploration and Production’s $15 billion deep water project is the first major oil and gas project to be started under the Nigerian Content Act and it includes an FPSO unit, an oil offloading terminal and subsea production systems such as risers, 52km of oil and water injection flowlines, 12 flexible jumpers, 20km of gas export pipelines, 80km of umbilicals and subsea manifolds.
One of its projects is the Saipem’s new double/quadruple joint plant located in Port Harcourt, Rivers State which was commissioned by Nwapa. According to the Executive Secretary of the Board, the Saipem’s new double/ quadruple joint plant, made towards delivering Saipem’s Nigerian Content scope on the Egina project is an investment worth $60 million. To him, the plant was worthy of celebration as it confirmed that the Board’s strategy to include Capacity Development Initiatives (CDIs) in major projects was working. He said that the CDIs will promote opportunities for training, knowledge and technology acquisition, adding that shop floors were expanding and capacity to execute work in Nigeria had increased substantially.
To Mrs. Diezani Alison-Madueke, the Minister of Petroleum Resources, the implementation of the Nigerian Oil and Gas Industry Development Act (NOGICD Act), signed into law in 2010 by President Goodluck Jonathan is yielding the desired results. According to the minister, the signing into law of the NOGICD Act was borne out of the need for Nigeria to be actively engaged in the exploration and production activities of the oil and gas sector in a bid to harness the abundant potentials of this strategic industry towards achieving significant in-country value-addition, employment generation and capital retention.
She said since its inception, the NOGICD Act had enhanced job creation and the development of indigenous human and technical expertise. According to her, this had further stimulated other sectors of the economy and would continue to positively impact Nigeria’s Gross Domestic Product (GDP). She said the government’s efforts towards growing Nigerian content were yielding the desired results. “This is underscored by the growth of Nigerian content from an abysmal three to five per cent before the inception of NOGICD Act to between 12 and 18 per cent. This is indeed a massive improvement,” she said.
According to her, since the implementation of the marine vessel utilisation strategy in 2013, there has been a marked growth in the number of Nigerian owned vessels that are doing business in the oil and gas industry. “For instance, out of 1,000 marine vessels that were captured by the Nigerian Content Development and Monitoring Board (NCDMB) in 2013, 49.5 per cent were in category ‘A’ that is, either built in Nigeria or owned by Nigerians. Also, out of 1,232 vessels captured as at the third quarter of 2014, 89.2 per cent were in category A (and class AAA),” she added.
She disclosed that at least two additional dry-docking facilities would be required within the shortest possible time for vessel maintenance and ship repairs in view of the growing economic and maritime activities in Nigeria and West Africa. “Government is keen on encouraging investments in this area. A new dry dock facility would attract about $1billion dollars into the Nigerian economy and generate over 9,000 direct and ancillary employment opportunities for Nigerians,” she said.
Alison-Madueke also agreed with Nwapa that since the inception of NOGICD Act 2010, over $5 billion have been invested in facility upgrade that was largely driven by oil and gas industry needs. “Fabrication capabilities have subsequently increased by 40 per cent and it is gratifying to know that production platforms, Christmas tree frames, pressure vessels and many other facilities are now fabricated in-country,” the minister added.
The area of human capital development in different fields has also recorded success according to the minister. In her record, the minister stated that the intervention of government on the back of projects have provided over 5,000 training and employment opportunities in the last 5 years.
Sequel to the successes recorded in the Nigerian Local Content Act, stakeholders in Nigerian economy has called for the implementation of Local Content Act in other areas of the economy other than the oil and gas sector. Leading the call is Olufemi Ajayi, the Executive Secretary of the Petroleum Trust Development Funds (PTDF), during the formal handing over of 15 cadet pilots trained by Petroleum Trust Development Funds (PTDF) to Caverton Helicopters. He said that the local content drive is a process that is becoming clearer to Nigerians as it is gradually traversing all segments of the economy. “The Local Content Act as it were is already developing people in the oil and gas sector. But government is also encouraging private sector people to be part of the development drive so that its advantages can radiate beyond few individuals. If the drive is adopted in other areas of the economy, we would have more Nigerians who will be beneficiaries of it,” Ajayi said.
The PTDF Executive Secretary noted that the Nigerian aviation sector in particular must take a cue from Carverton Helicopters that has been leading the way in recruiting and engaging Nigerians in its workforce, saying such acts will provide employment for more youths.
The Nigerian Oil and Gas Development Law 2010 defines local content as “the quantum of composite value added to or created in Nigeria through utilization of Nigerian resources and services in the petroleum industry resulting in the development of indigenous capability without compromising quality, health, safety and environmental standards”. It is framed within the context of growth of Nigerian entrepreneurship and the domestication of assets to fully realize Nigeria’s strategic developmental goals. The scheme, which has the potential to create over 30,000 jobs every year according to experts, is geared to increasing the domestic share of the $18 billion annual spending on oil and gas from 45 percent to 70 percent, in addition to enhancing the multiplier effects on the economy, through refining and petrochemicals.
The local content policy action started in 1971 through the establishment of the Nigerian National Oil Corporation, (NOC). NOC was established as a vehicle for the promotion of Nigeria’s indigenization policy in the petroleum sector. It later became Nigerian National Petroleum Corporation (NNPC) in 1977 through NOC’s merger with the petroleum ministry. NNPC flagged off the actual local content initiative through acquisition of interests in the operations of the IOCs. These interests grew to about 70 percent, with the responsibility of controlling all acreages and other activities. Although conscious efforts were made in the past through Regulation 26 of the 1969 Petroleum Act, enforcement of local content policy, the springboard for sustainable economic transformation of Nigeria, was mere paper work. For an industry that contributes 80 percent of Nigerian government revenues and 95 percent of its foreign exchange this is entirely unacceptable to the Nigerian government hence the clamor for change.
Government’s objectives for the local content policy initiative are quite noble. These objectives include the expansion of the upstream and downstream sectors of the oil and gas industry, the diversification of the sources of investment into the sector such that some of the funds would begin to come from local sources, the promotion of indigenous participation and the fostering of technological transfer. Other objectives are the increase in oil and gas reserves through aggressive exploration; employment generation for all categories of Nigerians; increased production capacity, and perhaps most importantly, the integration of the oil and gas industry into the mainstream economy through local refineries and petrochemicals
Following enormous investments in human capital by the Nigerian National Petroleum Corporation (NNPC) and some of its joint venture partners over the years, a new crop of highly competent and experienced Nigerian engineers, geologists and geophysicists has emerged. Today, some of them have established private oil prospecting and oil services firms, which are classified as indigenous contracting firms. However, their inability to get a share of the action at the upstream may not necessarily be due to incompetence, but rather due to a dearth of funds. Nigerian banks lack the financial base to make any meaningful impact on local content development.
Other obstacles are a thin industrial base, lack of adequate power, water and other infrastructure to support an expanded manufacturing base, lack of small and medium-sized enterprises and an underdeveloped capital market. The BGL study notes the argument of some industry stakeholders that over 70 percent of the contracts awarded to Nigerian companies are executed overseas, thereby defeating the primary objective of Nigerian content development which is to develop in-country capacity by executing contracts in Nigeria using Nigerian local resources. Other problems of local companies revolve around executive capacity and critical mass with technical and financial wherewithal.
Generally, most local companies are small, fragmented and incapable of packaging or attracting loans. Few of them can deliver turnkey projects without resorting to some form of partner- ship agreement for equipment, expertise or technical support. There exists the so-called “Knowing-Doing gap” in Nigeria, that is the disconnect that exists between policy formulation and policy implementation. This term describes the absence of a critical link between strategy and action. Public policy initiatives and actions in Nigeria have persistently been incapacitated by this gap, with many government programmes and projects ending in downright failure. Inadequate think through, weak institutional capacity, lack of political will to carry through change, inconsistency in government policies, lack of support from relevant stakeholders and corruption are some of the causes of this gap. The implication of this is that the future of the Nigerian people is currently being controlled by foreigners whose main objective could be to post better returns on investment.
The Nigerian local content initiative did not take off until five years ago. The Obasanjo administration’s renewed efforts at making a difference in the appalling state of Nigerian content in the country’s oil and gas sector were evident in the privatization of the Nigerdock and the repositioning of the Nigerian Petroleum Development Company (NPDC), an arm of NNPC.
Already the privatization of Nigerdock has proved the company’s capability as a serious player in emerging deepwater offshore activities with its success story in constructing the Bonga Buoy (the world’s largest). Another milestone recorded in the effort at growing the nation’s local content level is the Globestar yard’s fabrication of the jacket for the Amenam platform, Saipem yard’s Okpoho platform and ChevronTexaco’s Meren-X well jacket and helipad fabricated by Transcoastal Nigeria.
These developments have helped to create jobs, build capacity and stimulate the nation’s economy. Fabrication is probably the most developed manufacturing area in the Nigerian petroleum industry. For several years, many structures and parts have been fabricated in yards located mainly in Warri, Lagos and Port Harcourt. This has come to stay, but it suffers a number of limitations. Limited capacity installation and technological innovation could continue to plague the industry even as it is striving to mature into relatively more demanding deepwater fabrication.
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