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Poor funding, govt bottlenecks hinder local content gains



The country has not been able to make the best of the Nigerian Oil and Gas Industry Content Development Act in 2010 due to poor funding and tedious prequalification and tender processes, writes OPEOLUWANI AKINTAYO

The need for increased local participation in the development of any economy cannot be over-emphasised, because no country can harness its potential without the involvement of the locals.  It has intensified calls for Africans to get more involved in the oil and gas sector, which is currently dominated by foreigners.

Local content as defined by LinkedIn is the development of local skills, oil and gas technology transfer, and use of local manpower and local manufacturing.

Developing local content in Nigeria’s oil and gas sector refers to the level of use of citizens’ local expertise, goods and services, people, businesses and financing in oil and gas activities.

Before the enactment of the Nigerian Oil and Gas Industry Content Development Act in 2010, Nigeria relied on policy directives to deepen local content participation in the oil and gas sector.

The enactment of the Act in 2010 compelled international oil companies to secede some jobs in the oil and gas sector to Nigerians, putting an end to the ‘best endeavour’ basis.

As of 2010, local content was near zero as almost all areas of the oil and gas sector were dominated by IOCs that preferred the importation of foreign experts to Nigerians.

In the process, the Nigerian Content and Development Monitoring Board was established, led by the Executive Secretary, Simbi Wabote.

While enacting the Act in 2010, part of what the National Assembly outlined that the NOGICD Act would among other things mandate all regulatory authorities, operators, contractors, subcontractors, alliance partners and other entities involved in any project, operation, activity or transaction in the Nigerian oil and gas industry to consider Nigerian content as an important element of their overall project development and management philosophy for project execution.

It also stated, “Nigerian independent operators shall be given first consideration in the award of oil blocks, oil field licenses, oil lifting licenses and in all projects for which a contract is to be awarded in the Nigerian oil and gas industry subject to the fulfilment of such conditions as may be specified by the Minister.

“That there shall be exclusive consideration to Nigerian indigenous service companies which demonstrate ownership of equipment, Nigerian personnel and capacity to execute such work to bid on land and swamp operating areas of the Nigerian oil and gas industry for contracts and services contained in the Schedule to this Act.”

It also stated, “That compliance with the provisions of this Act and promotion of Nigerian content development shall be a major criterion for the award of licenses, permits and any other interest in bidding for oil exploration, production, transportation and development or any other operations in Nigerian oil and gas industry, among others.”

Giving an update on the board’s activities recently, Wabote said that NCDMB commenced the implementation of a 10-year Strategic Roadmap in 2018, with the goal of raising the level of Nigerian content in the Nigerian oil and gas industry to 70 percent by the year 2027.

He indicated that various initiatives were put in place under five strategic pillars and four vision enablers, noting that as of  the end of 2022, and five years into the 10-year journey, Nigeria had achieved 54 percent Nigerian Content level against the target of 42 percent.

In his presentation at the 2023 Africa Energy Week in Cape Town, South Africa, the executive secretary of NCDMB regretted that most African nations lacked requisite local capacities in key areas of the oil and industry such as engineering, procurement, construction and fabrication, installation, commissioning, and operation.

According to Wabote, the lack of capacity has resulted in the loss of job creation opportunities, revenues, skills acquisition, and other aspects of national development.

Another negative impact, he explained, was that those broad categories take a significant proportion of the oil and gas industry expenditure. He stressed the need for oil-producing countries to develop local capabilities that would ensure that those financial outlays were retained in-country, he said.

Advising on the strategy for enhancing local content capacity in African nations, Wabote stated that one important plan was to make local content a national agenda and back it with the appropriate legislation or legal framework in their respective jurisdictions.

This he said would “make it clear to all and sundry that local procurement, fabrication, and manufacturing are a national priority such that all institutions, businesses, decision-makers, investors, and citizens will buy into the vision.”

He listed other strategies for enhancing local content capacity as establishing factual data on current capacities in-country and carrying out gap analysis between current realities and the national vision.

He noted that “Periodic gap analyses are essential to determine gaps that need to be closed and the progress being made in the target areas of interest.

He insisted that local content was not ‘copy and paste’, hence local peculiarities must be factored into programmes aimed at enhancing local capabilities.”

The NCDMB boss identified other enhancement tools to include Structured Capacity Building interventions to close identified gaps and funding and incentives, describing them as essentials to implement local content programs, develop infrastructure, attract new investments, and keep existing businesses afloat.

Wabote further highlighted the importance of patronising in-country capacities and capabilities, noting that all policies, capacities, and individuals would become frustrated if there was no outlet to engage them and receive rewards for sustainability and growth.

He explained that the board ensured patronage of local goods and services by using the ‘right of first refusal’ principle contained in the Nigerian Content Act and various project certification and compliance monitoring tools.

At a recent conference, Wabote noted that local content had no ’one-size-fits-all approach or solution. According to him, local peculiarities are key considerations in implementation, which means that the local content needs in Nigeria may not be the same in other countries, like Qatar. Local content obtainable in Nigeria or Qatar depends on the peculiarity of the country, he added.

 “It is important to note that local content is not about nationalisation. It is about domiciliation and domestication for local value addition. It needs foreigners and Foreign Direct Investments to thrive. Local content is not Corporate Social Responsibility, but a business. It is a marathon, not a sprint, and Local Content is not at all cost.

“As always, our message remains simple: we want partakers in the Nigerian oil and gas industry to produce, process, refine, manufacture, add value, retain value, pay taxes here and create jobs here in Nigeria.

“Prior to the enactment of the NOGICD Act of 2010, almost all value-adding activities were done overseas, and this resulted in significant capital flight which was estimated to be at about $380bn over a 50-year period.”

He stated that this had resulted in over 2 million job losses as most jobs were also executed by foreigners. “Furthermore, less than 5 per cent of Nigeria’s yearly oil and gas industry spending was retained in the country.”

Speaking on local content at a workshop held in Port Harcourt, Rivers State Governor, Siminalayi Fubara, said, “The NOGICD Act guaranteed freedom from neo-colonialists economic phenomenon through gradual and continuous development of our indigenous capabilities in the oil and gas industry.”

Local content gains

The country has made some remarkable gains since the enactment of the NOGICD Act. There has been the rise of crude oil production and exploration companies like Eroton, Seplat, Aiteo, Oando, First E&P, as well as the Nigerian Petroleum Development Company. These local companies have been able to compete with majors, and account for 20 per cent of Nigeria’s oil production and 60 per cent of domestic gas production.

Also, the number of fabrication yards across the country has been in the increase, which was instrumental to the construction of the topsides of the EGINA FPSO modules by Samsung Heavy Industries Limited at LADOL Yard, in Lagos.

Nigeria is estimated to be currently able to handle the fabrication of more than 60,000 tonnes per year with its array of world-class fabrication yards.

There has also been growth in the number of service companies in the Nigerian oil and gas sector to about 8,000, with more than 60 operating companies, four active dry-docking facilities, and 5 pipe coating yards.

Rigs and marine vessels owned by Nigerians have also risen from three per cent to 40 per cent. Similarly, the Act has led to the creation of a $50m Nigerian Content Research and Development Fund aimed at driving the development of indigenous technology and innovation.

Despite the gains, a Fellow of the Nigerian Society of Engineers, a Chartered Engineer with the Institution of Mechanical Engineers UK, and an internationally published expert in the oil and gas engineering field, Dr Wisdom Enang, identified a number of challenges facing local content development in Nigeria.

A notable challenge includes insufficient funds for indigenous companies from Nigerian banks, tedious prequalification and tender processes before awarding contracts.

According to Enang, local content raises project inflation costs sharply due to quota policies without adequate pre-existing networks of suppliers.

He stated companies were also struggling to obtain and report local content data from their own suppliers, thin industrial base.

He added that the lack of adequate power, water, and other infrastructure to support an expanded manufacturing base, and an underdeveloped capital market, were hampering the country’s local content.

Recommendations

Enang recommended that the Nigerian local content policies needed to look beyond the simple generation of economic rents and focus on the development of linkages that would endear more growth and economic development of the oil-producing regions and the nation.

“Enforcing local content depends on the availability of an industrial-supply base that can act as growth levers.

“The mechanism for enforcement often determines the temper of the law and the behaviour of those regulated. The sanctions prescribed under section 68 of the Nigerian Oil and Gas Industry Content Development Act 2010 are criminal in nature. The section describes breach of the Act as an offence punishable upon conviction by fine or project cancellation.”

According to Enang, the implication of this provision is that the penalties stipulated can only kick in after conviction by a court of competent jurisdiction, based on strict rules of evidence and proof beyond reasonable doubt.

“Considering criminal law remedies are hard to obtain, this provision may constitute a bottleneck to the implementation of the Act in some cases. The adoption of administrative penalties as against criminal penalties is, however, recommended, as the former demands lots of evidence to nail violators of the act.

“Additionally, a sensible combination of the administrative and criminal penalty will engender better compliance, cooperation and timely rectification by the regulated community,” he said.

According to him, monitoring and transparent reporting remain a key imperative in actualising the goals of the Nigerian Local Content Policy.

This, he said, required the development of appropriate structures and frameworks on the ground to monitor and transparently report the implementation of policies related to local content.



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