By Nathan Ajene Paul
2017 was an impressive year for the Nigerian Content Management Board (NCDMB) and the national effort to increase participation of local entrepreneurs and businesses in the oil and gas sector. The institution, under the leadership of Engr. Simbi Wabote, undertook several bold and strategic initiatives in its bid to deepen local content participation in the oil and gas industry. And remarkably, NCDMB managed to achieve virtually all the targets and milestones that it set for itself at the beginning of 2017. Its efforts are gradually taking hold in the industry, empowering local businesses with technical and financial capacity to compete, win and execute oil contracts, own oil servicing equipment and provide ancillary services to the industry.
One major area of NCDMB’s impact is the significant retention of billions of dollars spent yearly in oil and gas servicing contracts. Specifically, statistics show that in 2017, local businesses retained about $5billion out of an estimated $20billion spent annually in the sector. This is a landmark development for the industry. In the recent past, foreign firms leveraged their deep pockets, ownership of expensive oil servicing equipment, superior technical know-how and economies of scale to outbid local companies in the multi-billion-dollar contracts for servicing the industry.
As a result, the country got very little out of this annual industry spend which ended up in foreign accounts with little impact on the local space. Local enterpreneurs with little capacity to compete always found themselves on the losing end. But because of the work being done by NCDMB and partner agencies the tide is turning in the country’s favour. The Executive Secretary has set out an audacious plan to achieve 70 percent in-country value retention within the next 10 years and retain $14billion out of the $20billion yearly industry spend.
To provide further support for local businesses, the institution is also working to stop the practice of outsourcing of jobs which local companies have the capacity to execute. While inspecting the facilities of Lee Engineering Limited in Warri in 2017, Wabote said that NCDMB will work to ensure that locally manufactured items that meet global standards are no longer imported into the country.
It is also significant that NCDMB achieved substantial increase in the number of jobs created in the oil and gas industry for Nigerian professionals and unskilled workers in 2017. Specifically, the institution added about 30,000 direct jobs and several thousands indirectly. This is significant because despite accounting for about 35 percent of GDP and providing over 90 per cent of total export revenues, the contribution of the oil and gas sector is abysmal. In fact, the sector accounts for less than 1% of total employment in the country.
The Board has laid out an ambitious plan to create 300,000 jobs in the industry, including direct and indirect employments as part of its 10-year strategic action plan. 30,000 jobs in the first year is a good start and is a strong basis for optimism that the target will be achieved.
Its accomplishments in 2017 do not stop there. As Wabote stated recently, the country now has “two world-class pipe mills and five impressive pipe coating yards. Nigerians control and own 38 percent of marine vessels that are used in the oil and gas industry. The country has developed capacity to handle more than 60,000 tons of fabrication per year while all cables required in the oil and gas sector are being manufactured in the country”.
The historic launch of the $200million Nigerian Local Content Intervention Fund (NCIF) to address the persistent funding challenge that hindered capacity and growth of local service providers in the industry is a strong indication that the NCDMB is likely to surpass its achievements in 2018. Given the size, focus and objectives of the fund, it is no exaggeration to state that indigenous participation in the oil and gas sector is set to witness a mini revolution.
The fund is based on a one percent deduction from all contracts awarded in the upstream sector of the industry and is being operated in collaboration with the Bank of Industry (BoI). It will provide low interest loans to Nigerian companies involved in manufacturing and other strategic businesses including the acquisition of assets such as rigs and marine vessels. The fund provides a maximum of $10m, repayable after five years at eight percent interest rate. The loans will also cover contract financing for Nigerian oil service providers, contract financing for oil and gas community contractors and contract and loan refinancing for service companies that already have facilities with Nigerian banks. Community contractors can access up to N20m at five percent interest rates.
NCDMB has disbursed the $200million to the Bank of Industry for disbursement through a transparent process which will enable qualified local companies to access the fund.
Yet another impactful initiative is the shortening of project contracting cycle. The agency streamlined relevant internal processes to make the contracting process faster and more efficient. Because of the improvements, it is now possible to review contracts within 100 days. A good example is the record-setting completion of the Zabazaba Deepwater project in 14 months instead of the usual 24 to 36 months. The project is being executed by Nigerian Agip Exploration Limited (NAE) in partnership with SNEPCO for in-country fabrication and integration of over 50 percent of the topsides of NAE’s projects’ floating, production, storage and offloading (FPSO) vessels.
NCDMB has also adopted definite timelines for statutory approvals and the development and enforcement of Service Level Agreements (SLAs). The first SLA was signed between the Board and the Nigerian Liquefied Natural Gas Company (NLNG) and it commits the parties to compliance with Nigerian Content Act and timely approvals of documents respectively. It plans to replicate with other operating companies.
The Wabote-led management has also used a combination of diplomacy, moral suasion and institutional authority to ensure that international and local firms implement the requirements of the local content act. For instance, the Zabazaba Deepwater project is not only significant for its timely contract processing completion, but also as a good example of how NCDMB is fostering increased partnership between foreign oil companies and local partners in the execution of major Deepwater projects in the sector. In designing the contract papers, NCDMB ensured that all oversea bidders were mandated to partner with Nigerian companies. NAE was therefore compelled to seek out and work with a local partner, in this case SNEPCO, on the project. The aim is encouraging technical capacity sharing and manufacture of several contract components locally especially regarding FPSO projects.
At the local front, NCDMB has been pro-active in ensuring compliance. For instance, NCDBM has engaged and is collaborating with Dangote Industries Limited towards ensuring maximum utilization of local capacities in the construction of the 650,000 bpd Dangote Refinery project. The plan is to utilize certified Nigerian service companies for the fabrication of modules, pipe coating as well as the supply of paints and cables by local manufacturers.
Another major initiative of NCDMB that will lower production cost and increase profit margins for local firms is the establishment of Nigerian Oil and Gas Parks Scheme. The schemes are being set up in five oil producing states. NCDMB has put in place a firm arrangement for provision of 24/7 power supply to the industrial parks as they are set up. This will help in great measure towards domiciling manufacturing in-country.
Nathan writes from Abuja