MR. Ernest Nwapa is the General Manager in charge of the Nigerian Content Division at the Nigerian National Petroleum Corporation (NNPC).
In this interview with Hector Igbikiowubo, Editor, Sweet crude, he talks about the Nigerian Content bill awaiting passage into law as well as the corporation’s efforts to domicile more work in the oil and gas industry. He also talks about fresh schemes to retrain Nigerian graduates and get them certified while assuring prospective investors that Nigeria remains open for business.
Can you bring us up to date on where the country is at the moment regarding implementation of Nigerian Content in the oil and gas industry?
Thank you Hector. I want to thank you for giving me the opportunity to tell you a little bit about how far we have progressed with regard to implementation of the Nigerian Content Policy of the government. As you know, this policy was effectively introduced in 2005. In fact, the policy paper was submitted to the Federal Government in February 2005, exactly five years ago.
And the whole idea was to drive the participation of Nigerians in the oil and gas industry, to begin to derive value from whatever activities going on in the oil and gas industry in Nigeria. In that way, we can increase the employment from the industry and its support sectors. That way you also increase the existing capacity within the country and deriving from the transferability of skills in the industry- any skill that is developed in the industry can be used in any sector of the economy, be it agriculture, manufacturing, etc. So the policy took effect in 2005 and was driven by the NNPC which set up the Nigerian Content Division later in that year.
Since then the landscape has changed significantly. The first phase of the Nigerian Content implementation strategy was to gather data, to gather information about the industry, to identify things that were of high impact and things that were quick wins, which Nigerians could immediately get into and begin to build capacity in the area. I will give you the general overview before I come back and give you details. We have done that.
We have separated the policy into strategic steps and action points, things that transmit into benefits both for the industry, for NNPC and for Nigeria . That started with the issuance of 22 guidelines to the industry. These guidelines are called domiciliation guidelines and pretty much specify those things that have to be done in Nigeria because the Nigerian content policy is not designed to be an indigenisation policy.
It is designed to domicile the activities. In other words, if you are not a Nigerian but you can send your investment into Nigeria, you are very welcome to work in Nigeria, because in that process you are bringing in capital, you are bringing in capacity and the point to note is that rather than just come here to take business and export it, we have encouraged global companies to come in and form partnerships with local companies in such a way that the local companies participate directly in the business and sometimes become part owners of the business. So, you are now building permanent capacities.
It is not a situation where people can bring in business on a temporary basis and after two or three years, they float it out and Nigeria goes back to square one. That is the essence of the policy. We have found increasing acceptance of the policy implementation.
Just like every change, people tend to resist change when it is introduced. At the beginning, it was a big war, but this change we are talking about is through collaboration. With collaboration, the NNPC management built on its strength as the national oil company to pull in all the stakeholdersÂ from the oil companies themselves to service companies, other multinationals, to government agencies that had anything to do with oil and gas, and even some regulation because up till now, there is no law supporting the implementation of Nigerian content.
So, we in NCD had to devise means of bringing some existing laws, some existing government positions to bear on the practitioners. It is in that way that we brought in the Cabotage Act, using the strength of NIMASA to implement it.
We kind of co-opted the NIMASA group and we wrote it into our directives that you must comply with Cabotage. Another example is the Insurance Act, it is not an NNPC Act, but we took a deliberate step to say that going forward, every contract on insurance, we as NNPC, as a responsible national oil company, we must ensure that our business is carried out in accordance with the laws of the land. And that’s what we have been doing while waiting for this Nigerian Content Development bill to be passed.
In that regard, we have gone through the first phase which we call the diagnostic and foundation phase of the Nigerian Content implementation. Then, immediately we started getting traction in that area, the next problem arose, where is the capacity to do all of these things? Now you’ve identified the things you want to do in Nigeria to meet government’s target, who is going to do it? Where is it going to be done? What quality levels do you have to do these things? That was a very major challenge and that challenge had to be confronted, again, using the model of collaboration. We have succeeded in doing a status report which identified all the requirements from engineering to well and drilling, to logistics, skills, the area of insurance, banking and other support services in the oil and gas industry.
For every segment of the industry, we have gone to Nigerian companies and yards, identified what they have and what they don’t have.
In other words, we know what the demand was and what the supply was and that gap, we had to sit down with people who know both locally and internationally to design initiatives to bridge the gap. These issues have been going on progressively and you know that you cannot really nail down these issues if you don’t have work to back it up. And that is where again we had to start getting involved in the contract process. When NCD was not involved in the contracting process it was our strategy to indicate what should be done, to participate at a very superficial level. But we found out that that was not working very well so we had to use the coordinating procedure to put NCD squarely in the contracting process and by doing that we were able to get compliance to a certain level. In other words, it is not just enough to advertise to do Nigerian content stuff.
We had to insist on the how, the where and the when that Nigerian content had to be done. So, to a great extent, our involvement in the contracting process ensured that we followed the development of the Nigerian content scope and the implementation of that scope from the beginning and conceptual stage all the way to contract award to make sure that the scope of work that is committed for Nigerian content is actually committed at the point of contract award.
And even during the implementation, we have tried to follow the implementation of the contract to make sure that everything that was agreed on under the Nigerian content scope was actually done in Nigeria. Essentially, we have been quite successful, even though I have to say that the feedback we get from the service companies is that yes they would want us to do more but it is absolutely clear that we have had some success. Maybe I am stringing my answers too long.
Can you address the delay in the passage of the Nigerian Content Development bill into law. In our preliminary discussions we established the bill had been passed but was awaiting assent. I am also aware that there are provisions for the National Assembly to take a vote and pass a bill into law after the president for whatever reason fails to assent to a bill. I would like to know if the Nigerian Content Development bill was sponsored by the NNPC and secondly, considering how dear the bill is to the effective operations of the NCD, is there any plans to lobby the National Assembly to get the bill passed into law anytime soon?
Again the issue of legislation regarding Nigerian content started even before the Nigerian Content division was created. As you know, Nigerian content has been a concept that has been discussed for decades. Since the Nigerian Content division was created, there has been all sorts of provisions in the JOA, Petroleum Act about trying to get indigenous activities in the oil and gas industry. But I believe that even the formation of the national oil and gas companies had something to do with that desire, the creation of NAPIMS was actually also related to this, so that the country derives the best benefits from its investments.
So, the question of legislation has been in the works all along. But what I can say is that the NNPC using the Nigerian Content Division led an industry wide discussion to bring together all the stakeholders to bring up a bill that would be workable. Because there are three dimensions to getting this thing going -.you need to have the legislation and that was established, because the question was raisedÂ do we really need legislation or should we just go ahead and do the policy? And after consultations it was established that we needed legislation to give it legal backing.
The other dimension is domain knowledge. The whole laws that we have in this country, if you don’t have knowledge of the industry, it could just be a law unto itself and I believe the third dimension is the executive capacity, now the question of executive capacity is there.
The IOCs, the operators are quite capable of drilling oil and taking all the oil out with the service companies. Getting the legislation is a process of the National Assembly. To inject industry knowledge is the role that the NNPC plays to make sure that whatever comes out of that process is something that can be operated so that we don’t end up like some of the other initiatives that have laws but still can’t do some of the intendments of those legislations.
I believe that we carried the operators along, we carried the foreign companies along and we carried the multinationals along. As it is, the bill has been passed by the House of Representatives and the Senate, they have harmonised the two versions of the bill and one of the newspapers, a few days ago interviewed Honourable Tam Brisibe and he pointed out how the legislature was interested in pushing that bill and I think everybody is unanimous in that desire both in the NNPC and in the National Assembly. But the process is still in the hands of the National Assembly. I believe that at some point, the National Assembly will make it available to the executive branch of government and that is now where we will expect further action.
From the point of view of the NNPC and the NCD we have done a lot within our powers to push that process and to put in all that is required to advise the legislature that certain things will not work efficiently, certain things may be too high an expectation. We also helped in gauging the targets that are realistic because as you know, the bill is kind of supporting the activities that the NCD has been carrying out.
That bill was designed to help NCD within NNPC to carry out the assignment, the mandate that the government has set for NNPC.
The legislators agreed also entirely that the activities being carried out by NCD were positive and they were making impact but they faulted the fact that it was residing in the NNPC. So, they agreed basically with the structure, the strategy and the provisions, the guidelines that the NNPC was already implementing. However, they created another body to be in charge so that NNPC itself can be subject to the provisions of the Nigerian Content bill.
What has become of the $350 million revolving loan scheme put in place to aid Nigerian companies in the pursuit of domiciliation of certain aspects of project development in-country? Secondly, you talked about implementation of the Cabotage but the feelers we get from the maritime industry is that foreign vessels are still largely in charge of lightering at the ports. Can we have your reaction to this?
Let me start from the Cabotage issue, like I said, the law is Cabotage which NIMASA was set up to drive. However, in the oil and gas business, a lot of it is done in the marine environment therefore we have a stake in how the business is done and it was the initiative of the NNPC to integrate activities in this regard with NIMASA.
As I am speaking with you, the NNPC has a very close collaboration; in fact we have a working committee with NIMASA.
It is through that collaboration that NIMASA has been able to register and identify the over 200 local vessels that are working in the oil and gas industry today.
The Cabotage Act has four layers, it says you must build, you must own, you must crew and you must flag Nigeria. We have required maintenance to be done in Nigeria. As I pointed out earlier, the executive capacity is a problem. The Cabotage Act also creates a waiver management system such that if a vessel does not meet all these four points, there can be a waiver so that business will continue.
That is what we had when we got involved with NIMASA. What we are doing today is to help to identify those companies that have at least the crewing, registration and ownership. Building has started in Nigeria but that is building of very small vessels.
So it is a major strategic decision to go into the point of building vessels and we are addressing that now. We are addressing it in such a way that the industry could make available its projected vessel demand so that we can bring investors in to start building vessels now because we know it can be done and we have seen movement in that direction in Port Harcourt where some smaller vessels are being built.
In every tender that NCD looks at, we make sure that only where vessels that make the cut and items 1, 2 and 3 are not available that we admit another vessel. So NNPC has taken the lead and with our joint venture partners there is unanimity that we must comply with the Cabotage law. However, if we don’t find vessels that are made in Nigeria , we have to get vessels to work in the industry.
Where we don’t find vessels that are owned by Nigerians, we want to put steps in place so that they can begin to use those programmes to own the vessels. In fact in the launching of a new tug boat that was bought by Stag Investment in Port Harcourt, for the first time we were told that a Nigerian is buying a newly built vessel because Total gave them a contract that can support that. So we are going to model after that.
For Total to give a Nigerian a contract that gives them enough capacity to go out and get a bank loan and from a Nigerian bank, First Bank, to buy that vessel and bring it in here with a guaranteed job, is a model that we are looking at very closely. It is also not very easy to say that you can drive foreigners out of the industry. What we want to see is if you are a foreigner and you are doing certain things, like building a vessel in Nigeria and we look at the ownership of the company and the vessel and I think NIMASA put 50 per cent ownership that is Cabotage.
Although people mistake some work that is done outside the coastal waters as Cabotage, no, Cabotage only pertains to work that is done within the coastal waters. So even up to rigs, we have recently made sure that jack-up rigs that work in Nigeria do not go outside Nigeria for maintenance and I am sure you heard about the TransOcean Adriatic XIII that was done in Niger Dock, that was because of the activities between NIMASA, NCD with the IOC and once that has been done, there is no excuse whatsoever for any jack-up rig to sail out of Nigeria on the excuse that it can’t find capacity, it has been established that jack-up rigs can go to ship yards in Nigeria and get service.
And for our NNPC business like Brass LNG, they are going to have to look around Nigeria and identify for us areas where they can do some of their shipping work. They can’t do their tankers here but there are things they can do in Nigeria and that is the process we are working on right now and as we build all this synergy together, you will come to find that these stories of not having enough Nigerians playing in the market will begin to vanish.
The Nigerian Content Support Fund (NCSF) was designed as working capital and it was designed when the banking sector was on full steam. What we have found is that Nigerian companies need more than this fund because this fund is supposed to be given to those companies that have a job and need working capital.
Experience has shown us that while that is still necessary, the majority of Nigerian companies are looking for long term funds to buy vessels, to equip their yards, to equip their offices, more like equity type funds and we have reached out to some investors and some equity companies-global companies. If you listen on the Nigerian Content day and I think during other days of the ongoing NOG, you will hear one or two presentations about request for working capital. The fund is not a fund in the traditional sense of the word where you have some money sitting somewhere. The Fund is a design by the NNPC and the IOCs to put a guarantee in place such that if a bank gives that loan through this Fund it has confidence that it will be used to work.
That is why you need to show your letter of award and the prior qualification for getting a loan from that Fund. To obtain any contract, you would have gone through a lot of due process stages and if you are going to the bank we are expected to be confident that those we are recommending are those that have established track record of performance and would not be a great risk.
To reduce that risk, both the NNPC and the IOCs provided what we call non-cash guarantees and that was all set up, the SPE is in place, all the institutions that would run this Fund are in place.
The burning issue is that the capital for that is dependent on the business, on contract award and the contracts haven’t been coming that much in the past few years. So, when business picks up we believe that the Fund would have been properly structured with this equity side coming on board.
Despite your submissions on the successes recorded by the Nigerian Content initiative, we have submissions that the NCD has not been able to prevent the corporation as it were, from awarding contracts that could otherwise have been domiciled in Nigeria , that is, projects to foreign firms located outside the country. Besides that, we still have pressure vessels being imported into the country and that is despite well established capacity of local firms in this regard. Another major concern is that we have even had companies come into Nigeria and offer to set up shop and the corporation had spurned such offers for one reason or the other.
That’s the NNPC?
Yes. Would you like to speak to these concerns?
The NCD is not only looking at the IOCs, but we look at the entire business that the NNPC does and the business we do on behalf of government. You will find that a lot of the work we do within the NNPCÂ for instance if you are looking at the upstream, it is around the NPDC and IDSL.
A lot of that work is not only being done by Nigerians but by people within the locality. The NPDC, IDSL business and NGC for that matter, they do most of their work with people from the surrounding communities. But this GMD (Group Managing Director) in recognition of the importance of the NGC to our operations has approved that the NCD should be a member of the headquarters tenders committee. That is what the GMD has directed and right now, there is no tender that can be passed without passing the full test of the NCD. So there is no better demonstration of corporate commitment than that.
So, there is a commitment by the NNPC to lead by example because we cannot afford to do differently. As we even progress into the post- PIB (Petroleum Industry Bill), when NNPC becomes a commercial entity, when NNPC is now competing with the other IOCs, when the regulation duties of NNPC is stripped off its commercial activity, it becomes even more imperative that NNPC Limited as it would come to be is responsive to all the laws and all the policies and I believe that the management of the NNPC today is committed and this is reflected in the great degree of support for what we are doing in NCD today.
On the pressure vessel issue, I can tell you that it is one of the major success stories for the Nigerian Content because just three years ago, no IOC would have agreed to build any coded pressure vessel in a Nigerian yard because the capacity was not there. Now by working with the IOCs and the certifying agencies, we have been able to demonstrate to the local yard that if they put the capacity in place that pressure vessels would be placed in their yards.
They have put this capacity in place and pressure vessels have been placed in their yards. Now you don’t ramp up from zero to 100 per cent at once. So, in order not to put all our eggs in one basket, there have been negotiations about the spread. The first set of pressure vessels that were done, maybe about 30 per cent of a certain contract went into a particular yard.
The second set of pressure vessels saw us doing more than 70 per cent of the pressure vessels and I believe that having tested these yards and seen their performance to be satisfactory, the next train of pressure vessels we are going to be doing almost all because they have demonstrated that pressure vessels can be done here, stainless steel vessels can be done here and basic carbon steel pressure vessels can be done here.
Any pressure vessel that is coming into Nigeria now would be part of that proportion that was allowed to be done outside, or things that have been bought before or ordered before the capacity was established. We have strong partnerships between original equipment manufacturers and their Nigerian counterparts.
What you would see is that a lot of the companies are rightfully complaining about lack of work and this can be traced back to the slow down in projects that we have seen over the past few years but a lot of these companies have undergone audits both by NCD, by NIPEX, by NAPIMS and by the IOCs themselves. One of the greatest achievements is that the awareness in the industry today is that several things we thought were not doable in Nigeria are actually being done in Nigeria .
Once the industry takes a hard look at a yard and certifies okay, the failure rate is next to nothing. The case of FCC, the pipe mill in Abuja is very clear, for FCC it was a major resistance for the IOCs to put one joint of pipe there but after satisfying that the facility had the capacity – they have made pipes for Exxon Mobil, both Shell and Agip are quite happy to put their pipes there. They make spiral welded pipes and NGC through the NNPC has also committed that in doing part of the Nigerian Gas Master plan, they are going to put everything that FCC can do provided the costs are competitive at least reasonably competitive.
The philosophy is very clear, we are using the Nigerian Content policy to development capacity to do things in Nigeria and by doing that we are creating employment and by creating employment our people are also learning how to do these things and Nigerians are beginning to own more stakes in the companies that do business here.
The big multinationals are being moved in the direction of making some of the assets they use in doing business here to become Nigerian entities and that is one of the requirements of the Nigerian Content Bill and we are not even waiting for the Nigerian Content Bill to become law to start sensitizing multinationals to these requirements. So, in every tender, it has become a requirement to demonstrate what assets multinationals actually own in Nigeria that relates to the business that they are doing in Nigeria.
When I talked about partnerships, my mind went to a claim I gathered early last year from a company which indicated it was ready to site a spool base either in Port Harcourt or Lagos and they were ready to spend their own money. I would have expected that the NNPC would have been excited about such a prospect especially since Angola which is still lifting itself from the debilitating impact of three decades of civil war can boast of about two or three spool bases. Are you aware of that development and what is your take on it?
The broad Nigerian content policy invitation is ‘come and set up facilities in Nigeria and the industry would place work in those facilities. We have had hundreds of investors coming in with plans and some of them to be frank, taking concrete steps towards setting up facilities in Nigeria . Our role in the NCD is to give them assurances about the efficacy of the policy, of the continuity of government policy and I think we have done well with the Nigerian Content policy.
This is a policy that the NNPC has stood squarely behind for the 5years that it has been running. The directives have if anything been steady, the companies, that is, the IOCs have made all their partners and their suppliers know about the policy as much as NNPC has done. Now there are some developments that the NNPC would have liked to see and the corporation has gone out of its way to address some of these complaints.
But we don’t have the mechanism to do some of the things that some of these companies require us to do. Some of these things have been that we have to go to government because we are not in control of some of the parameters.
But we know that as it becomes clearer and clearer that the Nigerian content policy and the incoming legislation addresses benefits to investors and that there are opportunitiesÂ opportunities in the Gas Master Plan, opportunities in the new acreage that are being developed, opportunities in trying to replace aging facilities in the industry so that investors would continue to take a look at Nigeria. As it is now, a lot of people are investing, but they are investing incrementally.
We believe that no door is closed, that we can still go back to any investor that had looked at Nigeria maybe 2 years ago and drew the conclusion that it was not exactly right for them move, that we can still go back to them and say okay, PIB is done, Nigerian Content is done, so now you know this is an opportunity for you, why don’t you come and invest and this is the exact institution of government or that within the industry that can take care of all your needs, that will answer your questions and would provide you access to government. We believe that spool bases are welcome, deepwater facilities are welcome, the heavy duty fabrication yards are welcome, and pipe mills are welcome, boat yards, ship yards are welcome. There are facilities in Nigeria like the naval dock yard which is a facility that has much infrastructure even if they are not working today.
The Sembawang Ship yard in Singapore is the old navy dock yard of Singapore . That has become a major ship yard in the world because during times of peace countries transform their military capacity into civilian use and that is a model that NCD is discussing with NIMASA to see how we can create that synergy. }
The last time I spoke with the GMD I had asked him a question about the contract cycle between project conceptualisation and eventual award and he said it was of great concern to him and the corporation and that an in-house committee had been established to look into that with a view to shorten the cycle.
I am curious to know if the NCD is part of that and what is to be expected? Would the shortened time be competitive with that of Angola or Ghana ?
I think the GMD and in fact the management of the NNPC have been quite worried and have done so much to work on this phenomenon. We find that there are tenders that have taken up to 24 months and there are a few that have taken up to 36 months. NCD is part of the team working on that problem under the leadership of the GED (Group Executive Director), E&P (Exploration and Production), even the IOCs themselves have looked at the contracting cycle, they’ve had their own committee and made recommendations.
We have looked at our own side of things and those things that are not necessary or that are not too effective have been removed or collapsed into other processes and things that are absolutely not adding any specific value have been dropped off. One of the strongest contributors to this time saving effort has been NIPEX. The implementation of NIPEX is so critical for speed that we have even asked all the stakeholders to now start using NIPEX.
Every contract that is a major contract has to go through NIPEX. Last week the industry met in Lagos to review the model that is going to be used and the first target that we are going for is 9 months. The expectation is that as we get a hang of it we will even reduce it further. The first expectation which is a commitment on NIPEX, the entire industry has accepted thatÂ that is, nine months contracting cycle and that is the maximum allowable time.Â Some contracts may even come out earlier than nine months.
And we believe that it is the right thing to do, that it saves money, saves time and NIPEX has the capacity to make that happen. We are collaborating between NAPIMS, NIPEX and the IOCs, everybody will play a role so that we can comply with the directive from the GMD.
There is this concern by newspaper operators that the corporation has directed that advertorials calling for pre qualification tenders are no longer to be placed in the news papers thereby resulting in possible loss of revenue. Is there really any substance in this?
We have all committed, the steering committee of NIPEX which is actually a steering committee representing the entire stakeholders of NIPEX. We have taken a decision that if you use NIPEX selectively, then it is of no use because it will be under utilised, those things that are still bring outside NIPEX would still have the negative effects of not being in NIPEX. The idea is to pre-qualify companies and put them into a data base called the JQS (joint qualification system) so that a company that is qualified to work in the industry is qualified to work is qualified to work in the industry except in very few cases. Having done that, the need to be spending so much time pre-qualifying is no longer there. However the law, the Procurement
Act requires that adverts must be placed in newspapers and beyond that NNPC recognises that it has also got to give the whole country the chance of knowing what opportunities are coming as the JQS is growing. Adverts will still be placed in newspapers but the message the adverts will carry will be slightly different from what it used to carry before.
Every project will still have an advert but it will only be advising the target audience on how to participate in NIPEX and the requirement they need to have to participate. The introduction of NIPEX will not lead to newspapers losing advert revenues, it is just a functional requirement and it is something that the NNPC will continue to do to get the whole country involved in knowing when opportunities are there.
You had earlier tried talking about human capacity development and I promised we were going to get around to that. Can you now bring us up to speed on what the NCD has done so far in this regard?
In terms of capacity building, we talked about the gaps, the problems, the challenge, essentially, the capacity gaps are in four areas; the infrastructure, the facilities in the institutions. But the most important aspect is the human capital because that is where you can transmit to the development of the people and much as the NNPC has always been at the fore, it is not entirely its role to be working doing all the training and using all of its resources.
But the NNPC also realises that as the national oil company it can drive things in that direction. As part of our future development, we have identified that an industry needs to have trained people that can work not only in NNPC, not only with the IOCs but in the companies that service the NNPC and the IOCs. The operators cannot employ a significant number of people. put together entirely NNPC and its partners cannot employ more than 30,000 people but the service companies employed by the NNPC and the IOCs can employ multiples of that, you can get millions of people employed by the service companies.
To make sure that Nigerians are found in these service companies and that we don’t create work for such companies to just bring in expatriates we have human capital development and that is also addressing the fact that Nigeria’s more than 27 universities graduating thousands of engineers and geologists every year and most of these guys cannot actually be employed today. We have a training package designed for attachment to our projects.
Any project that is being tendered for makes a provision for training and after the training and that is part of the scope of work. There has to be provision for attachment for spaces to attach people who have gone on training, not the normal type of attachment or youth corps but serious attachment that the people are actually being mentored on the field of specialisation.
We found that to be very possible and have recommended it to the post amnesty group as a way of giving immediate employment to Niger Delta youths and the beauty of this exercise is that for every project there are about 10 to 50 people that can be taken and our experience is that when these ladies and gentlemen are taken and trained for a few weeks in field work they don’t go back to unemployment and we believe that even when they learn how to do this work and go into the field and participate in projects, even when they are not employed by a particular contractor or service provider, they are available to be employed by any other employer both in Nigeria and any other place in the world because part of the training requirement is that they must be certified in whatever training they receive. We’ve done this successfully for engineering, for welding and we are now developing a strategy for doing geology and sub-surface activities and this is something we are very happy about.