NIGERIAN CONTENT: Measuring the gains

on   /   in Sweet Crude 5:00 am   /   Comments

By Oscarline ONWUEMENYI
When the Executive Secretary of the Nigerian Content Development and Monitoring Board, NCDMB, Ernest Nwapa rose to collect the Man of the Year award by an international energy publication, The Oil and Gas Year (TOGY), last month, not a few people in the crowded hall of the Transcorp Hilton in Abuja felt it was an honour well-deserved for the man driving what has become a very remarkable journey and transition in Nigeria’s oil and gas industry.

Many industry watchers acknowledge that besides the egregious Petroleum Industry Bill, which is yet to be passed by the National Assembly, the Nigerian Content Act signed into law only a few weeks into the life of President Goodluck Jonathan’s administration remains the single most important piece of legislation in more than fifty years of oil production in the country.

Indeed, and as is to be expected, the administration has hinged the successful execution of its nascent Gas Industrial Revolution on the progress being recorded in the implementation of the Nigerian Oil and Gas Industry Content Development Act 2010.

The President himself may have stated the obvious when he conceded that Nigerians and the national economy can only derive maximum benefits from the oil and gas industry if the Nigerian Oil and Gas Industry Content Development Act is implemented to the letter.

Speaking recently while commissioning the Abang & Itut Satellite Field Development Project Platforms-designed and fabricated at Nigerdock Island Integrated Free Zone for Mobil Producing Nigeria, Jonathan explained that merely earning money from sale of crude oil to pay salaries and build infrastructure is not helping the economy in the desired way. According to him, “Until we make sure that the requirements of the industry; at least a reasonable per cent are produced in the country, Nigeria as a nation cannot benefit from the industry.

“Our gross national earning from the sector is more than 80 per cent, so it is from the oil sector that we can industrialise.”

The President maintained that it was by developing capacities locally and owning assets used in industry operations that the sector can increase employment opportunities, produce and utilize more locally manufactured goods and components.

He regretted that the failure to attain the old target of 70 per cent local content in the industry by 2010 was as a result of limited capacity, adding that the accomplishment by Nigerdock will spur capacity building by other companies.

Jonathan described the completion of the Satellite Fields Development Platforms- the first to be achieved completely locally-as a proof that Nigerian Content Act was already yielding the expected transformational results.

According to him, “What we have witnessed today is a demonstration of the rightness of the local content law. When you consider that oil and gas sector accounts for over 80 percent of the country’s income then you will appreciate the importance of what the law can do to transform our economy.”

Commending Nigerdock for the feat, the President assured investors and other stakeholders of his administration’s commitment to the full implementation of the Nigerian Content Act.

Also speaking at the event, the Minister of Petroleum Resources, Diezani Alison-Madueke

recalled that for several decades, similar ceremonies were celebrated in yards located in Asia, Europe and the Americas where the Nigerian oil and gas industry traditionally procured , Production, Storage and Offloading units, offshore platforms, line pipes, marine vessels, LNG tankers, drilling rigs, power plants and other equipment packages servicing the oil and gas industry.

“The result is that while revenue from oil production activities has been impressive, there is no employment growth and little impact on our GDP from industry activity.”

The Minister explained that by fabricating the platforms and similar structures locally, Nigerdock’s facility supports a workforce of over a thousand, provides practical training and employment opportunities for hundreds of engineers and welders and is attracting international technical partnerships and investments for upgrade of plant and infrastructure.

She recalled that structures like FPSO topsides, offshore platforms, buoys, subsea trees and pressure vessels had been fabricated in Nigerdock and other Nigerian yards and promised that the next FPSO integration will be executed in a Nigerian yard in compliance with provisions of the Nigerian Content Act.

Alison-Madueke confirmed that Nigerian Content interventions have galvanized the entire industry, adding that the implementation model adopted by the Nigerian Content Development and Monitoring Board had resulted in successful collaboration between the Nigerian National Petroleum Corporation, International Oil Companies, Multinationals, Equipment Manufacturers and Local Service companies.

She said the Act was stimulating steady growth in the areas of Engineering, Procurement, Construction, Fabrication, Installation, Shipping and Logistics, Drilling and Subsurface, Equipment component manufacturing, pipe mills, instrumentation controls, banking and insurance.

With the Federal Government planning to achieve Final Investment Decisions for new projects estimated to be worth over $150bn in the next five years, the Minister said efforts had progressed to ensure that there will be enough yards, facilities, institutional knowledge and trained manpower to execute a high proportion of the works in Nigeria to international standards of quality and safety.

Delivering a lead paper on Investment Opportunities in the Nigerian Oil and Gas Industry at a workshop organized by the Petroleum Technology Association of Nigeria at the 2011 Offshore Technology Conference, in Houston Texas, the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke described the passage and signing of the Nigerian Content Bill into law as one of the most important achievements of President Goodluck’s administration, noting that implementation of the Act will in the execution of major aspects of the projects envisaged under the Gas Revolution in Nigeria which will create hundreds of thousands of jobs in Nigerian facilities and yards.

She explained that the Act mandates a significant retention of the planned capital investments in-country, in a non-disruptive manner, adding that the capacity required in-country to support the planned projects is huge and thus created a major investment opportunity for stakeholders.

Alison-Madueke further explained that the targets set out in the Act present substantial opportunities to establish new facilities in Nigeria, upgrade existing yards and develop human capital to take advantage of the imminent expansion of the industry, following the expected passage of the Petroleum Industry Bill.

She reported that the implementation of the Act over that time has provided immense inspiration and the confidence to adopt the various pilot schemes which are already making positive and measurable impacts.

As the Nigerian Content Act celebrates its second year since coming into existence, the testimonies presented by the major operators showed that multinational and local service providers have achieved major milestones and the appetite for compliance is now high across the industry.

In an interview with Sweetcrude, the Executive Secretary of NCDMB, Ernest Nwapa noted that the anxiety expressed by some stakeholders with the signing of the Nigerian Content Act into law is turning into genuine interest on how to comply.

He noted, the recent laying of first ever set of made-in-Nigerian oil and gas grade pipes at the ExxonMobil’s Edop-Idoho offshore field had unlocked opportunities for utilization of locally made pipes.

Multinational oil companies including Shell, Agip and Chevron have since placed orders for about 100 kilometers of line pipes in the SCC plant located in Abuja, a move that will sustain the employment of over 200 Nigerians in the facility.

He further explained that with job creation now a priority of President Goodluck’s administration, Nigerian Content implementation has pledged to create 300,000 direct and indirect jobs. deliver on this, Nwapa said the Board would more than ever before insist that industry projects must be executed in Nigeria,so as to create jobs in facilities and yards.

He added that in compliance with the Rule of Law posture of the administration, the Board will not ignore certain aspects of the Act as canvassed by some stakeholders.

On the Nigerian Content Development Fund, the Executive Secretary stated that operating and service companies have started remitting one per cent of every contract awarded in the industry since April 22, 2010 in compliance with provisions of the Act.

He projected that the Fund will grow to $100m per annum, especially as the Bank of Industry, Nigerian commercial banks and a host of international funding agencies have indicated interest in participating in the fund so as to make it robust.

He remarked that the interest shown by the Bank of Industry (BOI) and other financial institutions followed from the transparent governance model which the Board had developed for the Fund.

Nwapa also warned that the Board will take non-compliance with provisions of the Act seriously, noting that such action will influence the decision of investors to make commitment.

“The Board will forge ahead with implementing the Act to support industry operations. must retain substantial capacities from major projects and Nigerians in senior positions in the industry must insist that provisions of the Nigerian Act be complied with to create capacity, create jobs and opportunities for on the job training.”

Impact across economy

Nwapa believes the effects of the implementation of the local content mandate of the Federal government was already being felt in other sectors of the economy, noting that the Board was prepared to raise the bar on its activities in the coming year.

According to him, “The Nigerian content law is designed for the oil and gas industry, but as a concept and philosophy it covers the entire country such that even without our doing much in that regard, the effects are already being felt across other sectors of the nation’s economy, including the financial sector among others. What we are doing is to change is people’s behavior and attitude; once people begin to see that we are focusing on the right things and that we are getting results, we believe that on its own the other industries will begin to adopt the local content philosophy.

He noted that in the marine industry, the Board has made a lot of progress with operators of the service vessels. “However, we are still working on the big vessels that carry crude to make sure they adopt fully the nation’s local content policy. We are also looking at the area of component manufacturing, towards making sure that we manufacture components in Nigeria so that even when local contractors get jobs they don’t rush off abroad to get the components they need,” he noted.

According to Nwapa, the journey to spread the philosophy of local content development in the nation’s oil and gas industry over the past few years has been relatively successful, as it has been challenging.

“Local content is a positive concept, and even people who don’t agree with it initially would begin to see it is indeed valuable. Having a good knowledge of the industry and having the support of the Federal government makes the work so much easier. But there is still a lot of work to be done, a lot of people that we need to convert, and areas we need to get to. What matters, however, is that the ship has set sail and once we start cruising, we believe a lot of people will come on board.”

Nwapa further pointed out that the Board has no intention of resorting to punitive measures to whip oil and gas companies into line, stressing that the policy of engagement was still the best. “The model we have used, which has proved to be quite successful, is one of persuasion, collaboration and advocacy. We also place a high premium on demonstrating value and teaching people, which has worked effectively to bring some of these companies around to our viewpoint.

“There are certain aspects of the Local content law that cannot be implemented in the present environment; some things in the Act cannot be achieved under the present circumstance. When you have a failure and you try to correct it and the people get on board, you don’t quarrel with it. We are not interested in raising money for wrong behavior, but we are interested in correcting the failure.

“Our success at the NCDMB is measured by the work other people do. We recognize that no matter how much we do, if we don’t convince the stakeholders that what we seek to promote would create value for them we won’t achieve much success,” he said.

Medium-term targets

Following the signing of the Nigerian Oil and Gas Industry Content Act in 2010, the Federal government issued a set of medium term targets to guide the Nigerian Content Development & Monitoring Board, NCDMB, on implementation priorities. These targets covered in-country spending, capacity building, employment generation, indigenous ownership of marine vessels, community enlightenment and participation, but one of the cardinal mandates is the establishment of 3 to 4 modern pipe mills in Nigeria to service the oil and gas industry.

The Minister of Petroleum Resources had explained that the motive for the mandate was the conviction that upcoming industry projects, especially related to field development, Gas Master Plan and Gas Revolution provide adequate pedestals on which investments in new local pipe mills could be based. Beyond this, she added, is the fact that over 10,000 direct and indirect jobs, 3000 training opportunities per annum and hundreds of suppliers the policy will spawn brings immense benefits to all stakeholders.

At a recent visit to the SCC Pipe Mill on the outskirts of the Federal Capital Territory, Abuja, the Minister could not hide her joy at the hi-tech pipe-making processes. She noted that she was “very pleased to be part of this high-level industry team visiting SCC where a cumulative order from Shell, Chevron and Agip totaling over 100km of large diameter steel pipe is being manufactured for use in the Nigerian Oil and Gas industry.”

The vigorous implementation of Nigerian Content and the high level of collaboration with the NCDMB by stakeholders, and general adherence to the guidelines issued by the board has led to success related to Domiciliation of Equipment Component Manufacturing, Expatriate Quota management, Utilization of Indigenous Marine Vessels, Indigenous Rig Ownership Scheme and other capacity development interventions of the Board.

More remarkably, the industry in less than two years is witnessing positive results from these NCDMB interventions, growing interest of OEMs and investors to set up facilities in Nigeria, the rising market share of indigenous vessel owners which had risen from less than $200 million in 2009 to $1billion by 2011. Local fabrication tonnage has also risen by 40% to 54,000 MT per annum over the same period. These are significant achievements the country must continue to build on.

In the same vein, Yulong steel, a Chinese steel company recently made firm commitment to establish a 250,000 MT capacity Longitudinal Submerged Arc welded (LSAW) mill in Yenagoa, while Vigeo Steel is also taking similar steps to establish a 200,000MT capacity HSAW mill in Abeokuta.

Apart from the potential to create over 100,000 direct and ancillary jobs locally, Nigeria stands to retain $700 million that would otherwise be exported to foreign facilities in the absence of these facilities. “It is our strong aspiration to prepare these facilities that will supply a substantial proportion of the pipes to be used in the gas infrastructure projects from Nigeria. Therefore we must support the efforts of the investors comprehensively and without restraint to ensure that the pipemills are completed by 2014,” the minister noted.

Alison-Madueke explained that the significance of the visit to SCC Pipe Mill in highlighting this unprecedented order arising from the implementation of the Nigerian Content Act cannot be overemphasized. “In fact, it is important to state that this is the first of a series of facility visits which will take us, as an industry group, to other locations in Lagos, Port Harcourt and Warri where similar breakthroughs are manifesting in the domiciliation of oil and gas operations.”

One of the main features under the implementation the local content framework is a sufficient provision to protect investments in facilities because the Act does not allow the industry to export work that can be done in Nigeria except it can be clearly demonstrated to the satisfaction of the NCDMB that such capacity has been exhausted.

Even then, there are laid down requirements including participation in industry capacity building projects. “This should provide comfort for all investors and in my capacity as Chairman of the Governing Council of the Board, I will continue to insist that Nigerian facilities and infrastructure such as this Mill are accorded first consideration in line with the principles of the Nigerian Content Act,” Alison-Madueke stressed.

What is evident from industry demand projections, however, was that SCC with a current capacity to manufacture 100,000MT of Helical submerged Arc Welded (HSAW) per annum can only supply a minute segment of industry demand. Prior to the current orders from Shell, Chevron and Agip, SCC had delivered a small quantity pipe orders to ExxonMobil, which had been successfully installed and commissioned on Edop offshore. Credit must be given to Exxon Mobil for pioneering the use of Nigerian made pipe in the industry thereby removing all excuses from naysayers.

“Another interesting angle to this development is that the cumulative orders of the IOCs in this facility did not only salvage about 350 Nigerian Jobs which could have been lost due to absence of work orders, but I am informed of a potential to grow the workforce to 500 with projected work flow from industry” the minister pointed out.

The Minister also disclosed that government has received many expressions of interest by investors to establish pipe mills. “Therefore our role as Government is to create the conditions that will stimulate and incentivize these investors. Investments in a few more pipe mills will increase capacity and create local competition which will surely improve quality, operational efficiency and drive costs down in the medium to long term.

“Evidently, seeing the array of equipment and SCC’s quality and safety standards demonstrated by industry audits, I have no doubt that made in Nigeria pipes will continue to match global requirements and compete for patronage beyond our borders,” she stated.

Indeed, the SCC model is a good example for industry to adopt. Just as SCC which was originally set up to manufacture water supply pipes was persuaded to upgrade its facilities to service the Oil and Gas industry, there is need to harness existing underutilized facilities to support industry operations locally. Specifically, there are many machine shops, dock yards, fabrication yards and other facilities that can be upgraded to meet industry specifications with reduced costs.

The good news is that the minister has urged the NCDMB to evaluate this strategy in conjunction with the operators and make appropriate recommendations to her office before the end of second quarter of 2012.

Local Content vs Indigenisation policy

The Federal Government has constantly stressed that the implementation of the Nigerian Content Act was for the benefit of the indigenes and communities and not an effort to nationalize oil and gas assets in the country.

The Minister who doubles as the Chairman of the Governing Council of the Nigerian Content Development and Monitoring Board has stated that the Nigerian Content Act is not intended to indigenize the industry or nationalize assets of investors in the Nigerian economy. Rather, she explains, the Act sets out provisions that guarantee that investments made in facilities within the country will be fully utilized and that government will ensure that the rights of every investor is protected under the laws.

“At every opportunity I have repeatedly emphasized that the Nigerian Content Act is not designed to nationalize foreign assets or to indigenize the industry. Rather, by domiciling services and build local capacity, there will be certainty of supply for industry projects and support for life cycle operations.

“Government has taken a firm stand on this strategy mindful of the fact that the initial cost increase associated with Nigerian Content will result in savings in the medium term when the key inputs are available in Nigeria.”

“We cannot pretend that these aspirations will be realized simply by the enactment of an Act, rather the route to success on Nigerian Content lies in evolving a practical implementation framework that balances the interest of investors in the sector with our national interests,” Alison-Madueke said.

The minister noted that the industry has come to recognize the Act as a major game changer for the Nigerian oil and gas industry and a forerunner to subsequent bold steps taken by the administration to integrate the Nigerian oil and gas industry with the local economy.

“We have all seen how one year implementation efforts have rekindled our fillip to create capacity in human, infrastructure, facilities and other areas required to execute increased activities in Nigeria thereby retaining higher value in Nigeria from industry operations. In this way, we are bringing back Nigerian jobs which have been exported to foreign economies for a very long time at the expense of our national economic development.”

The minister observed that by insisting on doing more in Nigeria, “we are also creating opportunities for training knowledge sharing and technology transfer; opportunities for investment in fabrication yards, facilities to support industry operations; opportunities for Nigerians to own equipment, marine vessels and rigs and other equipment used in industry. These opportunities are the key to rapid and sustainable growth of the Nigerian economy.”

She said with the return of peace to the oil producing areas of the Niger Delta, there are even greater prospects now for the industry to better serve the economy and provide the linkages that drive productivity.

“Therefore the industry must work with government and community leaders to sustain the Amnesty programme and continuously address the negative impacts arising from oil production. This strategy is already ensuring access to the oil fields with consequential boost in oil production and opening up the industry for new projects and investments on which the aspirations on Nigerian Content could be further realized,” Alison-Madueke added.

She stressed, however, that achievement of the Nigerian Content objectives would be impossible without training and proper utilization of Nigerian manpower.

She added that, “Nigerian Content Development cannot be taken in isolation. Going forward, we must view Nigerian Content implementation as a vehicle for deriving maximum benefits in pursuit of our national development agenda, using the oil and gas industry as launch pad.

“Passage of the PIB into law will in an unprecedented way open up its own investment opportunities and further deepen the justification for the Nigerian Content implementation.”

She explained that one year was a relatively short time in the oil and gas industry, but the establishment of the Nigerian Content Development and Monitoring Board (NCDMB) by the Act with clearly defined functions and powers has certainly introduced new dynamics in the implementation of Nigerian Content in the oil and gas industry.

“Already there is measurable and continuous growth in the quantum of work being placed in Nigerian yards, contracts awarded to Nigerian companies, increasing awareness by Nigerians and indoctrination on mindset change in the short time of implementing the Act provisions by the Nigerian Content Development & Monitoring Board (NCDMB).

“To be sure, there have also been challenges in implementation emanating mainly from capability limitations. The progress we make and the benefits to industry will ultimately depend on how well we tackle the challenges which are bound to arise from time to time in the course of doing our business under this new framework.”

    Print       Email