Okoigun: JV Partners’ $2.2bn Contract Financing Initiative will Boost Local Content Devt

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After the signing of an MoU of $2.2 billion contract financing agreement between Shell Companies in Nigeria (SCiN), its JV Partner – NNPC and eight Nigerian banks, aimed at providing loanable funds for Small and Medium Enterprises (SMEs), a key player in the industry and MD/CEO of Arco Group Plc, Alfred Okoigun, spoke with Kazeem Sumaina on why he thinks this is a great leap into the future of local content development

As a key player in the industry, how would you describe the recent MoU of $2.2 billion contract financing between SCiN, its JV Partner-NNPC and eight banks?

It is a leap into the future, a very commendable gesture on the part of Shell and NNPC. The amount to be managed by the banks is being set aside to provide loanable funds for Small and Medium-sized Enterprises (SMEs) to enable them to finance projects being executed for Shell Companies in Nigeria. Arco understands that the new scheme is an improvement on the existing method of loan disbursement to vendors working with Shell companies in the country. It is a far-reaching move by Shell and NNPC to reduce to the barest minimum, obstacles to credit that Nigerian companies regularly face in the process of handling contracts for an oil major like Shell considering the high rate of interest accruing from bank loans making contract execution fees non-profitable at the end of the day. We have been in this oil and gas business for 36 years running and we have always advocated that policies like this would accelerate in-country capacity growth in Nigeria.

Could this be the first of its kind in the country?

It definitely is not the first of its kind coming from Shell especially in terms of moving the oil and gas sector to the next level of development. As a matter of fact Shell has been undertaking several initiatives in recent years just to give effect and lend credence to the Nigerian Oil and Gas Content Development Act of 2010. For us in Arco this is a very strong indication of Shell’s support for local content law. It is an indication by Shell to genuinely develop local capability in the country. In an Arco sponsored dinner speech during the 2014 oil and gas seminar held in Abuja, I commended Shell Petroleum for being active in supporting local content law in Nigeria.

As a matter of fact examples of what the company is doing on the growth of local capacity are all over the place in the oil and gas sector. We see this initiative by Shell as a commitment to identify with Nigeria at this critical period of recession.

Apart from Shell what are the other oil majors doing in this direction?

We expect all the oil majors in Nigeria to emulate this giant step by Shell and NNPC because such a move is a win-win situation for all the stakeholders in the oil and gas sector in the country. The indigenous SMEs in the sector would have been properly empowered to deliver on the contracts awarded to them and expectedly the oil major-Shell would be able to make realistic forecasts on execution of its contracts. The eight banks involved will be in brisk business with minimum risks.

Availability of funds for contract execution in the oil and gas industry would expectedly reduce the current financial stress being experienced in the sector with increased employment as the economy begins to accelerate its growth both in the short and long run.

How would the Shell template be an exemplary reference point to key players in the industry?

First, the parties to the MoU will need to make deliberate efforts to ensure that the initiative takes firm root and becomes a norm in the oil and gas business while the banks should play to the rules and live up to the expectation of a middleman. They must deliver because so much is expected from it based on the letters and the spirit of the in particular and the objectives of the local content law in general. While all eyes will be on the banks, the beneficiary companies must also justify the confidence reposed in them by being diligent and timely in the execution of contracts awarded.

This initiative by SCiN and its JV Partner the NNPC ought to be the template for contract execution in the oil and gas sector. The Federal Government must borrow this template to expand in-country capacity building. The beauty of it is that if you are not doing genuine business you cannot have access to this fund. The scheme will no doubt reduce the time spent on probes and investigations of people looting the nation’s treasury through phony contracts. It will also reduce the insecurity and tension generated by unemployment.

The nation should take advantage of this move to explore ways of supporting local entrepreneurs in large number as China and India have been doing consistently. I have always emphasized through the activities of Arco Group Plc the need for the Federal Government to support the development of industrial parks around the country as being contemplated by the Ministry of Industry. We in Arco think that it is only when we embark on enduring business models that the nation can come out of her present economic predicament.

How would local content advocates add value to the policy?

The success of the local content policy must be built around indigenous skill acquisition which by the way is a trade mark at Arco.

For Arco, capacity building and human capital development are given and we believe that any company with a passion to deliver excellent service in a competitive industry like oil and gas must place personnel training and manpower development on top of its priorities.

A faithful implementation of the Local Content Law would help turn around the economy and empower Nigerians as the advantages accruable in the case of Nigeria, are reflected by the Nigerian Oil and Gas Industry Content Development (NOGICD) Act enacted in 2010.

How does Arco Group fit into the bill meeting the demands of its deliverables?

Arco in spite of its modest achievements in corporate Nigeria remains a work in progress facing every challenge as it comes. Today Arco Group Plc apart from playing its dominant role of repair and maintenance in the sector has a subsidiary, Arco Pipeline Solutions, involved in integrity tests, engaging over 200 staff, technicians and engineers as well as Arco Marine. It is just a matter of commitment and you will get it right.

My take still is the fact that it is ridiculous that a once rebased economy that is leading the continent cannot fully reactivate to optimum production the Warri, Port Harcourt and Kaduna refineries as well as the petrochemical and carbon plants. These production facilities call for constant maintenance and we must not shy away from this responsibility.

How would you justify your mantra that the fall in oil prices might be

a blessing in disguise?

The fall in prices offers the opportunity to look inwards. An inward looking economy has been Arco’s stance since 1982 when we called the attention of government to the need to halt gas flaring when the company held the oil and natural gas seminar in the country. We have always explored the development of hands on indigenous engineers on key skilled jobs such as maintenance and provision of solutions in the pipeline sector of the industry.

Arco believes it is important for policy formulators to consider as high priority the grooming of local capabilities. I have always argued that if all the petroleum products consumed in the country were locally refined, we would be saving huge costs, conserve needed foreign exchange, eliminate the probability of fraud in subsidy payments and generate additional foreign exchange from the export of refined petroleum products.

Similarly with huge gas deposits, Nigeria has been endowed by nature to generate sufficient electricity for her own use. I do know that some reforms are currently on-going in this sector. However, government must demonstrate the political will to drive the process to a logical conclusion.

For too long, we have held onto the notion in this country that we are incapable of initiating positive change. The country is currently in a recession but we can borrow a leaf from other countries that found themselves in our kind of situation and rode through it to even higher achievements in nation building. Massive inflow of resources and

infrastructure development as well as investment in the housing sector

were applied by such countries that spent their way out of recession

The most assuring news today is the outcome of the recently held OPEC ministers’ meeting on the cutting down of oil production, an announcement that shot up the price of crude oil but for us as a country that is not our salvation for getting out of an economy in recession. It is true increased earnings in the oil and gas sector would improve our foreign exchange earnings and shore up reserves but our ultimate turnaround depends on our ability to tap on our latent possibilities through diversification as we move to the next level of an export, not import dependent economy.

Do you still subscribe to the idea of functional refineries that will save us from this tendency of selling and importing our crude oil?

I have always argued that Nigeria has not sufficiently invested in functional refineries and petrochemical industries, electricity and other infrastructure as well as local capability. The implication is that even the slightest downturn in the international oil market affects every sector of the economy.

There is the need for a new generation of policy makers to move quickly and halt this massive over-dependence on imports. Once this happens then we are set on the path to rapid economic growth.