Energy
April 2021 marked the 11th year since the Nigerian Oil and Gas Industry Content Development (NOGICD) Act, otherwise known as the local content law was enacted. Emmanuel Addeh looks at the journey so far, distilling reviews by industry players on how beneficial the implementation of the law has been, attempts to extend it to other sectors as well as ways to further strengthen in-country oil and gas activities
Considering the content of the correspondence that made the rounds across government agencies, last week, it was glaring that the nation was in trouble.
It was one of the most dreaded days in the offices of the managers of the nation’s economy; the letter contained the information stating that the NNPC would not be contributing to the FAAC for the months of April and May.
This is due to the shortfall of N111, 966,456,903.74, the national oil company recorded in February 2021.
This present predicament arose from the fact that NNPC, the country’s apex fuel importer-supplier, was recording a shortage of N56 for every liter of PMS being imported into Nigeria currently.
According to the memo, as the federal government and labour were still negotiating the pump price of fuel, the shortfall came from the landing cost of fuel that skyrocketed by “
In the Beginning
In 1990, the then Minister of Petroleum Resources, Prof. Jibril Aminu, for the first time in the country’s history, facilitated the award of oil blocks to 11 Nigerian entrepreneurs, although on a discretionary basis.
Convinced that Nigerians had garnered the requisite experience and skills, having worked for several decades under oil multinationals, Aminu thought it was time to give the Nigerian businessman the opportunity to try out what they had learnt over the years.
That decision of giving Nigerians the chance to participate in the discretionary bid round gave birth to some indigenous companies, including Queens Petroleum, which operated OPL 135, Cavendish Petroleum (OPL 453); Summit Oil International (OPLs 205 & 206); Atlas Petroleum (OPL 75), among others.
The relative success of the 1990 exercise prompted the President Olusegun Obasanjo administration to in 1999 award more marginal fields to industry players of Nigerian origin.
With Nigerians now effectively taking part in the oil and gas sector, it was only a matter of time before a deliberate policy to consolidate the little gains that had been achieved would be introduced, especially in the oil services sector which was largely dominated by the Schlumbergers, Haliburtons and Baker Hughes of this world.
In 2003, the Coastal and Inland Shipping (Cabotage) Act, was signed into law, which was essentially an Act to restrict the use of foreign vessels in domestic coastal trade to promote the development of indigenous tonnage and to establish a cabotage vessel financing fund and other related matters.
But despite these efforts , the country was literally still bleeding as foreigners still remained in charge of critical segments of the oil and gas industry until the enactment of the Nigerian Oil and Gas Industry Content Development (NOGICD) Act, popularly called the local content law in 2010.
Passed in April of that year, Part 1 of the law categorically states that: “Notwithstanding anything to the contrary contained in the Petroleum Act or in any other enactment or law, the provisions of this Act shall apply to all matters pertaining to Nigerian content in respect of all operations or transactions carried out in or connected with the Nigerian oil and gas industry.
It adds that: “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 shall consider Nigerian content as an important element of their overall project development and management philosophy for project execution.
Furthermore, the NOGICD Act states that Nigerian independent operators shall be given first consideration in the award of oil blocks, oil field licences, oil-lifting licences and in all projects for which contract is to be awarded in the Nigerian oil and gas industry subject to the fulfilment of such conditions as may be specified.
“There shall be exclusive consideration to Nigerian indigenous service companies which demonstrate ownership of equipment, Nigerian personnel and capacity to execute such work…,” it states.
Implications
In essence, it is estimated that before attention shifted to the need to encourage in-country participation, the glaring lack of technical know-how led to importation of expats who dominated the oil and gas landscape.
And as expected, these foreigners are usually remunerated in hard currency and it has been estimated that this could have led to the loss of as much as $380 capital in flight, with a paltry 5 per cent Nigerian participation and loss of at least 2 million jobs.
This manifestly led to less revenue accruing to the government; job losses; lack of skills/ technological know-how transfer; high cost of products; long project cycle and over-dependency on foreign countries, which also translated to national security challenges.
It is said that this conscious effort in the last 11 years has saved the country from unwarranted embarrassment on several occasions when there were emergencies.
For instance, there was no noticeable disruptions in the operations of the oil and gas industry during the coronavirus-induced lockdown last year, which could have raised national security issues, even with a large percentage of expatriates having left Nigeria for their home countries.
The Birth of NCDMB
On April 22, 2010, then President Goodluck Jonathan signed the bill into law, giving birth to the Nigerian Content Development and Monitoring Board (NCDMB), with Dr. Ernest Nwapa, a former employee of the Nigerian Content Division of the Nigerian National Petroleum Corporation (NNPC) as its pioneer executive secretary.
The signing of the Nigerian content act by Jonathan effectively marked the beginning of the turnaround in the activities of indigenous contractors in the Nigerian oil and gas industry.
Nwapa led the board from April 2010 to May l, 2015 and was succeeded by Denzel Kentebe, till September 2016, when the current Executive Secretary, Mr. Simbi Wabote, who’s now serving his second term, was appointed.
NCDMB was essentially created to map out a content plan, supervising, coordinating, monitoring, and generally implementing the local content act which applies to all regulatory authorities, operators, contractors and sub-contractors in the nation’s oil and gas industry.
In specific terms, the NCDMB was set up to promote the development and utilisation of in-country capacities for the industrialisation of the country through the effective implementation of the Nigerian Content Act.
It reviews, assesses and approves Nigerian content plans developed by operators; set guidelines and minimum content levels for project-related activities across the oil and gas value chain and engages in targeted capacity-building interventions that would deepen indigenous capabilities in human capital development.
The board is further saddled with the responsibility of maintaining and operating the Joint Qualification System (NOGICJQS) in conjunction with industry stakeholders to monitor Nigerian content compliance by operators and service providers as well as award certificates of authorisation for projects that comply with Nigerian content provisions.
In addition, it has delved into conducting studies, researching, investigating industry-related matters as well as conducting workshops and training aimed at advancing local content in the country.
Eleven Years of Impact
Although the NCDMB, which is the implementing body of the local content act, took off on a slow note, with the usual teething issues in the early years, it appears to have since fully throttled, especially under the current management led by Wabote, described as very focused and a competent hand.
From 5 per cent when the implementation of the NOGICD Act commenced, in 2017, the number hit 28 per cent in 2017, and as at 2020 was put at 31 per cent.
Taking advantage of the local content act, in the upstream sub-sector, many Nigerian oil and gas players have now bought over stakes in multinational oil companies, further deepening the local content ecosystem.
For instance, a few years back, Shell Petroleum Development Company (SPDC) sold its interests in four oil blocks to indigenous companies including SEPLAT, Neconde Consortium led by Nestoil Plc, Shoreline Natural Resources, and 45 per cent interest in OML 40 to Eland Oil & Gas Ltd and Starcrest Nigeria Energy Ltd.
Today, AITEO, Oando, Seplat, Eroton, First E&P and a host of other indigenous companies are major players in the oil and gas business in the country, with the full backing of the local content act implemented by the NCDMB. In January this year, Heirs Holding, owned by Tony Elumelu, bought 45 per cent of OML 17 from Shell, Eni and Total.
Similarly, indigenous companies are now taking control of lucrative pipeline construction projects, stirring more competition in the industry.
Last year, the NCDMB commissioned a 17-storey building in Yenagoa, Bayelsa, arguably the tallest building in that region and mostly executed by indigenous contractors and local skills.
In fabrication, the number of fabrication yards across the country, have increased, line pipes are now almost wholly produced in-country, pipe coating plants are springing up, which ultimately leads to capital retention, job creation and skill enhancement for Nigerians.
In all, before the NOGICD Act, there were only 44 registered indigenous service companies in the country, but has now risen to over 93, rigs and marine vessels owned by Nigerians were less than 5 per cent owned by Nigerians. This has risen to 40 per cent.
By 2027, the NCDMB intends to increase local content to 70 per cent, which will see the retention of as much as $14 billion within the country, annually.
In 2017, the NCDMB launched the $200 million NCI Fund, which is funded from the Nigerian Content Development Fund established by the local content act, helping to fund asset acquisition and assisting in loan re-financing.
With NCDMB’s intervention, the first onshore Floating Production Storage Offloading vessel (“FPSO”) integration facility in Africa, SHI MCI yard, was completed in 2016 at the Lagos Deep Offshore Logistics Base (LADOL), Lagos, Nigeria.
In 2018, a portion of the topside fabrication and integration of the largest FPSO in the world, producing two hundred thousand (200,000) barrels per day, the EGINA FPSO, was successfully completed in Nigeria at the facility.
There’s also the Nigeria LNG Train 7 Project where some of the local content opportunities available to the Nigerian shipping and oil services sectors include procurement, logistics, equipment leasing, catering, insurance, hotels, office supplies and haulage.
It has mediated in long-standing disputes between companies, launched an initiative tagged “Project100” which aims to provide institutional and financial support to 100 indigenous oil and gas service companies offering seismic, marine, engineering and drilling services.
But despite the many achievements, the Wabote-led board vows not to rest on its oars. “We have grown Nigerian content remarkably with many landmark achievements. As a board and, indeed, a country, we are not yet where we want to be.
“But we are clear where we want to be by 2027 based on our 10 year strategic road map. Our target is to ramp up to 70 percent, from less than 5 percent Nigerian content level, back in 2010,” says Wabote.
To him, the target is not just to achieve quantum growth, but also to embed the practice in the Nigerian oil and gas industry and linkage sectors, which according to him, demands total shift in Nigeria’s hydrocarbon development and management strategy.
“It requires a high sense of urgency. The message is: produce, process, refine, manufacture, add value, retain value, pay taxes and create jobs in country.
“To depend on foreign inputs and supplies for our oil and gas operation leaves our economy vulnerable and subject to all kinds of global vicissitude, including tottering globalisation, coronavirus pandemic and the threat of energy transition hanging in the horizon.
“There’s no better time, therefore, to look more inwards than now, as many countries are already doing. These audacious economic programmes provide us fresh impetus to drive growth and embed Nigerian content in our energy landscape; not just to boost the capacity and efficiency of our local supply chain but also to ensure sustain ability,” he adds.
To achieve more domiciliation and domestication of oil and gas activities in Nigeria, in view of the importance of technology and innovation to sustainable local content practice, the NCDMB has identified research and development as one of the four key enablers in its strategic road map.
For instance, it has developed centres of excellence in five universities across the country and launched two new platforms to promote digital tech solutions and innovation in Nigeria.
Similarly, the expected amendment to the extant NOGICD Act 2010 as well as the bill seeking to extend local content to other key sectors of the economy, have scaled through public hearing and are part of the deliberate and intentional steps to embed local content in Nigeria’s economic landscape.
While not resting on its oars, the NCDMB is focused on achieving its 10-year-roadmap which has five pillars namely: technical capability development, compliance and enforcement, enabling business environment, organisation capability and sectorial as well as regional market linkage.
It has four enablers, namely funding, regulatory environment, collaboration and stakeholders’ engagement and research and development.
The board has moved the Nigerian Oil and Gas Park Scheme (NOGAPS) from mere plans on paper to actual construction in two pilot locations – Odukpani in Cross River and Emeyal 1 in Ogbia Local Government of Bayelsa State.
“Each of the parks will create employment for 2,000 persons when they are fully operational and will spur manufacturing of critical oil and gas equipment, tools and spare parts close to oil fields,” said the executive secretary.
The 5,000barrels per day modular refinery, a collaborative effort between the NCDMB and Waltersmith Refining & Petrochemical Company Limited in Ibigwe, Imo State is now up and running, while the 12,000barrels per day Hydroskimming Modular refinery by Azikel Petroleum Limited at Obunagha, Gbarain, Bayelsa State, is on course for completion this year.
About 300,000 litres of diesel daily in addition to various volumes of naphtha, kerosene, and fuel oil are expected from Waltersmith while Azikel will produce about 1.5million litres or 50 trucks of petrol daily, including 170,000 litres of diesel, and other products.
Stakeholders Speak
Stakeholders and beneficiaries of the local content act have also continued to speak on the milestones the board has achieved and the ground-breaking impact the local content act has had in the country.
Describing it as a “ fantastic policy”, Chief Executive Officer of Lee Engineering and Construction Company Limited, Chief Leemon Ikpea, lauded the federal government for conceptualising and actualising that policy.
He noted that even though in the early 1990s, Nigerians who were subcontractors to the multinationals were actually the ones getting the jobs, the foreigners got the fat pay cheques.
“With the establishment of the local content policy given teeth by law, operating as local companies in the oil and gas industry is now a different ball game. Local companies have been given a platform to excel. Our hands have been strengthened,” he says.
He stressed that the crop of Nigerians working at the agency have the core interest of Nigeria and Nigerians at heart, ensuring that local players in the industry receive adequate training.
With the support of the NCDMB, he added that the fabrication plant being built by the company had exceeded 85 per cent completion and set for inauguration this year.
“We are ready for the gas revolution. Gone will be those days when gas cylinders are imported; we will manufacture the cylinders here. It is part of our plans. The agency has helped Nigerian companies tremendously.
“ The Nigerian government is saving businesses billions of naira. The business is done locally and by local contractors. What is more, the monies are domiciled in the country. Just imagine the multiplier effects.
“Once our factory in Warri, Delta state, is completed and declared open, it will positively impact the economy. Think of the many suppliers and vendors that will be involved. It will be a huge market that will attract different people from different parts of Africa to patronise us.
“That is not all; we are going to engage in capacity building. People will receive training at our plant if this factory is not there, all that will not happen. The local content body is real help from the federal government to Nigerians,” he noted.
With close to 45 years in the industry, Ikpea noted that giving the local content policy legal backing was perhaps the biggest development he had witnessed in the industry.
He stated that to strengthen the agency, it should be allowed to drive itself, without political interference and ensuring stability of leadership.
Ikpea noted that Nigerians are now becoming players in the marginal oil fields business, explaining that by the time production starts in some of the facilities being developed, locally made equipment will be used in the oilfields.
Immediate past Chairman of Petroleum Technology Association of Nigeria (PETAN), Petroleum Technology Association of Nigeria (PETAN) an association of Nigerian indigenous technical oilfield service companies in the upstream and downstream sectors, Mr. Bank-Anthony Okoroafor, speaking on the 10th anniversary of the NCDMB, said that today, there’s no segment of the value chain where Nigerians are not involved.
In the process, Okoroafor said, many Nigerians have been employed, while a lot of skills have been honed, not to mention the indirect beneficiaries of the various projects throughout the country.
Managing Director of Shell, Nigeria, a major contributor to the local content fund, Mr. Osagie Okunbor, speaking on his assessment of the implementation of the local content law so far, described it as excellent.
“A lot of credit goes to the NCDMB and its leadership, the executive secretary, members of the board, the minister, who is the chair of the board and the players in the industry.
“I think all round, we have all embraced this act and for many of us, certainly for Shell, we did not see it as a compliance issue but as a way of doing business. So, to that extent, the collaboration has been good, such that we have recorded great strides since the act was enacted. There‘s always room for improvement, and we are striving towards that.
“My strong feeling is that we are on the night path. Going forward, l am pretty sure we will do even better than where we are today and get the percentages to the right kind of levels”
“You will recognise that in the last 10 years, we have seen a lot more assets leaving the hands of internationals into local players. In that sense, we are all growing capacity all round. On research and development, this is a strategic area of focus for NCDMB.
“It is an area where we are fully aligned. You will see that we sponsored quite a few research programmes, including research by some Nigerian universities, it is an area we have discussed extensively with NCDMB and why we want to pay a lot of attention to it,” he said.
He stated that the company would like to see a lot more indigenous manufacturing that can support big projects in the oil and gas industry in the country.
Managing Director, MG Vowgas, an Engineering, Procurement, Construction (EPC) firm in Port Harcourt, Mr. Godwin Izomor, stated that without the local content act and the NCDMB, the company wouldn’t have made the strides it has made in the last few years.
“The act gave us the springboard to move up and this has afforded us various opportunities in the oil and gas and manufacturing industries.
“Specifically, if we consider the pressure vessel and process facilities market, all these were conspicuously done outside of Nigeria, but the advent of the local content act gave investors like us the impetus to commit funds for the growth of capacity and capability through value creation, because we are optimistic of opportunities for Nigerian companies.
“Just recently, MG Vowgas assembled the first ballistic airboat in Nigeria. Without the local content act, stakeholders won’t have the confidence in what a local company can do,” he stated.
He commended the NCDMB for the Nigerian Content Development Fund (NCDF), stressing that because most projects are high budget, for example, ship building yards, dry docking facilities, assembling plants, and industrial parks wouldn’t be possible.
“The volume of funds needed will limit investors from setting up the facilities to support the operations in the oil and gas industry,” he maintained.
Amending the Local Content Act
Because of the success of the local content act, there’s already a bill before the national assembly seeking to amend it to incorporate other sectors of the economy.
Known as the Nigerian Oil and Gas Industry Content Development Act (Amendment) Bill 2020, it seeks to amend certain sections, while introducing six new sections.
In essence, the new bill when passed into law is expected to bring the provisions of the sections to be amended into congruence with industry best practices.
While the 2010 law sought to among others, address the then abysmally low level of Nigerian content in the oil and gas sector; create a regulatory mechanism to monitor and enforce compliance by industry players and to domesticate substantial part of oil and gas exploration and production activities within Nigeria, the new amendments is seeking to further boost local content in the country.
For instance section 11 captured in the new bill, will see the review of the minimum target level for Nigerian content set in the schedule where the level is considered beyond the capacity of Nigerian companies by the board.
Similarly, section 33 of the act would streamline and strengthen the process for obtaining expatriate quota to close the gap for current leakages and manipulation by foreign companies.
In the same vein, amendments to Sections 37, 38, and 39 in the bill are to improve the provisions relating to research and development and to ensure proper implementation, while section 76 is proposed to give the governing council of the board the role of superintending over the conditions of service of employees of the board.
Section 81 was also introduced to empower the senate to screen and approve the nomination of the executive secretary of the board before confirmation.
Other sectors the local content act amendment will now extend to include manufacturing, information and communications technology, construction among others, which would further enhance domestication and domiciliation.
Indeed, the local content act has been a game-changer for the oil and gas industry and with the current stable and focused leadership, Nigeria may just hit the projected 70 per cent local participation in the sector in the next six years.
