Tackling Local Content Challenge With PIA

For decades, Nigerians were onlookers when it came to operations in the oil and gas industry. They either occupied the lowest rung of the management cadre or were mid-level engineers. Although reaching eldorado is still a long way ahead, Emmanuel Addeh writes that with renewed focus on domiciliation under the Petroleum Industry Act (PIA), Nigeria is on track to achieving the 70 per cent local content target by 2027

On the 22nd of April 2010, the Nigerian Oil and Gas Industry Content Development (NOGICD) Act was enacted to give bite to the implementation and enforcement of local content in the Nigerian oil and gas industry.

This Act introduced an enforceable legal regime to underpin the promotion of local content practice in the industry to reverse over 50 years of total foreign dependency which had resulted in huge capital flight of about $380 billion, about 2 million job losses, and less than 5 percent in-country value addition.

Between 2013 and 2017 the Nigerian Content Development and Monitoring Board (NCDMB) started implementation of capacity development interventions.
With overall 42 per cent total Nigeria content in the oil and gas industry today, the federal government projects that by 2027, this would have been taken to at least 70 per cent.

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 NOGICD Act, popularly called the local content law in 2010.

Passed in April of that year, Part 1 of the law categorically states 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.

COUNTING THE COST
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 were 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.

However, it is said that this conscious effort to grow Nigerians’ participation 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.

PROJECTIONS
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.

LEVERAGING THE PIA
Although things were already on track, the recent passage of the Petroleum Industry Act (PIA) has further revved up the hopes that the country is getting it right in the areas of domiciliation of its oil and gas processes.

To this end, the just-concluded 10th Practical Nigerian Content (PNC) Conference which held at the Nigerian Content Tower in Yenagoa, Bayelsa State, afforded stakeholders the opportunity to deliberate on how the new Act will transform the sector.
Already, many of the players noted that they were already positioning to take full advantage of the new law which was recently signed by President Muhammadu Buhari.

Chief Executive Officer, Upstream, Nigerian National Petroleum Corporation (NNPC) Mr Adokiye Tombomieye, in his comments during one of the sessions, stressed that the new legislation was opening doors for new investment as International Oil Companies (IOCs) are set to take Final Investment Decision (FID) on five major projects.

He listed the Owowo project, the Bonga South West project , Bonga North-Shell, Kowe and Aparo as some of the upstream sector deals due to come on stream in Nigeria’s oil and gas industry in 2022.

Group General Manager (GGM) National Petroleum Investment Management Services (NAPIMS), Mr. Bala Wunti, who represented Tombomieye on one of the panels, stated that the five exploration projects were suspended following uncertainty over the passage of then bill, which had lingered for close to two decades.

“The PIA has terminated sustained decline in activities from 1999 till date,” he explained.
While the Bonga South-west and Aparo 2250, 000bpd are operated by Shell Nigeria Exploration and Production Company, SNEPCo; Shell’s Bonga North is a 100,000bpd offshore deepwater project.
“Life is back in Nigeria’s oil and industry with more activities and jobs to be created by PIA,” an excited Wunti stated.

RELATIVE GAINS
Executive Secretary, NCDMB, Mr Simbi Wabote, in his intervention, said the Nigerian oil and gas industry spent approximately $20.4 billion between 2016 and 2020, particularly in key areas such as engineering, procurement, fabrication, project management, and services.

Themed: “Driving Nigerian Content in the New Dawn of the Petroleum Industry Act (PAI)”, during the programme, he hinted that the aggregate industry spend was captured from the projects covered by the Board’s Monitoring and Evaluation Directorate.

The computation, he said was part of a checkpoint review of the implementation of the Nigerian Content 10-Years Strategic Roadmap, to analyse the journey to 70 percent Nigerian content and determine the level of the various initiatives introduced by the board.

According to him, the top industry spend are $8.07 billion on fabrication representing 39 per cent of spend; $4.74 billion on engineering services, representing 23 per cent of spend, and $5.67 billion on procurement of manufactured materials, representing 28 per cent of spend.

He listed the low spend areas to include $1.18 billion on services representing 6 per cent of spend and $746 million on project management representing 4 percent of spend, confirming that the aggregated level of Nigerian content across the five categories is 42 per cent.

Noting that the Nigerian Content performance in engineering remains above the 70 percent target, Wabote said areas of focus included fabrication and procurement of materials if the industry is to realise the 70 percent target by 2027.

He added: “That is why we are keen to ensure that the established in-country fabrication yards are utilised for sanctioned projects such as NLNG Train-7 as well as drive local manufacturing of goods such as chemicals, hardware, spares, accessories, and other consumables via our commercial venture partnerships and our oil and gas industrial parks.
“Overall, we believe we are on track towards the 70 per cent Nigerian content target but we will need the support of all industry stakeholders to make it happen.”

He listed other plans of the board for 2022 to include the completion of the engineering design of Brass Island Shipyard and commencement of roadshows to secure investment partners.
Other scheduled programmes, according to him, include the commissioning of the 2,000 barrels per day Atlantic Modular Refinery in Brass and commissioning of the 400,000 per year Rungas LPG composite cylinder manufacturing plant in Polaku, Bayelsa State.
Wabote stated that the board also plans to commission the 48,000 litres per day base oil production plant located in Omagwa Rivers State and commission the 30MMscf Nedo gas processing plant and the 300MMscfd gas hub tied to the OB-3 pipeline in Kwale, Delta state.

SYLVA’S TAKE
Also speaking on how the PIA is a game-changer for the industry, Minister of State for Petroleum Resources, Timipre Sylva, noted that the signing of the that Act would enable rapid development of projects in the Nigerian oil and gas industry.
He stressed that new projects were needed in the industry to increase the nation’s production volume, grow national revenues, engage the local supply chain, create more employment for Nigerians and promote national security.

He also hinted that the recent conclusion of bid rounds for marginal fields was part of federal government’s determination to reinvigorate the local content in the production side of the business and open a basket of opportunities for local capacities across the industry value chain.

The minister who was represented by the Director Human Resources, Dr. Famous Eseduwo charged NCDMB to continue on its upward trajectory, focused on the implementation of the Nigerian Content 10-Year Strategic Roadmap to grow Nigerian content to the targeted level of 70 per cent by 2027.

FUTURE OF LOCAL CONTENT
Industry players believe that the local content Act is a vital instrument that empowers Nigerian companies to contribute tremendously towards the development of the Nigerian economy by encouraging value addition and job opportunities.
With the Act making it mandatory for any foreign-owned company seeking to carry out operations in the upstream sector of the economy to do so by involving Nigerians in the composition of the company, many indigenous companies are now major players in that sector

The Act has been fundamental to the promotion of the development of indigenous capacity in the Nigeria oil and gas sector. Now in combination with the PIA, which will complement it, it is expected that the 2027 target for 70 per cent Nigerian content will remain on course. By 2027, Nigeria expects to achieve 70% local content