Excitement Grips Oil Industry over Local Content Law

THISDAY Newspaper- Chika Amanze-Nwachuku

The Local Content development was initiated by the federal government to help develop local capacity building in the oil sector and to enable Nigerians participate actively. A brainchild of former President Olusegun Obasanjo administration, the Nigerian content development policy can be seen as the utilisation of the Nigerian human and material resources in the exploitation and exploration of the Nigerian hydrocarbon resources. The oil and gas industry worldwide plays a dominate role in technology development, advancement of the use of local inputs as a way of reducing production costs and improvement of economic base of the oil producing countries. In Nigeria , oil plays a dominant role to the economy as 90 percent of the total revenue is from oil and gas production, while over 90 percent of the nation's foreign exchange earnings comes from crude oil sales.

Government was concerned that less than five percent of the total annual budget in the sector comes from local Nigerian content, thus the need to increase local participation in the industry. Chairman/Chief Executive Officer of Integrity Intercontinental Company, Mr. Anakwe Joseph Chime had argued that Nigerians have very little share of the oil and gas business because local participation is very low. He said in order to arrest and dissuade capital flight; a local content policy was put in place to significantly increase the contribution of the expenditures in the upstream sector to the gross domestic product over a defined period of time.
The local content development was put in place to ensure that the quantum or percentage of locally produced materials, personnel, goods and services rendered to the industry are increased, thereby generating more employment and economic empowerment.

In promoting the internalisation of inputs in the upstream sector, the government aims to ensure that the local content policy guarantees active local participation without compromising standards; promote value adding in Nigeria through utilisation of local raw materials and human resources; and to promote steady, measurable and sustainable growth of Nigerian content.

Stipulated Guidelines
The Nigerian Content Development provided for the following guidelines:
o to ensure that feed and detailed engineering for all projects are to be domiciled in Nigeria by end 2005;
o that henceforth, all fixed platforms (offshore and onshore) piles, anchors, buoys, jackets, bridges, flare booms, storage tanks including selected process equipment and pressure vessels are to be fabricated in Nigeria to maximise utilisation of local fabrication yards;
o that all floating production storage and offloading contract packages are to be bid on the basis of carrying out integration within the country starting from Mid 2006;
o domestication of all seismic data processing and reservoir management studies effective end of 2005;
o clauses that create impediments for/exclude participation of local companies should not be included in any invitation to tender documents;
o harmonise and apply international codes and standards that support utilisation of locally manufactured products such as paints, cables, etc to improve capacity utilisation in local industries by second quarter 2005.

Level of Compliance
The Federal Government in 1990 began the agitation for increased local content in the industry. The government had then set a target of 45 percent by the end of 2007 and 70 percent by the end of this year. The 2007 target could not be met owing to unwillingness on the part of the multinational companies to involve indigenous operators in their activities. Although there is remarkable progress in the level of indigenous participation, the delay in the passage of the bill hampered the attainment of the 70 percent target by 2010. The Department of Petroleum Resources (DPR), an agency saddled with the responsibility of regulating the activities in the oil and gas industry had blamed its inability to effectively enforce compliance on the local content on the delay in the passage of the bill.

Speaking in Lagos recently, the General Manager, Local Content division, Mr. Ernest Nwapa noted that oil companies operating in Nigeria , in defiant to the Nigerian Content guidelines, move their drilling rigs to countries that have facilities that are even inferior to those in Nigeria for maintenance. He pointed out that of the over 300 vessels working in the Nigerian oil and gas theater, most of them are currently being maintained outside Nigeria.
“In the case of Offshore Drilling Rigs, (Without Deepwater Rigs), there is a current demand for about 15 to 18 Jack-up rigs and this figure will grow with proposed work programs. All have been maintained outside Nigeria , sometimes in locations that have facilities that are inferior to those in Nigeria .

“The Nigeria Liquefied Natural Gas (NLNG) has a growing fleet of dozens of tankers and are being joined by the Brazil LNG, which is proposing to operate over 12 tankers. Add to these the fact that in a few years, our floating Production Storage and Offloadings (FPSOs) will start planning for dry-docking and will become evident that we have a major challenge that must be addressed urgently because we cannot afford to sail these FPSOs back to Korea or Brazil for dry-docking. Neither can we expect to develop to our full potential if we allow our LNG tankers to be perpetually built and maintained overseas”, he said.

He noted that Transocean was the first Rig Operator to comply with the Nigerian Content requirements by moving an Offshore Drilling Rig of this class into a Nigerian Shipyard for repair/maintenance “despite the disadvantage of high cost, despite the constraint of low draft and wrecks in the channel, despite the disruption to commercial traffic in the harbour, despite the obstacles presented by regulators and government agencies and all other excuses that have been used in the past to scuttle work opportunities for Nigerian yards and businesses”.

But, Chime, who spoke recently on “Nigeria Crude Oil and Gas, an Integrity Intercontinental Company”, said most multinational companies that do business in Nigeria have had experience in local content development in their home countries and other locations where they operate. He raised hope that the companies will comply with the rules, pointing out that the Nigerian National Petroleum Corporation (NNPC) consulted widely and adapted tested and sustainable strategies from countries in similar setting to ensure a smooth transition. Again, he noted that oil companies are NNPC's partners in several Joint Ventures and Production Sharing contract arrangements for Exploration and Production investments in the industry, adding that the oil companies belong to the Nigerian Content Consultative Forum (NCCF), which meets monthly and have complied with several requirements of the Nigerian Content Department of the NNPC.

Gains of the Local Content Law
Speaking at the signing ceremony, Jonathan explained that the new law would promote local participation in the oil and gas industry.
“Henceforth, there shall be exclusive consideration to Nigerian indigenous service companies which demonstrate ownership of equipment, Nigerian personnel and capacity to execute jobs. Therefore, all regulatory authorities, operators, contractors, sub-contractors, alliance partners and other entities involved in any project, operation, activity or transaction in the industry shall consider Nigerian content as an important element of their overall project development and management philosophy for project execution", the Acting President said.

He noted that the Nigerian Content Development and Monitoring Board established in accordance with the local content Act shall make procedures to guide, monitor, coordinate and implement the provisions of the new law to ensure and enforce measurable and continuous growth of Nigerian content in all oil and gas operations.
He noted that under the bill, Nigerians shall be given first consideration in the award of oil blocks, oil field licences, oil lifting licences and shipping services and all projects for which contracts are to be awarded in the industry; subject to the fulfilment of such conditions as may be specified by the Petroleum Minister; and there shall be exclusive consideration for Nigerian indigenous service.

Petroleum Minister's Reaction
Minister of Petroleum Resources, Mrs. Diezani Alison- Madueke, hailed the development as a great day for the industry as it would create many jobs among other forms of empowerment for indigenous personnel and operators.
She noted that the new law has far-reaching implications for the issues of technological advancement, long term cost effectiveness, post-amnesty programmes in the Niger Delta and the improved impact of the Oil & Gas Industry on National GD, even as she expressed joy that the law will transform the industry from a major importer of goods and services to an industry that sources a substantial proportion of its inputs locally to support operations thereby empowering Nigerians.

"The Nigerian Content Law has the potential to generate over 30,000 jobs in the next five years and has far reaching implications for the issues of technological advancement, long term cost effectiveness, post amnesty and programmes in the Niger Delta and the improved impact of the Oil & Gas Industry on our National GDP", she said.
She noted that very soon, there would be an urgent need to undertake certain interventions to, among other things, build strong partnerships between local and multinational service companies to handle engineering, project management, procurement, data processing, reservoir studies etc; upgrade existing shipyards and develop new ones with modern docking facilities for marine maintenance and boatbuilding; and establish steel pipe mills to handle the high demand of line pipes.

On his part, the sponsor of the bill, Senator Lee Maeba also remarked that there was "no law guiding the activities of the Nigeria companies in the Nigeria oil and gas industry and because of that there has been capital drift with all types of companies all over the world coming to Nigeria to do jobs that Nigerian companies have the adequate capacity to do and that is the reason why there is poverty in Nigeria in spite of the fact that we are the six largest producer of crude oil.
"The bill touches on the whole aspect of the industry. Apart from the fact that every multinational company must domicile a minimum of 10 per cent of its annual profit in Nigerian banks and that means that the Nigerian banks will have more money to fund investment in the country, Nigerian insurance companies must do all aspect of insurance in the oil and gas industry unless where in the opinion of the Nigerian insurance commission, the capacity of the Nigerian company has been exhausted.

”Nigerian companies must do all issue of legal services and every company doing project in a community must establish in that community. This will ensure that project office is in that community so that the people in that community would not have to travel to Abuja to look for contract done within their community and that is community development. That alone will stem and quire all much of the problem in the Niger Delta. The bill is rich and we congratulate the NASS and then welcome Nigerian companies into real business”, " Maeba added.

The signing of the Bill into law has given full legal backing to Nigeria 's aspiration of increasing indigenous participation in the oil and gas industry. Stakeholders are of the view that certain fundamentals such as access to cheaper funding by local industries, establishment of more fabrication yards, human capital development must be in place for the country to enjoy the full benefit of the initiative.


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