Tackling Local Content Challenge with PIA

For decades, Nigerians were onlookers to operations in the oil and gas industry. They either occupied the lowest rung of the management cadre or were mid-level engineers. With renewed focus on domiciliation under the Petroleum Industry Act (PIA), Nigeria is on track to achieving the 70% content target by 2027.

On the 22nd of April 2010, the Nigerian Oil and Gas Industry Content Development (NOGICD) Act was enacted to strengthen 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%.

In The Beginning
In 1990, the then Minister of Petroleum Resources, Prof. JibrilAminu, 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 gathered the necessary skillsand experience, 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 to give 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 OlusegunObasanjo 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 likes of Schlumbergers, Haliburtons and Baker Hughes.

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
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 were 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%, 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.

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.