Tuesday last week at the Federal Place Hotel, Lagos was the Lagos Chamber of Commerce and Industry’s (LCCI) Oil Producers Trade Section’s day, when they gathered to discuss the Nigerian Content Act 2010.
The Act, principally, is aimed at ensuring that substantial proportion of activities, material engineering parts and human capital, utilised in the Nigerian oil and gas industry, are domiciled within the country. It states that the domiciliation should focus on local value addition and promote technology transfer.
Lack of local content has been blamed for high unemployment and linked to militancy in the Niger Delta region.
Nigeria’s efforts in recent years to pass the local content legislation with stringent, ambitious targets and stiff penalties have drawn widespread attention, and prompted numerous international workshops, seminars and symposia on local content.
The Nigerian Content (NC) Act, signed in April 2010, intends to stimulate the development of local capacity and capabilities in the Nigerian oil and gas sector.
The Oil Producers Trade Section (OPTS) of the Lagos Chamber presented paper on opportunities available to SMEs in the oil and gas sector of the Nigerian economy. Ubaka Emelumadu, who presented the paper, stated that the NC Act presents various opportunities within the schedule of categories for SME participation as follows:
•17 sectors described in the schedule have 287 categories/line items;
•The Act sets targets for specific work items to be executed in Nigeria;
•It states that local suppliers would play a role in closing the existing gap in supply;
•It covers the provision of manufactured goods and service provision;
•Categories include technical to non-technical items;
Interestingly, thousands of erstwhile Niger Delta militants are now receiving technical training in the US, South Africa, Malaysia, Russia, Poland, India, Ghana and the Philippines.
The oil and gas sector in Nigeria spends $12 billion annually under the various joint ventures (JV), Profit Sharing Contract (PSC), LNG and downstream projects. Emelumadu explained that to do business in this sector, the following are basic minimum requirements:
•Corporate Affairs Commission registration as a corporate entity;
•Department of Petroleum Resources registration to obtain permit to enter into contracts in the oil and gas industry;
•Nigerian Petroleum Exchange (NIPEX) registration for access to participate in tendering activities on the e-Marketplace hosted by the NNPC;
•Value Added Tax registration to obtain a number and certificate;
•aEstablished presence (office, staff, facilities, etc.)/reliable local partnership.
He said companies need to meet Nigerian Content requirements to access the opportunities. It listed the requirements as follows:
•Qualified SMEs must demonstrate they have the capability to get the job done – industry can support building these capabilities;
•This includes ensuring that the highest standards of professionalism are met - industry can provide training to help build this;
•Possess a track record of delivering results on schedule and at agreed cost.
•Operators and National Petroleum Investment Management Services (NAPIMS) must be convinced that companies they are awarding their business to are a sustainable entity. This insures efficient operations and continuity of service.
•One of the ways to demonstrate sustainability is to have an integrated value chain; as well as aiming for economies of scale in operations.
•In some of the categories described, there are technical requirements that must be met by the industry;
•These include, but are not limited to certifications, quality standards, health, safety and environment (HSE), among others;
•Suppliers must demonstrate that they are able to meet the technical specifications required by ensuring they have the right certifications, personnel, etc.
According to him, the industry recognises they have a role to play, a role that will help create enablers to support SMEs and help develop local capacity. The roles, it stated, include:
•Operators believe longer-term contracts would make it easier for SMEs to obtain financing; as it gives more assurance that initial investments would be recouped.
Advertisement of opportunities
•Early advertisement of opportunities would give SMEs more time to respond to calls for bids and prepare adequate tender bids.
Contract kick-off period
•Currently, the period between contract award and the start of work can be lengthy; unnecessarily tying up working capital. By reducing this waiting period, we believe that it will open up more opportunities for local company participation in the industry.
Re-award of contracts to performing contractors
•Once a supplier has a record of delivering industry/operator specifications, repeat business with these companies will guarantee the SME a continuing revenue stream, provided the demand exists and compliance to specifications are met.
•The industry, Emelumadu noted, has positioned itself to take advantage of the Content Act by setting up internal structures to inform, nurture and grow SME participation in the Act. He argued that such structures have enabled efficiency in implementing the Act. He gave a list of examples of local suppliers operating in oil and gas industry as follows:
•Line pipes manufacturing at SCC Mills: support mill operating and follow up with additional orders;
•Over 10,000 tons of steel fabrication for Agbami deepwater project: topside modules, subsea manifolds, offloading buoys and suction piles;
•SBM CALM buoys construction in Nigerdock facility;
•For Bonga North West, all line pipes ordered through local companies and all detailed engineering work performed in country with participation of Nigerian engineering firms;
•EPC contract for construction of a 42 kilometre pipeline awarded to Nigerian owned consortium, Zakhem/Baywood;
•Starzs Investment awarded contracts to build and supply Tug Vessels (MV Osayame) and (unnamed new build).
Examples of local SMEs working in with operators…
•Fore-operator of the PDL/Halliburton Directional Drilling (OML 58) - 9 wells have been drilled/completed;
•A 100 percent NC company with equipment and training assistance from Halliburton;
•100 percent local content mud logging company
•Developing technical competence;
•100 percent Nigeria Content and from host community
•Operator-assisted capacity building in drilling services
•Good results - developing technical competence;
•First fully Nigerian Drilling Contractor to own and run an offshore jack-up rig, “The Oritsetimeyin”
•Operator-assisted capacity building;
•Solid mineral processing, Drilling Fluids & Chemicals, Rigs/Lab mud testing, etc;
Special Piping Materials Nigeria Limited
•Manufacturer of Flexitallic’s spiral wound gaskets;
•100 percent local service provider for mud engineering services on both NNPC/TEPNG JV onshore and offshore;
•Working with Total SA (Refining and Marketing) to extend purchase facilities to Hamilton thereby reducing their credit exposure;
•Good service delivery and very good pro-activity – A success story so far.
Mainstream sources of financing available to Nigerian SMEs
Emelumadu lists the following:
•The fund is established by the Nigerian Content Development Act specifically for the implementation of Nigerian content development in the oil and gas sector;
Cabotage Vessel Financing Fund
•Conditions to qualify for consideration will be defined by the National Content Development and Monitoring Board;
•The fund promotes the development of indigenous ship acquisition capacity by providing financial assistance to Nigerian operators in the domestic coastal shipping. The fund will benefit Nigerian citizens and shipping companies wholly owned by Nigerians.
Bank of Industry
▪ The Bank of Industry primarily assists local and foreign entrepreneurs to establish new industries as well as expand and modernise existing ones. They provide a wide range of financing and services that can help with setting up businesses such as short, medium and long-term financing, lease financing, co-financing/syndication services and business development support services.