Buoyed by the Nigerian oil and gas industry content development (NOGICD) Act or local content, which came into existence on April 22, 2010, a growing number of indigenous companies are now playing active roles in the industry.
But industry analysts say financing and technical expertise are major challenges still facing local players in the industry.
The Act, which directly affects operating companies, contractors, sub-contractors and service providers, seeks to increase indigenous participation in the oil and gas industry by prescribing minimum thresholds for the use of local services and materials and to promote the employment of Nigerian staff in the industry.
The local content law requires that first consideration be given to Nigerian companies when contracts are awarded for oil blocks, licences and all other projects. The Act defines a Nigerian company as one formed and registered in Nigeria under the Companies and Allied Matters Act 1990 with not less than 51 percent equity shares owned by Nigerians.
Ayodele Oni, an energy law and policy expert and senior associate in law firm , Banwo & Ighodalo, said the idea of the enactment of the Local Content Act was a step in the right direction, as same was meant to reduce capital flight, provide more jobs for Nigerians and generally promote doing oil and gas business in Nigeria and by Nigerians.
“After four years, there have been modest achievements and an improvement in the overall Nigerian value addition to the oil and gas industry and certain Nigerian engineering and oil service companies have benefitted from it, as there has been an increase in the volume of in-country fabrication,” he said.
Just last week, the first deepwater simulation theatre (DST) in Africa located in Port Harcourt, was commissioned. It was built by an indigenous oil servicing company Tolmann Allied Services Company Ltd.
Emmanuel Onyekwena, managing director of Tolmann Allied Services Company, who attributed the successful construction of the DST to the opportunities created by the oil and gas reforms, said the local content law had enabled more Nigerians to access oil and gas contracts.
“The major development that the industry has continued to celebrate is the Local Content Law, which is empowering Nigerians,” he added.
The industry, which was in the past the exclusive domain of international oil companies (IOCs) in areas such as exploration and production, has seen Nigerian companies now owning more than 100 blocks across oil-producing regions in the country, and at least 30 marginal fields.
According to Section 3, sub-section 1 of the Act, “Nigerian independent operators shall be given first consideration in the award of oil blocks, oil field licences, oil lifting licences and 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 by the Minister.”
As the trend of asset divestments by IOCs operating in the country continues, more indigenous companies such as Seplat and Oando Plc are snapping up more upstream assets.
By the end of this year, the major divestments by IOCs since 2010 will transfer about 5 billion barrels of oil and 20 trillion cubic feet (Tcf) of gas to indigenous players, said Austin Avuru, managing director, Seplat Petroleum Development Company, at a conference in Lagos on January 24, 2014.
“Local operatorship of divested assets, as well as a corresponding boost in local production will be key to assessing the success of the government’s local content policy in the upstream sector,” said Ecobank Energy, Oil and Gas Research, headed by Rolake Akinkugbe, in a recent report. “If the PIB is successfully passed, production growth for junior and indigenous companies is likely to increase.”
Emmanuel Usanga, controller, subsurface, Peak Petroleum Industries Nigerian Limited, noted that the local content had created incremental value in the industry, adding that “there are two broad challenges facing local players, financing and expertise. There has been a wide gap between Nigerian financial institutions and the oil industry. “There is need for banks and other financial institutions to be more supportive of the industry. As regards capacity building, local companies need to partner with service providers, manufacturers and vendors abroad to bring them into Nigeria.”
Financing, which had been a major impediment to the participation of local contractors in the delivery of goods and services, has apparently improved with the introduction of schemes by ExxonMobil Nigeria, Shell Petroleum Development Company and Nigeria LNG Limited, in partnership with banks, aimed at increasing the capacity of indigenous contractors in the industry.
“The law has done so well in the last four years as many Nigerians now play active roles in the oil industry,” Tunde Adelana, director, monitoring and evaluation, Nigeria Content Development and Monitoring Board (NCDMB) told BusinessDay
“We are seeing fabrication projects, pressure vessels being built by Nigerian companies,” he said, adding that the NCDMB was working very hard to put in place formidable processes to help detect non-compliance and abuses.
Noting that more needs to be done in order to enjoy more benefits of the law, Oni said there was need for capacity development, so that more Nigerians could truly benefit from the legislation. “From a legislative drafting point of view, there is also the need to make some of its provisions clearer; particularly how the Nigerian content levels under the Schedule to the Act would be fulfilled.”
FEMI ASU
