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Nigerian Content Act: A challenge for service providers

Obinna Ezeobi
Published: 10 Jun, 2010

With the recent signing of the Nigerian Content Act into law, making it compulsory for most contracts in the oil and gas industry to be given to Nigerian service providers, the onus now lies on the companies to take advantage of the opportunities.

Although oil exploration has been going on in Nigeria for over 50 years, the consensus is that the people are yet to feel the impact of the sector, partly because virtually all goods and services the industry had utilised in the past were imported, thereby creating jobs abroad to the detriment of our people.

The determination to reverse the situation whereby about $18bn is expended in contracts, goods and services in the Nigerian oil and gas industry annually, with only seven per cent of the expenditure passing through the local industry informed the Nigerian Content Policy, which the Nigerian National Petroleum Corporation issued to the international oil companies and other stakeholders in 2005.

The idea was to promote value addition to the local economy, increase indigenous participation, build local capacity on the back of ongoing projects, generally create linkages to other sectors of the national economy and grow local content to 70 per cent by 2010.

Much as substantial progress was recorded under NNPC‘s supervision, with local content levels rising from a paltry seven per cent in 2005 to over 35 per cent currently, there were obvious difficulties in enforcing compliance, hence the need to underpin the implementation strategy with a comprehensive Act.

With the passage of the Act by the National Assembly and assent by President Goodluck Jonathan, the stage is now set to reverse the trend.

To drive the implementation of the Act, the Nigerian Content Monitoring Board was set up, with Mr. Ernest Nwapa, who hitherto was the Group General Manager, Nigerian Content Division in NNPC emerging as the acting executive secretary.
Nwapa visited Onne, Rivers State last week where he inspected the pipe threading yard of Botro Marine & Oil Services and the Onne Free Trade Zone.

Speaking during the visit, Nwapa explained that the Nigerian Content Act provided that one per cent of all contracts awarded in the oil and gas industry would be paid into the Nigerian Content Fund, which would be used specifically for developing the capacity of Nigerian service providers in the oil and gas sector.

He said the fund would be managed by the board of NCMB, adding that any service provider who wanted to benefit from it would need to demonstrate the ‘bankability’ of their investment.

But despite harping on the prospects, which the Act had provided for Nigerian service providers, Nwapa said the onus was on them to take advantage of the opportunities.

He said, ”Even if you create these opportunities, if Nigerians do not step up to take them, the board would not become manufacturers. The board would only protect the rights of manufacturers, so Nigerians should take advantage of the law.”

In that connection, Nwapa praised the management of Botro Marine & Oil Services, which he said took a risk to invest in the pipe threading yard in Onne because of its confidence in the Nigerian Content Policy.

He said, ”This is the model we want to see, because from cutting these threads, it is no longer in his hands, the next step would be how to think of manufacturing the pipes themselves because the time has come for us to do anything that can be done in Nigeria.

”Those machines are not made in Nigeria. The law allows you to bring machines from anywhere to work here and retain capacity in the country. It is important to our government and our people that we create opportunities for Nigerians to work here.”

The acting executive secretary also promised that NCMB would strive to make sure that service providers at Onne Free Trade Zone got jobs.
Nwapa added that with the Nigeria Content Act now operational, it was no longer at the discretion of officials to decide whether to give jobs to one or two companies.
”It is now law and they have a right to challenge anybody who does not give them jobs and rather takes it elsewhere outside Nigeria,” he added.
He also underlined the correlation between the Nigerian Act and the amnesty programme of the Federal Government, explaining that both were designed to give jobs to more Nigerians, particularly in the oil and gas industry

According to him, ”If you continue speaking grammar, without giving them a place to work, then you have issues.

So the law is working in tandem with that programme of government.”

Nwapa described the pipe threading yard of Botro Marine & Oil Services as an example of how the Nigerian Content could complement the amnesty programme as the yard employs about 50 persons with the capacity to take more.

He said, ”You can see that this facility is employing 50 persons at once without even getting the benefit of jobs.

When it gets jobs, they will have 50 to 100 workers. They will have contractors, suppliers and people will do all kinds of jobs.

”This is a model that applies to threading of pipes. It also applies to shipping, fabrication, engineering and insurance companies. I am sure that with this equipment here, some insurance companies would have come to market their products.

This is a clear depiction of how the whole thing works.”

In his comments, the Managing Director, Botro Marine & Oil Services Limited, Mr. Oluwole Odunayo, explained that his yard would be worth about N20m after completion.

He said the company was started at the instance of the Nigerian Content Development Division, which banned the importation of plain end pipes in 2007.

He sad, ”We were in many tenders and we were being knocked off, so the only option for us was to move forward and that is by setting up a threading plant for pipes used by oil companies in drilling.

”Without that, there was no way you would be pre-qualified for the technical or commercial stage as we were being seen as a mere contractor just involved in buying and selling.”

He further explained that the company entered into an alliance with a partner in Switzerland and they found that there were potentialities in Nigeria.

Odunayo commended President Goodluck Jonathan for signing the Nigerian Content Act into law, adding that the challenge was now that of service providers to insist that they should be given jobs by the oil companies.

He added, ”If I see something that is wrong, I can write petition to any level because I have every right as a Nigerian because of the level of my investment. I can also talk at any level because I have the confidence that what we are doing is of the highest quality.

”We studied the market and we realised that in the next three to four years, there will be a lot of tenders, not just from the international oil companies. There was a projection that formed the basis of our investment and when we looked at 2007, we found about 10 million feet of different sizes of pipes, based in the different adverts that came out in the newspapers. Within a year, it had jumped to 20 million feet of different sizes of pipes. Even if we can get 10 per cent of it, it is a lot.”