NIGERIAS NEW PRESIDENT has signed the Local Content Bill into law, to the relief of promoters like NNPC, local suppliers like Nigerdock and lawyers everywhere who see rich pickings in the definition clauses that will be needed as the legislation matures. How will local content be measured, for example?
First consequence by end-June was that Abuja announced foreign partners will no longer be granted waivers on project development requirements after 2011. And operators are now having to file succession plans for all expatriates within four years.
There were also unwelcome signs of 'me too-ism' developing as a range of other activities – ship-manning and fabrication, ICT as a whole, trainers – tried to jump on a bandwagon that was designed to support the energy industries and their core service suppliers. There were fears that the “NC Act”, as it came to be known through its long gestation period, could delay progress on the far more wide-reaching Petroleum Industry Bill, with its enhanced tax/royalties take and implications for complete restructuring upstream. And operators are wondering how the industry will be able to even approach export targets (for oil) and the domestic needs of the Gas Master Plan if the localisation requirements are rigidly enforced.
Estimates vary, but it is widely thought that local participation in the oil and gas industry currently stands at around 40%, with the majority of skilled and higher-level positions being still filled by foreign workers. Operators support correction of this fully but defend the status ante by pointing out that Nigeria's oil industry is currently operating at around two-thirds of its capacity. Under the new law they will be required to commit additional funds to local training and raise the 'target' – whatever that means - to three-quarters by the end of this year. A process of contract evaluation/awarding is already being implemented to favour bids which actually exceed this.
All this is enthusiastically supported by the Nigerian Content Division of NNPC, the huge overseeing company which will eventually morph into a new National Petroleum Co and various specialised independents. A list of over 20 categories of work which must be executed locally is in circulation.
No-one doubts the value of the new Act's objectives, which are to increase local value-added content, to transfer technology, to develop local know-how and design/supply capability, and to save dollars of course.
In preparation for the Act NNPC has been implementing its own structural changes, running a series of workshops on human capital development, and organising annual consultative forums to ensure all potential local beneficiaries of these sweeping new rules have been kept informed.
As a result its targeted activities have had the following results:
In fabrication and construction a marked increase in capital tonnage executed by local yards, both in Lagos and the Delta areas. This has included general upgrading of work systems to international standards, a process which in itself has required the temporary import of some skills, tools and equipment. There has also been a shift in emphasis to meeting more of the needs of the deepwater sector – equipment, infrastructure and services - which accounts for an increasing share of the industry's output. At the same time advantage has been taken of some of the IOC's willingness to sell off some of their older lower-yielding assets which have been enthusiastically taken up by the new breed of local operators – the seedcorn of the industry's future.
In terms of well and drilling services officials are pleased to note that nearly two-thirds of rigs being supplied for use on dry land – admittedly less in the swamps – are now entrusted to local firms contracted by operators such as Lone Star Drilling Co, itself an indigenous supplier. And integrated well completion is being increasingly contracted out to highly specialised local operators such as Ciscon and Sowsco, too.
Thirdly, in terms of materials supply and manufacturing locally-based fabricators which have access to the best in foreign technology, such as Nexan Kabelmetal Nigeria and Dresser Flow Solutions are now actively supplying essential inputs, in these specific cases electrical cables for general upgrading of the Bonny Terminal and control valves including major wellhead components. A wide range of industry consumables such as drilling muds and downhole cements is now being produced within the country too, although many of the materials such as additives still have to be imported.
Fears expressed abroad that the whole process would lead to more red tape and delays have been largely countered by statements of intent from Abuja, and an early sign that foreign direct investment is not being diverted was the announcement just a few weeks ago that China State Construction Engineering Corp is seeking multi-billion dollar funding for its plans to build no less than three new refineries – and a petrochem plant – even though the existing downstream industry is in such a poor state. Given the low level of prices that most petroleum products currently fetch in Nigeria, whether they involve much local content or not, such willingness has to be nurtured whenever it appears.
