Losing The Local Content Race

In line with the structures for sustainable growth agenda 2003-2007, the local content policy became a mantra in the oil and gas sector. The policy essentially entails that through staff development and progressive empowerment, Nigerians should be allowed to play pivotal roles in various aspects of the Oil and Gas business, from exploration to sale and marketing of products. As things currently stand, however, Nigerian presence in the oil industry is measly.

Oil industry sources are quick to point out that the situation is responsible for the industry appearing as an enclave economy. Thus, it generates few jobs and even fewer multipliers to other productive sectors, though contributing huge amounts into the national purse through oil and gas exports. Consequently, despite the oil and gas industry being both a creator and heavy user of technology, Nigeria is unable to capture this technology and transform it into a creator and supplier of domesticated technology. As there is no consistent and concerted effort to groom local expertise and encourage participation, the phenomenal growth in the industry in terms of expenditure, financing and technology is visibly not matched by commensurate increase in the level of locally sourced contractors, suppliers, skilled technicians and entrepreneurs. Stakeholders in the Oil and Gas industry have also expressed serious doubts about the nation’s capacity to attain 70 percent local content by year 2010, as Nigeria has already missed the set target of attaining 45 percent since 2006. At a recent consultative forum held in Abuja, it was revealed that Nigeria stands the risk of losing $67 billion in oil and gas industry expenditure if it fails to speed up attempts at boosting local content in its vital petroleum sector. The huge amount represents the total expenditure for the petroleum industry in the next five years. This is based on calculations that oil expenditure for both onshore and offshore, which stands at $34.4 billion, and spending on natural gas that may amount to $32.7 will end up in the coffers of foreign firms and individuals. Nigerians will then have nothing but crumbs. At the Abuja conference, a major participant said the local content policy has so far been denied the attention worthy of a national strategic imperative. This would have involved the domiciliation of oil industry technology within Nigeria, as against the present situation where engineering design, seismic analysis, structural steel, pipes and technicians are sourced for abroad. The participant said the gains inherent in increasing local content include economic growth, increased employment creation, technological acquisition and development, all translating to enhanced national security. George Osahon of the Nigerian Content Division of Nigerian National Petroleum Company, NNPC, argued that “drastic measures are required to achieve 70 percent local content by the year 2010.” He hinged his submission on the fact that while indigenous investors are extremely keen to establish manufacturing plants, engineering companies and fabrication yards to meet the needs of the industry, they are hamstrung by the resistance from foreign oil majors and also experience the incubus of the industry’s unduly long budget cycle. A local content analyst declared in distress at the Abuja parley that many fabrication yards are operating at 30 percent capacity, costing jobs and subjecting expensive investments to high risk. The few Nigerian companies fortunate to be engaged also do not receive payment promptly, as they are sentenced to a180-day wait by international oil companies. Proponents of the local content ideal have blamed the untoward development in the industry on the absence of comprehensive national legislation to back up the policy. The lack of enabling laws thereby affords the foreign firms the liberty to persist in practices that choke the Nigerian content aspirations. Concerned stakeholders are pained that nine years after a local content legislation bill was forwarded to the National Assembly, it is yet to become law. Even the push by some National Assembly members to make the bill an executive one has remained unsucessful. The law, if passed, would have ushered in a new regime, requiring the compliance of oil majors while laying the foundation of structures for coordination among agencies that are essential to a local content policy. Without legislative backing, the NNPC has had to fall back on the only existing law to issue regulations and directives on local content. This has failed to yield meaningful benefits to the economy, as it cannot facilitate higher local content levels. Experts are of the view that locating a project in Nigeria does not automatically make it Nigerian content-compliant, except it can boast of majority indigenous ownership with a proven programme of actual technology transfer in tow. It would also go a long way, if the NNPC and its joint venture partners embark on giving supply contracts to service providers that are setting up in-country infrastructure. This is moreso as local content gains transcend other industries such as power, telecommunications and shipping. While proper legislative backing is still being awaited, Nigerian investors have continued to press on in their own capacity. They are led on by the hope that there is the possibility of the sheer momentum of already participating entrepreneurs with structures on ground, compelling the supportive action of government. Stakeholders have streamlined basic industry activities that can be improved in the local content scheme, such that these are handled by indigenous participants. Such activities include Front End Engineering Design for all projects (to be domiciled in Nigeria), fabrication of jackets, pressure vessels, storage tanks, flare booms, anchor buoys, fixed platform seismic data processing and increased usage of locally manufactured products made to international standards. These include steel, pipe paints and cable.For instance, a prominent investor in steel and pipe manufacturing, building an integrated steel production facility that should be ready for use by December 2008, is Westcom technologies. On completion, it will produce structured steel which is required in the oil and gas, power, telecommunications and construction industries. If compared with other oil producing countries, Nigeria has an extremely low level of local content in its petroleum industry. Facts from the NNPC reveal that while Mexico had domesticated its oil industry to a large extent, Nigeria can only boast of a mere five per cent local level content level by 2007. Comparative figures for some other oil producing countries are Bazil 70 percent, Malaysia 70 percent, Norway 50 percent and Indonesia with 25 percent.