Nigerian regulators yet to align with local content policy objectives

[By Sopuruchi Onwuka]

Indigenous players in the Nigerian petroleum industry are frustrated that the nation’s asset lease administrator and other agencies in different sub-sectors are yet to align with the concerted efforts among stakeholders to develop local capacity for industry operations.

The indigenous players including investors, exploration and production companies and oil service firms significantly owned by Nigerians form the most credible channels for value derivation from the nation’s petroleum industry budgets.

Director and Chief Executive Officer of DPR, Mr. Sarki Auwalu

According to most of the indigenous players who spoke in different and several webinars and chats with the Oracle Today newspaper, realization of the key targets of the local content policy is being hampered by efficiency gaps in regulation.

The indigenous operators most of who staked borrowed funds to acquire exploration and production assets as well as indigenous oilfield contractors who acquired valuable service equipment on the back of the Local Content policy all complain that the application of the Nigerian Content Act 2010 is constrained by  inefficient regulation.

While the Nigerian Content Development and Monitoring Board (NCDMB) regulates implementation of the Nigerian Content Act as it regards application of local goods and services in industry operations, the Department of Petroleum Resources is also expected to guarantee local capacity development in the exploration and production through conscious application of the laws that avail assets to indigenous players.

Executive Secretary of NCDMB, Engr. Simbi Kesiye Wabote

However, discontents and sharp criticisms have arisen over the human factor in the application of the laws and regulation of how operating companies comply with the provisions of the law.

CEO of Niger Delta Petroleum Resources, Mr. Layi Fatona, claims that there is a wide disconnect between the indigenous producers and the DPR which is supposed to facilitate their growth in line with the aspirations of the law.

Mr Fatona who spoke in a webinar on the impact of the coronavirus pandemic on the Nigerian petroleum industry stated that there has been no conscious effort by the DPR to grow capacity of indigenous producing companies either with ease of asset acquisition or regulatory intervention on funding and debt relief.

He pointed out the strategic role of the indigenous producers sustainable partners that hold the future of the local petroleum industry, adding that indigenous firms also account for about 20 percent of the country’s total oil output.

According to him, the indigenous companies form the pillars of the nation’s energy independence and currently lead gas supply to the local economy. He also pointed out that the indigenous independent companies also form the risk bearers in squeezing out the remaining barrels of oil equivalents from brownfield assets being divested by foreign multinationals that flee militant hostilities in the Niger Delta.

 He argued that the indigenous players have continued to invest in the local environment despite mounting insecurity, pipeline vandalism, commodity stealing and associated commercial losses.

So far, there has been little conscious move by the Department of Petroleum Resources (DPR) to strengthen indigenous exploration and production companies with sustainable asset base.

The Group Chief Executive of Oando, Mr Wale Tinubu, had at an industry conference in Abuja called for the government’s lease administrators to review its acreage optimization mechanisms along the principles of the Nigerian Content law to allow indigenous independents with proven capacity take over dormant assets in the operation of oil multinationals.

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He had argued that the country and other stakeholders would derive better values by stimulating activities at the dormant fields to catalyze a wide range of industrial activities in the domestic economy and also deliver dividends to investors and players along the chain.

Oando is one of the indigenous independent companies that hauled in over a billion dollars in a bullish acquisition bid for a basket of assets divested by fleeing ConocoPhillips. The head turning bid and similar billion dollar bid by Britannia-U Limited for Chevron’s onshore assets symbolized desperation of indigenous independents that faced sustainability challenges as they coped with lean asset base.

The desperate bids came after endless wait for bidding round that should provide platform for asset replenishment.

Industry professional leader and prolific investor, Mr Austin Avuru, posits that government and its regulatory framework should focus on capacity building, in order to achieve the overall policy target.

In pointing at the need for efficient regulation for implementation of the local content policy, Mr Avuru stated that the application of that law through regulation should be targeted at building capacity.

He lamented rising grumbles against infiltration of political influence in the implementation of the policies by regulators in the industry, warning that the human factor in application of law through regulation poses threat to realization of policy targets.

“So as a regulator, you really need to design you achievement targets on yearly basis. The regulator must focus on resolving industry problems: reducing cost for domestic operators, increase production, create employment, and so on: the same thing with the service providers, contractors, PETAN members.

“Once you set those targets and determine the strategy to achieve them, then you get busy with it. But when you see yourself as the big regulator that all of us have to come and beg and cry for permits to do things, and then chances are that you get carried away, and you won’t even realize that you are on a parallel line with your targets. The arrogance of office now creeps into your judgement. And this is general across board: whether it was NAFDAC, NERC, or any other, it is the same thing!” Mr Avuru pointed out.

He advised regulators to attune themselves towards the service of the industry and avoid the conceit of magisterial powers in order to achieve set policy aspirations.

“So, you need to see yourself at the service of a bunch of operators: to provide opportunities for players to grow, to be firm on those doing the wrong thing to change and so on,” he advised.

Part of the key objectives of the policy is to build and consolidate local capacity for petroleum industry jobs, reduction of operating cost through local sourcing of industry material and service consumables, and deployment of huge industry budget in stimulating productivity in the local economy.

Group Managing Director of Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, had earlier in the year lashed out at operating companies in the industry over low cost efficiency and poor commercial returns to government.

He warned that high operating cost might push government to review operatorship of the nation’s prime assets where operating cost has eaten deep into expected profit margins.

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Industry investor and Managing Director of Oildata Group, Mr Emeka Ene, blames the cost overrun in the industry on low local content optimization. He drew a sharp line between local content patronage and local content value derivation, pointing also at the human factor as the bane of efficiency in policy implementation.

He made it clear that inefficiency in optimization of local content capacity and associated patronage of pretenders in the service sector were the major contributors to cost escalation.

He called on regulators in the industry to efficiently conduct capacity audit in the service sector of the industry with a view of assigning jobs at competitive rates to where relevant and verifiable capacities exist. He pointed at existence of commission based contractors who sabotage the policy by operating as agents of foreign firms that plug into the policy incentives to secure jobs through the back door.

Mr Ene, is also a former Chairman of the Petroleum Technology Association of Nigeria (PETAN), the group representing indigenous oilfield services providers. He is also a past Chairman of the Nigerian Council of the Society of Petroleum Engineers (SPE). He is the only African on the board of the International Gas Union (IGU). His companies deliver services around the globe.

He stated in a brief phone chat that the only way to beat costs is to efficiently implement the Nigerian Content law which, according to him, would eliminate all the additional cost burdens associated with mobilizing foreign “experts” into sites in the country through non value-adding middle men.

He called on NNPC and the Nigerian Content Development and Monitoring Board (NCDMB) to conduct a detailed capacity audit among companies in the domestic services industry which will match investment with activity, eliminate waste and duplication and guarantee steady work and employment for efficient companies in a sustainable manner.

Also commenting on the role of Nigerian Content law in the industry, Mr Austin Avuru, commented that realization of policy goals remains the function of regulation.

“So, sometimes the law itself is not the issue! It is how regulation using the law helps us to build capacity. Fortunately for us in this country, we have enough of entrepreneurs that even in spite of and not because of these regulations they go ahead of even the regulations to build capacity on their own and make money in the process.

“So, we need to put in the law and emphasize that the application of that law through regulation should be targeted at building capacity. If you don’t create a playing field that punishes laggards and rewards hard workers, where everybody both the ones doing well and the ones not doing well makes money, then you won’t build that capacity because it would become too much of a burden to build capacity when you can make money without building capacity.

“But if regulation is such that laggards drop off and hard workers get rewards, then the industry will build capacity; and that is the regulatory environment you need to build capacity,” Mr Avuru argued. 

He also lashed at pretenders in the oilfield services sector and their government collaborators that channel jobs foreign firms through lapses in the law. He lamented that some indigenous laggards that parade the industry form phoney alliances that derail the local content policy objectives.

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“Go and read that Act! You remember that I chaired the committee that drafted that Act. I still have the definition of an indigenous company.  It is there. I wrote in pen before it got to the bill. An indigenous company is the one where indigenous shareholders own more than 51 percent. It should have the capacity and resources to deliver on the job it bids. So, if you say you are a wireline company, do you have wireline tools? If you don’t have it you are not. If you bring in someone to log for you, you are not a wireline company. If you bring in a Chinese rig, then you are not a drilling company. Let us not deceive ourselves,” Mr Avuru argued.

He warned that continuous patronage of fake oilfield service contractors in the name of Nigerian Content law is deceptive, disruptive and destructive.

“So, I’m saying that some of those practices where you simply carve out certain jobs that indigenous companies should do not help anybody. And it doesn’t help in building capacity. We have companies that are building capacity in wireline logging like Oildata and Petrodynamics. Those ones are building capacity but they couldn’t go much further because their competitors are making much more money by tying up with foreign companies like Halliburton and Schlumberger and Baker Hughes! So everybody just joins the bandwagon. Those things don’t help anybody.

“I have been advocating this and I have said it severally at PETAN seminars! I said that this practice that is helping you make money is not helping you, it is not helping anybody. You don’t come and run Schlumberger logs and tell me you are indigenous company doing wireline logging! How?

“So, it is the same thing in the upstream since the past 30 years ago when this thing started have been attached to multinationals. You bring them in and you can call them any name. Technical partner! They do all the work and you sit with three staff in the office and collect all the money. That is fine to the extent that it enriches Nigerians and you could use that money to do other things. But that will not build the capacity that we seek. You can see that the capacity that is being built today is not by companies that have enjoyed this patronage. It is being built by companies that are sweating it out in the field,” Mr Avuru noted.

In the first meeting of its Local Content Committee, the African Energy Chamber noted that local content has become a key priority for government, regulators and industry stakeholders.

It pointed out the need for African governments and companies to develop better implementation of local content policies and come up with new approaches putting entrepreneurship and capacity building as priorities.

The continental industry advisory urged African governments and regulators to rise up to the task and provide for better conditions and environments for African entrepreneurs to thrive.

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