The Imperative of Local Content in Nigeria’s Oil and Gas
Lack of local content as well as lack of capacity to shore up value chain especially in the oil and gas industry led to capital flights for over 50 years amounting to almost $350b. This huge loss, according to the Nigerian Content Development Monitoring Board (NCDMB), necessitated the need to look inwards in the creation and promotion of products and services.
Discussions started sometime during the Obasanjo’s Administration as to how to recover the missing funds and loss of jobs. Accordingly, a policy on local content was enunciated which was domiciled with the Nigerian National Petroleum Corporation (NNPC) to implement and push the boundaries in order to claw back some of the money.
This target was a herculean task given that, at this time, there were challenges regarding the policy as most of the companies did not see any legal basis to operate effectively. Oil services within the oil and gas industry were the exclusive preserve of the international service companies like Schlumberger, Halliburton, among others. There was a cap for Nigerians in the attainment of key positions. Less than 5 per cent of all activities was done locally while others were taken out of the country.
But the push and pull in the pursuit of local content in the oil and gas industry led to the establishment of the Content Development Act of 2010 which came with a number of provisions with regard to what is required of participants, as implemented by NCDMB. For instance, the NCDMB has a strategic 10-year road map where it wants local content attainment at 70 per cent in 2027. This strategy is hinged on capacity building and development through alignments with sectoral linkages.
Through the 2010 Act, the industry has been able to move from less than 5 per cent to about 32 per cent in the pursuit of local content. Nigerians are now employed and given opportunity to participate in the oil and gas sector and value chain. There are opportunities for investors because their investments are now protected. Domiciling NCDMB in the Ministry of Petroleum Resources has provided an opportunity to synergise with the industry within that ministry. Most of the International Oil Companies (IOCs) are headed by Nigerians. For instance, the managing directors of Shell and NLNG are Nigerians.
The IOCs have embraced the local content law, as their benefits have been articulated. One of the benefits is what it takes to pay five expatriates can now be used to pay one Nigerian to save high maintenance cost. In addition, there was security of supply during the Covid-19 situation when most of the expatriates had to leave because of health challenges. Nigerians who have built capacity over time, had to keep sustaining the oil and gas business. Nigerians are practically dominating the business in the service and upstream sectors. For instance, it was mandated by law that drilling in the swamp and land location would be reserved for Nigerians.
There are other initiatives by the industry that focus on infrastructural deficit, gas pricing, sanctity of contract, creating enabling environment for investor-friendly businesses to thrive, checking issues of pipeline vandalism, among others.
The industry is reactivating its business continuity plan which could be likened to the economic sustainability plan of the federal government. One key document being considered for implementation is the National Gas Policy 2017.
Industry watchers have described Nigeria as more of a gas player than crude oil. Hence in the oil and gas parlance, the refrain is “a tiny drop of oil and an abundant natural gas resource.” Major stakeholders have disclosed that the country has about 203 trillion cubic feet of proven gas and over 600 trillion cubic feet of unproven gas. That is the quantum of gas which is drastically under-utilised. The industry has sectoral linkages with the power sector, gas-based industries, agricultural and transportation sectors. The Ministry is focusing on exploration in the inland basin and offshore to further increase the abundant gas resources.
Some months ago, President Muhammadu Buhari flagged off the Ajaokuta-Kaduna-Kano Gas Pipeline Project. According to stakeholders, the project is a 6.4km gas pipeline that will unlock about 2.2 billion cubic feet of gas per day. Experts say this can resuscitate over 232 industries that became moribund as a result of power crisis. The Abuja-Kaduna-Kano Independent Power Plant along this corridor will also spring up industries and create jobs for Nigerians.
Besides, the National Gas Expansion Programme has to do with using gas as a precursor for production of other items. The programme seeks to gather gas resources across the broad spectrum of the gas value chain and ensure they get to the end user at a good price. This will further deepen the domestic market with Compressed Natural Gas (CNG) and Liquefied Petroleum Gas (LPG) which can eliminate the use of kerosene and firewood for domestic use.
There is also the Nigerian Gas Flare Commercialisation Programme whose transaction, commercialization and design have been completed. The programme came up with a regulation called the Flare Gas (Prevention of Waste and Pollution) Regulations 2018 that is now being implemented by the Department of Petroleum Resources (DPR).
Early this year, the Ministry commissioned one of the deficit areas in the gas sector which is the National Gas Transportation Network Code that would address integrity issues, metering, transparency and investor confidence. Looking at the different gas development activities in the country, the Ministry declared this year 2020 “the year of gas.”
That suggests the country is beginning to look deeper in seeking ways to improve the economy with gas. A small country like Trinidad and Tobago has globally expanded its industry with gas. That country has 1.4 million people with 11 trillion cubic feet, way below Nigeria’s proven gas reserve. That country has a globally competitive petro-chemical industry, as it ranks number one worldwide in ammonia export, and number two in methanol export. This contributes significantly to its GDP.
Shoring up local content is a clarion call that should target not only the oil and gas sector but also the non-oil sector of the economy such as banking, shipping, automobile, aviation, textile, agriculture, among others. These should have guidelines to enhance opportunities for Nigerians.
Partly for this reason, an Executive Order was signed in 2017 to improve local patronage of made-in-Nigeria goods and services. The Order was signed by the Vice President, Professor Yemi Osinbajo, who was then Acting President. Later on in February 2018, President Muhammadu Buhari signed Executive Order 5 to ensure that procuring authorities give preference to Nigerian companies in the award of contracts, and prohibit the issuance of visas to foreign workers with skills that are readily available in Nigeria.
This explains the preparation of a new legislation called the Nigerian Content Development and Enforcement Bill to revive the country’s regulatory approach to Nigerian companies in both the oil and non-oil sectors of the economy. The bill which has made slow progress was submitted to the House of Representatives in December 2019. The bill seeks to promote indigenous participation in key sectors of the economy such as information and communication technology (ICT), mining, construction, oil and gas, and power.
With Executive Orders 3 and 5 that promote local content and local capabilities, other sectors of the economy can provide local services and products. One of the 17 parastatals under the Federal Ministry of Industry, Trade and Investment known as the National Automobile Design and Development Council (NADDC), has shown positive signs in this regard. NADDC is currently developing, designing and carrying out engineering work on two specific Nigerian vehicles that will be in tune with the country’s culture, climate, terrain and economic structure.
The automobile sector has the capability to create hundreds of thousands of direct and indirect jobs. For this reason, the sector is implementing the National Automotive Industrial Development Plan which has key elements of investment promotion that will encourage local production of vehicles as opposed to continued importation.
To address poor patronage of indigenous automobiles even at the governmental level, the sector has got involved in market development to empower Nigerians to purchase vehicles assembled and produced in Nigeria. To achieve this, the sector is working with Jaiz, Zenith and Wema banks to provide single digit automotive financing. According to statistics from this industry, about $1b was invested in the sector in 2019 by a number of companies such as Innoson Motors, the Dangote Group, Nissan, among others.
According to the authorities, the sector, through its skills acquisition and development initiatives, is training youths across the country in automobile engineering and mechatronics. For this purpose, the sector has created seven automotive training centres across the country to ensure that Nigerians especially the youths are empowered, self-reliant, creative and innovative. The centres are spread across the geopolitical zones and the Federal Capital Territory (FCT). The training focuses on advanced automotive technology with a view to enlightening the trainees on some of the latest automobile technological systems, given that modern-day vehicles are basically computers on wheels.
Another component of the big picture is vehicle electrification. This entails migrating from vehicles that use petrol and diesel to vehicles that are powered by electricity. There are also plans to migrate to vehicles that can be powered by CNG and Liquefied Natural Gas (LNG).
At the height of the Covid-19 pandemic, many countries became insular and protectionist including Nigeria which was unable to import certain materials and products. The development and utilisation of indigenous capacity has become a task that should be pursued vigorously if the country must find solutions thrown up by the Covid-19 pandemic and other external factors that could lead to economic shocks.
The adverse effects of the pandemic should be a wake-up call for the government to accelerate processes that focus on long-term sustainability approach in opening up the economy. This means that relevant authorities have to look beyond the immediate and begin to play key roles in ensuring local content practice against the background of the present Administration’s agenda that the country must produce what it eats and eat what it produces.
Mr Amadi is a publisher based in Lagos.