NUGGETS OF THE DEVELOPMENT OF THE NIGERIAN OIL

Transcription

1 NUGGETS OF THE DEVELOPMENT OF THE NIGERIAN OIL AND GAS INDUSTRY CONTENT DEVELOPMENT ACT 2010 (NOGICD ACT 2010) Paper presented at the Sensitization/Enlightenment Workshop on the Nigerian Oil and Gas Industry Content Development Act-2010, at Uyo, Akwa Ibom State By Moses O. Kragha Kragha & Associates (Mining & Petroleum Consultants) June 27,

2 Order of Presentation. Background/introduction to the NOGICD Act-2010;. Pre- Act activities;. Major players and interacting forces;. The regulators, NCDMB;. LC development in Nigeria and in some other oil and gas producing countries; 2

3 1. Background/Introduction. On May, 29, 1999, democratic governance was restored to Nigeria after decades of military rule.. The newly installed Federal Government was thirsty to rapidly develop and transform all sectors of the Nigerian economy. Hence the massive reforms and development programmes of the last decade, , to diversify the economy from being mono-source (heavily dependent on oil revenue), to a multi-source.. In deed, in February 2002, the NNPC alerted the nation of the huge capital flight in the upstream sector of the petroleum industry- of the over US$ 8 billion spend in the upstream petroleum industry in 2001, less than 5% was spent and retained in Nigerian for Nigerian goods and services. Something needed to be done urgently to revert the trend. 3

4 1. Background/Introduction Cont d That marked the beginning of concerted efforts by Government and the petroleum industry to reform and transform the industry, for greater involvement and participation by Government and Nigerians, to rapidly generate employment; increase revenue generation and retention. Activities to grow indigenous content (Nigerian content) culmunated in the enactment of the Nigerian Oil and Gas Industry Content Development Act in April, 2010); it is the most significant of the industry s initiatives and reforms of the decade. 4

5 2. Pre-Act activities. Consequent to the NNPC alarming report of February, 2002, there was a flurry of activities/efforts in the petroleum industry, involving > Studies/reports such as - the Intsok sponsored Report, - the DPR Report, to harmonise the NNPC and Intsok Reports; with a draft NC bill to the Presidency; > Setting up the Nigerian Content Consultative Forum (NCCF), with eight committees, each one to concentrate on programme and activities to rapidly grow local content in its activity area; > Revival of the Nigerian Institute of Welding to become the Authorized National Body (ANB) responsible for the regulation of welding activities in Nigeria; 5

6 2. Pre-Act activities Cont d > Setting up of the industry s Fabrication Trust and Fabrication Training Centre within the ITF premises in Ikeja; both to boost fabrication activities in the industry; > Setting up and operating NiPeX, the Nigerian Petroleum Industry Marketplace where all contracts and information on capabilities are warehoused; > Along with NiPex, the development of the Joint Qualification System (JQS), for registering and monitoring both the operating companies and contractors on their performances on local content development both on time and project execution bases. > In order to achieve the desired goals and objectives of the local content activities it was expedient to back them up with legislation. Hence the enactment of the Act in April,

7 3. Major players and interacting forces. Local content development is hinged on a tripod of stakeholders: government; the oil and gas operating companies; the contractors/ entrepreneurs.. Government > Legislation NOGICD Act-2010 by the National Assembly. > Regulations by the Honourable Minister of Petroleum Resources. > Guideline and Directives by the Nigerian Content Development and Monitoring Board (NCDMB), for monitoring for compliance, with sanctions and rewards.. The operating companies > they have the jobs and so have a strong role in directing their contractors on local content development compliance. > predominantly foreign. > operate internationally. > concerned in optimising profits for their (foreign) shareholders > prefer using foreign (own-country) contractors > not interested in developing local content, unless mandated. 7

8 3. Major players and interacting forces Con d. Contractors/entrepreneurs > predominantly foreign > operate internationally > bring in their operating equipment on lease from (foreign) parent companies to their Nigerian subsidiaries > not interested in developing local content, unless mandated (by operating companies/government). 8

9 3. Major players and interacting forces Cont d. The Nigerian operators and contractors/entrepreneurs ( who benefit from NC development) > Depend very heavily on foreign technology and equipment. > Very weak financial base > Poor management structure; far too weak to compete against foreign counterparts.. The above-stated attributes of stakeholders militate heavily against rapid growth of local content.. The divestment process newly introduced into the Nigerian petroleum scene is a divasting blow, not just to LC development, but to the socio-economic well being of the country as a whole, and the Niger Delta region in particular. 9

10 4. The Regulators a) Before The Act. Prior to the enactment of the Act, local content development was guided by the Nigerian Content Division of NNPC (NCD-NNPC), with collaboration from the Department of Petroleum Resources (DPR) who also issued guidelines and directives to the industry.. The NCD-NNPC, with the rest of the industry, formed the Nigerian Content Consultative Forum (NCCF). It had a number of committees, with each organisasing activities to grow Nigerian content in its activity area.. Also with NNPC as the lead, the industry set up - the industry marketplace, NiPeX, to warehouse all contracts and industry capabilities; NiPeX prequalified contractors. - the Nigerian Joint Qualification System (NJQS), to register companies and monitor them for their Nigerian content development performances. 10

11 4. The Regulators cont d b) After the Act. NOGICD Act-2010 established the Nigerian Content Development and Monitoring Board, NCDMB, to regulate all matters relating to Nigerian content development in the Nigerian petroleum industry.. NCDMB s mandate is to rapidly grow and sustain in-country capacity and Nigerian capabilities for the oil and gas industry without compromising in international standards for quality, safety and the environment.. Its work will translate to increased employment; wealth creation for Nigeria and Nigerians, reduced capital flight; technology transfer (acquisition, rather!). 11

12 5. LC Development in Nigeria and some other countries Part of one of the studies during the last decade was to compare LC in the Nigerian petroleum industry with those of some other oil producing countries such as Brazil, Mexico, Venezuela, and Norway. Some of the high lights from the comparative studies include: a) Strong manufacturing base conducive for rapid LC growth. The stronger the manufacturing base, the easier and faster it is to grow local content. Brazil and Norway had strong manufacturing bases (heavy industries) before their oil and gas industry LC development policies and programmes. They were able to leverage on them to develop their oil and gas industries, Brazil on its strong industrial base in general and Norway on its shipping and fishery maritime industries for their strong offshore oil and gas technology development. 12

13 5. LC Development in Nigeria and some other countries Cont d b) Carrot and stick approach rather than tacit, sledge-hammer legislation, yield faster, better results. Both Brazil and Norway were inward looking in assembling its resources to develop their LC capacities and capabilities, but they had to tap from the technologies of the Americans who dominate the oil and gas industry. c) Setting rapid, high LC targets could have reverse consequences, as is the case with Mexico. For years it operated 100% LC in its oil and gas industry; foreigners were allowed into it in very exceptional situations. This corrupted the system, with rent-seekers, to the detriment of developing its local capabilities to optimise the benefits of LC development. d) Countries where LC development has succeeded started off with strong, diversified economies. Nigeria has been a mono-source economy, dependent almost singly on oil revenue. Funding LC development from this singular source of revenue is not meeting with much success. 13