By Adedoyin Afun
The Nigerian Oil and Gas Industry Content Development (Local Content) Act (the “Local Content Act”), which provides the framework for the growth of indigenous participation in respect of all operations and transactions carried out in or connected with the Nigerian oil and gas industry (the “Industry”), including its shipping and oil services sectors, was enacted in to law ten (10) years ago on April 22, 2010.
The Nigerian Content Development and Monitoring Board (“NCDMB”), which was established by the Local Content Act and mandated to implement the provisions of the Local Content Act, was, however, unable to celebrate its milestone 10th anniversary due to the current pandemic ravaging Nigeria and the world at large.
Guided by the above quote from a great son of Africa, Nelson Mandela, this Briefing highlight some of NCDMB’s impacts, in its implementation of the Local Content Act, on the Nigerian shipping and oil services sectors with a view to encouraging it do more in the days ahead.
Shipping & oil services highlights
Since its establishment, the NCDMB has been very active in driving Nigerian content, as set out in the Local Content Act, in the Industry. Set out below, are some of the initiatives which have benefitted the Nigerian shipping and oil services sectors:
Marine vessel utilisation scheme (the Scheme)
In 2013, the NCDMB issued the Marine Vessel Categorisation Procedure which subsequently established the Scheme.
The Scheme seeks to encourage construction of vessels in Nigerian yards, promote ownership of marine vessels by Nigerian entities, stimulate flagging and registration of vessels in Nigeria and deepen Nigerian manning of marine vessels.
Further to the Scheme, NCDMB issues, every quarter, a report on categorization of registered marine vessels providers in the Industry. The basis for categorization of marine vendors is the extent of their compliance with requirements and documents to be uploaded on the Nigerian Oil and Gas Industry Content Joint Qualification Content (NOGIC) – i.e. a databank of available capabilities which is the sole system for Nigerian content registration and pre-qualification of contractors in the Industry.
Under the Scheme, Nigerian marine vessel owners and vessels built in Nigeria are prequalified to participate in tenders based on a set of criteria established by the Board, thereby reducing the long period hitherto taken to pre-qualify vendors and ultimately shorten the cycle time for contract award in the Industry.
Failure, delay, and/or refusal on the part of any operator, project promoter, contractor or other stakeholders in the industry, to comply with the Marine Vessel Categorisation Procedure attracts sanctions from the NCDMB.
Nigerian content intervention fund (NCI fund)
In 2017, the NCDMB launched the $200 million NCI Fund, which is funded from the Nigerian Content Development Fund established by the Local Content Act. The NCI Fund is managed and administered by the Bank of Industry Limited (BOI) and it has products which offer, inter alia, attractive single digit interest rate and a maximum tenor of five (5) years.
Some of the products provided by the NCI Fund to the shipping and oil services sectors include:
(a) Asset acquisition facility: This is targeted at indigenous oil and gas production and services companies who intend to acquire rigs and marine vessels for use in the Industry.
(b) Loan re-financing facility: This is targeted at indigenous oil and gas production and services companies who intend to refinance performing loans advanced by commercial banks for asset acquisition (such as rigs and marine vessels) and indigenous oil and gas services companies with contracts from international oil and gas companies (“IOCs”).
In 2018, the first facility from the NCI Fund was advanced to BGAM Services Limited for the acquisition of a multi-role ballistic security vessel (with protective machine gun panels, electronic fuel monitoring system and deck command centre for security personnel) that would work with the Nigerian Navy to secure offshore oil and gas operations.
FPSO integration in Nigeria
With NCDMB’s intervention, the first onshore Floating Production Storage Offloading vessel (“FPSO”) integration facility in Africa, SHI MCI yard, was completed in 2016 at the Lagos Deep Offshore Logistics Base (LADOL), Lagos, Nigeria.
In 2018, a portion of the topside fabrication and integration of the largest FPSO in the world, producing two hundred thousand (200,000) barrels per day, the EGINA FPSO, was successfully completed in Nigeria at the aforesaid facility.
Following the success of the EGINA FPSO project, NCDMB has also prescribed that new projects, like the upcoming Zabazaba Deepwater project (being developed by Nigerian Agip Exploration Limited in partnership with Shell Nigeria Exploration and Production Company Limited (“SNEPCO”) and Bonga South West Aparo Deepwater project (being developed by SNEPCO), must carry out their FPSO topsides fabrication and integration in Nigeria.
NLNG Train 7 project
Sometime in March 2019, the Nigeria LNG Limited (“NLNG”) and NCDMB signed off the Nigeria Content Plan (with an estimated value of $1 billion) for NLNG’s Train 7 project.
In April 2020, the NCDMB approved the Nigerian Content Compliance Certificate (NCCC) and Approved Vendors Lists (AVLs) (which include all the likely Nigerian vendors, foreign vendors and community vendors for each scope of work) for the kick off of the Nigeria LNG Train 7 Project.
Under the Nigeria LNG Train 7 Project, some of the local content opportunities available to the Nigerian shipping and oil services sectors include procurement, logistics, equipment leasing, catering, insurance, hotels, office supplies and haulage.
Rig utilisation strategy
In December 2018, the NCDMB issued the Rig Utilisation Strategy with the purpose of providing the necessary incentives that will lower the barrier for entry and encourage Nigerian Companies to venture into rigs contracting and if need be providing the appropriate guarantees that will ease the acquisition of rigs and other technologies, services associated with rigs activities in the onshore, swap and offshore sectors of the Industry.
The Rig Utilisation Strategy supersedes the NCDMB’s earlier Offshore Rig Acquisition Strategy which did not record the desired outcome of increased ownership in rig assets.
6. Mediation of the Sea Trucks Group (“STG”) and West African Ventures Limited (“WAV”) Dispute
After two and a half years of a protracted commercial dispute, with dire consequential effects on the availability of key marine assets in the Industry, STG and WAV amicably resolved their issues following the intervention of the NCDMB and the National Petroleum Investment Management Services.
NCDMB’s pivotal role in the mediation of the dispute, which had taken on an international dimension, as STG was an international company and WAV a Nigerian company, was a clear marker to the international community that Nigeria was committed to protecting international investments notwithstanding the Local Content Act.
In January 2019, the Ministry of Petroleum Resources in conjunction with NCDMB, launched an initiative tagged “Project100” with the view to providing institutional and financial support to 100 indigenous oil and gas service companies offering seismic, marine, engineering and drilling services.
To date, NCDMB has selected sixty (60) beneficiaries of Project100 with the aim of developing them, in collaboration with the Nigerian national Petroleum Corporation (NNPC) and NAPIMS, into globally competitive actors that will create high impact in the Industry and Nigeria as a whole.
Recently, the NCDMB requested NLNG to consider Project100 beneficiaries and engage them, following NLNG’s assess of their capabilities, in the execution of its Train 7 project and other related services.
From the above, there is no gainsaying that the NCDMB has undertaking laudable initiatives towards the development of the industry, in its implementation of the Local Content Act, which enactment was in itself commendable. At this juncture, the NCDMB has climbed a great hill but as Mandela said, “there are many more hills to climb…. for the long walk is not ended.”
I therefore implore NCDMB to consider the following, as part of its 10-Year Strategic Roadmap which was issued in 2017, for the future:
(a) procurement of the removal, or at least a substantial reduction, of import duty paid on vessel acquisition and importation of vessel parts as well as steel for the repairs of vessel – these have a significant effect on the cost of acquiring and maintain vessels in Nigeria. This is further instructive as commercial aircraft and spare parts imported for use in Nigeria attract no import duty and Value Added Tax.
(b) procurement of longer tenors for contracts awarded for, the use of vessels, or provision of services, in the Industry. This approach has been proposed by some IOCs who believe same would reduce the need for tenders and encourage investment in asset acquisition by Nigerians.
(c) longer tenors (current tenor is 5 years) for loans obtained under the NCI Fund. Whilst the current tenor is a break from the mould, it is imperative for the NCDMB to note that the average tenor for ship acquisition facility for a new vessel, issued by commercial banks in leading international shipping centres, is between 8 to 10 years. This ties with the above proposition for longer tenors for vessel contracts.
(d) reduced interest rate for its intervention funds. Just as the NCDMB, in order to spur business continuity in the Industry following the COVID-19 pandemic, reduced the interest rate (from 8 percent to 6 percent) (as well as mortarium and tenor extensions) for loans already advanced by the NCI Fund, I believe the interest rate for the intervention funds can be fixed between 4 percent to 6 percent.
Afun is a leading commercial lawyer – experience includes, cross border advisory, financing (including leases) and claims in the Nigerian shipping & oil services and energy sectors