Indigenous oil and gas producers under the aegis of Independent Petroleum Producers Group (IPPG) have raised the alarm over the gradual exit of many leading international oil service companies from Nigeria due to the “strict” local content requirements in the nation’s upstream petroleum sector.
IPPG also asserted that the multiplication of local content levies such as the one per cent of total project costs paid by participants as Nigerian Content Development (NCD) levy and another three per cent charged for projects above $1million cost for conduct of local content training have significantly increased the overall cost of projects delivery in the country.
The Chairman of IPPG and Group Chief Executive Officer of Waltersmith Group, Mr. Abdulrazaq Isa, made the assertions, on Tuesday in Yenagoa, Bayelsa State, while delivering his goodwill message at the ongoing of the 12th Practical Nigerian Content (PNC) Forum, where he equally called for the review of local content policies to shore up in-country investments and enhance Nigeria’s competitiveness.
At the event theme: “Deepening Nigerian Content Amidst Divestments, Domestication and Decarbonisation,” Isa, whose speech was titled: “Nigerian Local Content in Action,” harped on the need to ensure that the country’s local content policies were constantly evaluated to make them continually fit-for-purpose and not counter-productive to long-term industry growth and cost targets.
He pointed out that the Nigerian oil and gas industry continued to face growing pressures to remain profitable and cost-efficient as it faced competition from other investment destinations.
He urged the Nigerian Content Development and Monitoring Board (NCDMB) to review certain aspects of the local content legislation that might potentially work against the competitiveness of Nigeria’s oil and gas sector in the global marketplace.
For instance, Isa complained of the human capital development training requirements wherein industry participants were required to set aside three per cent of project cost for projects above $1million to conduct local content training.
He stated, “While this is undoubtedly a laudable initiative, we must consider that it amounts to a multiplication of levies as industry participants are already equally required to contribute a separate one per cent of total costs as NCD levy.
“This invariably leads to higher project costs especially as the training is not allowed to be provided directly to company staff and service providers.
“Due to this and other contractual or administrative reasons, the process of complying with local content requirements has on many occasions proven to significantly increase the overall cost of delivering projects in Nigeria.
“Again, this unintended outcome requires some detailed review in order to ensure that we are not losing new investments to emerging investment destinations in the process of driving our local content agenda.
“Most critically, because of the strict local content requirements, we have gradually seen a reduction in the presence of leading international oil and gas service providers, many of whom are leaving Nigeria in droves.”
The IPPG Chair maintained that while Nigeria continued to prioritise local content development, it must recognise that international players have a key role to play in ensuring technology transfer and knowledge sharing that the local players could benefit from.
According to him, “You will agree with me that our local players still lack the requisite skills to adequately support our deep offshore operations and other specialised operations. Therefore, our recommendation is that ways should be sought to modify local content requirements to ensure that the industry remains globally competitive and sustainable.”
However, from the theme of this year’s PNC conference, Isa observed that a lot was happening in the oil and gas industry globally, noting that the industry was witnessing a transformational shift and thus continues to underscore the importance of repositioning Nigeria’s petroleum industry in the short to medium term.
He pointed out that the ongoing global energy transition, the widespread reforms across the domestic landscape, notably the implementation of the Petroleum Industry Act (PIA), the ongoing divestment of onshore and shallow water assets by the international oil companies (IOCs) and the Decade of Gas Initiative meant that exciting times were on the horizon for the industry as it was bringing with it immense opportunities for growth.
He said Nigerian oil and gas industry players must remain focused on rapidly and efficiently exploiting their vast hydrocarbon assets for the socio-economic transformation of the nation.
“It is therefore imperative for the industry to be efficient and look inwards in fully optimising these hydrocarbon assets for today and future generations. The faithful implementation of the NOGICD Act is capable of unlocking the nation’s economic potential and serving as an enabler for rapid industrialisation.
“The acceleration of in-country capacity utilisation, reduction of capital flight and in-country retention of a significant portion of industry spend will no doubt continue to expand the participation of the indigenous companies across the industry value chain and create linkages to the wider economy”, Isa stated.
He disclosed that the 5000 barrels per day Waltersmith Refinery located in Ibigwe, Imo State, has delivered its first dividend payment to NCDMB, paid off a significant portion of its project financing and commenced an expansion phase designed to double the refinery’s capacity to 10,000bpd in the next 18 months.
He added that the NCDMB’s commercial ventures partnership programme continues to stimulate investment and promote in-country capacity.
The IPPG boss admitted that the government’s effort in deepening local content in the Nigerian oil and gas industry was paying dividends.
He added that it was imperative that such effort be sustained with greater focus placed on bridging inherent capacity gaps; addressing infrastructural inadequacy and capital deficiency plaguing the industry at the moment in order to optimally derive the full benefits of the local content policy.