Nigerian local content policy begins to yield results

Sep 26, 2001 02:00 AM

Nigeria and crude oil have been synonymous since 1957 when multinational giant, Shell discovered the product in commercial quantities at Oloibiri, Rivers State. For the greater part of the last four decades, the Nigerian oil industry was dominated by the globally recognised major oil companies in aspects ranging from exploration to production, refining and trading. Even core downstream operations were initially controlled by Shell, Esso and BP, then later by Mobil, Texaco, Total, Elf and Agip.
The service industry was not left out with foreign giants Halliburton, Schlumberger, Tidex and a host of others holding sway. Early intervention by the government to breach the monopoly of the foreign firms saw Shell relinquishing control of the 30,000 bpd refinery in Port Harcourt (PH) as well as their stake in the downstream retailing outfit later named National Oil. Others affected where BP and Esso in AP and Unipetrol respectively.
These exercises as well as the granting of independent marketer licenses to local investors in 1977 paved the way for the entrance of indigenous players in the oil industry. Today, out of the eight major oil marketers in Nigeria, three are wholly indigenous and are competing actively in the area of their core business and diversification drive. Indeed, these companies have demonstrated that given the opportunity, indigenous players can perform as efficiently as their foreign counterpart.

The granting of license to local investors as independent marketers has today culminated in the local operators, owning and managing tank farm or fuel depot. Specifically, about 10 indigenous companies under the auspices of Depot and Petroleum Products Marketers Association (DAPPMA), have storage facilities that compete favourably with ones owned by the major players.
Since 1996, for example, government has initiated a policy where 40 % of contract in the joint venture operation of the multi-national companies in the upstream are reserved for local oil service companies. Though this initiative has not received the legal teeth for its enforcement, the idea in itself has given impetus to an association of Nigerian indigenous technical oil field companies in the up and downstream sectors of the industry.
Already, government local content policy has begun to yield results. This year alone, companies like Relentech, Filco, Drillog, Petro Dynamics, Hexagon Petrol Services, Weafri and Sowsco have benefited from Chevron Nigeria joint venture contract in drilling and other related activities. More indigenous oil service companies are also securing good contracts from other joint venture operators.
As the country's democratic culture is further entrenched, experts expect that policies that will ensure more participation of local players in every facet of the oil industry will be evolved and executed. This submission is indeed evident from the various policy reforms being carried out by both the executive and legislative arms of the government.

As can be seen so far, most of these policy reforms are designed to enhance further participation of local operators as well as ensuring that oil and gas businesses are done in line with international business ethics. Perhaps the government has no alternative than to toe this line.
Experts are agreed that indigenous players have more than demonstrated that given the opportunity, they will live up to expectation. For instance, the indigenous explorers, under the auspices of Nigerian Association of Indigenous Petroleum Explorers, (NAIPEC), have made a mark in the industry as they contribute about 150,000 bpd to national output currently and are even about to improve on this figure.
The performance of these independent players is expected to be further enhanced by their partnership with the multinationals in the deep offshore concessions and the ongoing process of allocating marginal fields in the Niger Delta Basin to indigenous companies. While oil industry watchers commend the government's move to encourage more indigenous players in the upstream sector, they have, nonetheless, contended the indigenisation policy should be total rather than selective.

For example, in crude oil term sale and purchase contract, the indigenous operators are being edged out thereby leaving the field wide open to establish and foreign companies to continue to dominate the sub-sector. Until very recently, the few Nigerians that actually took part in the business of crude oil sale were content to act and remain middle men and appeared to be only interested in collecting the commission that goes with the lucrative business. For these misguided though privileged Nigerians, crude oil sale only provided an avenue for easy money without giving anything back to the industry.
It was largely due to these commissioned agent's greed and short sightedness that the authorities became discouraged from encouraging Nigerians as players in this vital sector thereby leaving the field wide open for such established and big traders as Glencore, Addax, Acardia, Vitol, Shell AG, Attock Oil, Nova Greece, Verment etc. But experts have cautioned that the government should avoid the temptation of throwing away the baby with the bath water.

The point being made is that there are Nigerian oil traders who have been carrying out their business with strict compliance with the rules and regulations of the trade. Oil industry analysts, for instance, readily recall that before the privatisation of the oil marketing companies in which government had stake, Ocean and Oil as well as Conpetrol, indigenous oil traders, were involved in oil trading and played according to the rule of the trade.
The contention really is that it was the experience they acquired as oil traders that stood them in good stead while bidding for the companies in which they are today core investors. Government policies do not look like they are tailored towards encouraging indigenous oil trade companies that may be willing to do genuine business, grow gradually and attain international status.
For instance, since 1998, guidelines for crude oil lifting in Nigeria have been deliberately fashioned towards encouraging only big players who are not necessarily more ethically complaint than the small players. To lift crude in Nigeria, the would be lifter is expected to own and run a refinery anywhere in the world, have a minimum annual turn over of at least $ 100 mm (N 10 bn) and net worth of not less than $ 40 mm (N 4 bn).

The prospective trader will also be expected to demonstrate commitment to contribute to the development of the nation's oil industry or any other sector of the economy. While most foreign companies may end up satisfying the strict financial requirement put in place, some through claims that are not necessarily totally correct, the fact remains that no foreign oil trader has practically demonstrated any commitment to developing the nation's economy like small time players like Ocean and Oil and Conpetrol have demonstrated.
The point being made is that the Nigerian government, since it has the largest volume of exportable crude oil (about 57 % of national output) owes it a duty to evolve a set of guidelines that will make it possible for genuine, honest and dedicated local traders who want to lift the nation's crude oil to do so.
And it is not as if such companies are not existing at the moment. Ocean and Oil and Conpetrol earlier mentioned are typical examples. Another promising indigenous player is Sahara Energy Resource. This company which, by industry's rating, has demonstrated competence and expertise in the way it has handled the crude oil supply to neighbouring Ghana and similar oil businesses with other African countries has shown that it means business and that it is in this business to make a mark. This position it has further demonstrated with the acquisition of its own vessels with which to transport petroleum products globally.

It is only when the government encourages serious oil traders like Sahara Energy and others that Nigeria can be said to have started the journey towards taking control of the vital sector. In fact, it must be clear to the government that it is such companies that will grow in stature, resources and expertise and be in a position to play key roles in other facets of the oil industry such as refining storage, distribution and sale of refined products in the years ahead.
It is from these indigenous companies that are prepared to play according to the rules of the game that Nigeria's future Total, Agip, Glencore, Addax, Shell and Esso/Mobil will emerge. The government should have its stringent conditions for lifting the nation's crude oil but should be such that it will accommodate genuine local players.
Even when such local players have been accommodated they must be closely monitored to ensure that the opportunity is not abused and that they give back to the industry and, indeed, the nation that has offered them every chance to grow. Failure to live up to expectation should earn such companies instant sanction.
In essence, the contention here is that since government appears interested in promoting local participation in the oil industry, the existing policies, such as the one on crude oil sale term contracts should be overhauled to protect the interest of Nigerian operators; the policy of local participation in the industry should be holistic and not selective. It must accommodate genuine Nigerian players totally.

Source: The Guardian Online
Alexander's Commentary

Change of face - change of phase

In the period of July 20 till August 3, 2015, Alexander will be out of the office and the site will not or only irreg

read more ...
« February 2020 »
1 2
3 4 5 6 7 8 9
10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28 29

Register to announce Your Event

View All Events