Local Content Should Add Value and Reduce Cost – Ene
Engr. Emeka Ene is the chairman of the Petroleum Technology Association of Nigeria, PETAN, the leading umbrella body of Nigerians in the oil servicing industry, and the Society for Petroleum Engineers, SPE Nigerian Council. He has always held the belief that Nigeria has a lot to gain with proper implementation of the Local Content Act. In this interview with Orient Energy Review at the just concluded Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC), Engr. Ene narrated some of the experiences of PETAN after 5 years of local content Act in the country. Excerpt:
PETAN has always been at the fore front in the struggle for local content in Nigeria, and today the Nigerian Content Act is about 5 years old after being passed into law by former President Goodluck Jonathan in 2010; do you think we have consolidated on its gains?
I think we have taken a major step forward but it has only opened up so many other opportunities. I think there have been significant gains; there are also challenges which have limited the ability to extract the full impact of what the local content story should be. One thing is that PETAN has always represented what we call value-added local content and is more significant during this downturn on what value-added local content really means. What it means is that when you think of growing capacity you term to look at the run targets, you terms to focus more on training people but after you train them then what? When you talk of growing capacity you should be talking about growing capacity of established Nigerian companies, you need to be strong in something, you need to build capacity and some basic fundamental streams of services in the industry, grow that capacity and it will attract the human resource and also create multiples of itself, that is what PETAN stands for. So what value-added local content means is that local content ultimately should hit the bottom line, local content should reduce the cost of projects, if it doesn’t reduce the cost of projects then you begin to question the value proposition in the first place. So Nigerian companies who have invested in real capacity, who are on the ground can deliver value in a tangible way, in a way which translates into cost saving. When you have a situation where the only example for local content is to balloon the cost of projects, then really it is not adding value and PETAN has always been against that, and that is why people come in with no experience, absolutely no track record and all they have is a piece of paper that say MOU or MOA or whatever means you call it and that qualifies them automatically to walk away with significant contracts at the expense of Nigerians who have made investments on the ground, that for me fly on the face of everything local content. You cannot simply say because I am a Nigerian therefore that automatically guarantees me work, or because I have the relevant connections therefore that guarantees me work. At the end of the day what happens? By the time that project is brought to a close, whether it is a well, facility, float station, FPSO, when you look at the numbers, you find out that the original budget has been overtaken by cost, you have wells drilled on land that cost as much as well drilled in deep water, because at the end of the day the numbers will add up and then people will want to have that as an excuse that it is because of local content, that thing is a lie, it is not true, real local content adds value, it reduces cost, it also leaves the residual competence in the country which you can expand and build upon, and that is what we are saying here, we saw it at the height of the Niger-Delta crisis where Nigerian companies were going where nobody else could trend, solving problems in pipelines, clamping and all sorts of that. Today, we should see it in that respect; there is no reason why a Nigerian company with relevant competence should be left high and dry at the expense of MOU (Memorandum of Understanding) or MOA (Memorandum of Association) with a multi-national which is not on the ground and all it happens at cost. If you deconstruct the QAQC supervision and all the packages whether for onshore, early facility or a deep water project you will recognise that the Nigerian component if is real value-added will save money because if you find somebody from Houston or Paris or Aberdeen in a round trip, paying him 3-4 times that cost when you can get a certified equivalent in Nigeria, it make sense to spot Nigerian companies who have been able to demonstrate track record and see that they have priority in terms of work and projects so that they can grow this business.
If local content is about adding value and reducing cost, do you think we have the capacity needed to carry out these projects?
You see that is a constantly re-occurring question. The reality is that most of the industry is driven by integrated packages. This integrated package is essentially what drives every single thing, for example, compressors, there aren’t so many compressors consumed in the industry, so why would I set a compressor plant when the industry can only consume a handful of compressors a year. So if it is for the oil industry, integration and integrated packages, compressor packages, chemical injection packages, and the expertise to do these things can be source in-country because the components come from all over the world and they are integrated into packages and that expertise to do that is the first step in leading to in-country manufacturing. If you want to go into nuts and bolts, yes you can manufacture that, but how many nuts and bolts can the industry consume in a year if you really want to do it right? So at the end of the day, focusing on packages and system integrators that are built upon existing experts that are in-country is a way to go to reduce cost. Of course, not in all cases will you see local content packages reduce cost, but when you give volume to a company, the company can give you lower cost. It doesn’t come automatically, when you give work to a company outside the country for example, that has no linkage here, the only reason they are able to give you a lower cost is because of the huge volume so they can give you a lower cost. So if you want to encourage Nigerian companies to play this game which our laws protect then give them volumes. A situation where you have 4-5 Nigerian companies and you scatter 5-10 percent of the job on them, and one or two multi-nationals work away with the best all because they have a bigger capacity. What PETAN has been doing is to push the idea of consortium, so in order to build capacity if we have 4 or 5 PETAN members, or 20 PETAN members in a particular areas and each one has complementary synergies and competencies, then bring them together as one group so that they can bid for larger quantum of the work so that every add value in their own ways, and the stepping stones of being able to deliver services is small or relatively smaller than if individually they have to run around signing MOAs and MOUs and trying to replicate and reinvent the wheel. We have a scenario where we have 4-5 companies; each one of them had MOU with the same multi-national company in the same market. Meanwhile, complementary wise if they bring their resources together, they can do a lot more work even among themselves. Of course, the challenges of the legal issues, commercial issues are there, but PETAN as a group has been working to create a legal template in which such consortium can grow without creating the problem of ballooning cost.
Recently PETAN started a partnership with Shell and Original Equipment Manufacturers (OEMs) to boost Nigerian content in the country, can you give us an update on that?
PETAN has had collaborative agreement with Shell, with ENI Agip, NCDMB, we are exploring similar agreements with Total, Chevron, and even with ExxonMobil, and we are engaged with the independent Nigerian producers on that same level. That is, synergistically we can create value in the industry by looking at all our common objectives and aligning those objectives to be able to create common competitive and value added environment where local content is not just seen as an obstacle that can be used or miss-used as the case may be. For Shell we have gone a step further to work with them on the OEM development programme. The OEM programme is designed to bring OEMs to Nigeria to actually do some manufacturing locally, of course, as PETAN we recognise that there should grow the cloud of system integrators, those are the people who actually add ultimate value to the industry particularly in big projects. And what we expect from this collaboration is that bringing the OEMs closer will also help to expand the system integrators who are PETAN members to be able to deliver quality services. This is the phase 1; we are expected to go into phase 2. PETAN has been championing the issue of industrial clusters, and PETAN is also championing industrial clusters where PETAN companies can come together and generate manufacturing and value added services within these clusters. Our first cluster which is not PETAN-owned in anyway, but just to encourage such activity, is in Kwale, where a marginal field company want to set up a refinery, another company wants to setup a power plant, and we expect other PETAN members to buy into that project to create an industry trigger that will help the whole concept of local content in a practical manner.
As a participant in this year’s ADIPEC, what does PETAN hope to benefit from this global show and in the Middle East region?
Well, the Middle East is an important region in the world; their oil industry is active and is significant especially during this downturn. PETAN is reaching out to the Middle East to create opportunities for Nigerian companies to compete. Nigerian companies are already in the region, some of our members are already in Kuwait, Yemen despite the problems, Saudi Arabia, Qatar, and Oman. It is of importance to note that there is a large community of Nigerians in Diaspora who work in this region. So the presence of PETAN has to be here to create these linkages for people to operate in the region. Conversely, the issue of capital has always been a challenge with the oil industry and oil service industry, and the appetite of our traditional source of income may not be as high to invest in the region with this downturn but PETAN is here to create the opportunity for Nigerian companies and for capital flows of investment into Nigeria. Nigeria is a very interesting place, there are lots of optimism about Nigeria from outside, and we have met a lot of people who are ready to invest in Nigeria, and PETAN presents such significant opportunity.
How would you rate PETAN’s participation in ADIPEC 2015?
We have seen an opportunity to engage, we have engaged in different level, we have had several interesting meetings, there have been a high interest in Nigerian booths specifically to ask how they can invest in Nigeria so PETAN provides that safe landing spots, we have also had some opportunities for our members to invest in the region, in that respect I will score it high. Beyond that PETAN is also examining the opportunity to establish in Nigeria, an OTC- like-ADIPEC sized event in Nigeria which I think is about time and PETAN is taking the leadership to partner with the government to ensure that it is not just a Nigerian event but an African event in Nigeria every year in which everybody is going to be coming to order to tap into the region.