The Nigerian Content Development Fund, was established specifically to fund the implementation of Nigerian content development in the Nigerian oil and gas industry, by widening capacity of indigenous firms to firm their operations and ably participate and reap opportunities available in the industry, writes CHIKA IZUORA.
The Nigerian Oil and Gas Industry Content Development Act (NOGICDA), was promulgated in 2010, with the main thrust of increasing indigenous companies’ participation in the oil and gas industry, and as a consequence, boosting the industry’s contribution to the growth of the country’s gross domestic product.
The implementation of the law has been acclaimed to have attracted investments worth over $2 billion into the country, and created about 38,000 job opportunities. Section 104(1) of the NOGICDA established the Nigerian Content Development Fund, the NCD Fund, for the purposes of funding the implementation of Nigerian content development in the Nigeria oil and gas industry.
The Act provides that the source of the fund would be the one per cent deducted from the value of contracts awarded in the upstream sector of the oil and gas industry.
The Act further provides that the Fund would be managed by the Nigerian Content Development Monitoring Board (NCDMB) and employed for projects, programmes and activities directed at increasing Nigerian content in the oil and gas industry. The size of the NCD Fund is currently reported to be about $600million.
In accelerating the process the NCDMB and the Bank of Industry (BoI) July 2016, launched the Nigerian Content Intervention Fund with $100 million to be sourced from the NCD Fund. This initiative is geared towards addressing the paucity of funds, and the inability of Nigerian companies to access credit in the banking industry with the pool of funds placed under the management of the BoI, which would lend directly to qualifying players, under favorable terms.
Features of the NCI Fund include: eight per cent interest rate, long tenure of up to 10 years and single obligor limit of $10million, amongst others. The beneficiaries are expected to deploy the funds for the acquisition of fixed assets (machinery and ancillary equipment), meeting working capital needs, leasing of industrial and business equipment, and for the construction and acquisition of marine vessels.
The NCI Fund specifically covers contract financing for Nigerian oil service providers, contract financing for oil and gas community contractors and contract and loan refinancing for service companies that already have facilities with Nigerian banks.
Government in consideration of the volume of jobs in the sector and the challenges of funding, is working towards growing the Nigerian Content Intervention Fund to $1billion, through other financial institutions’ contributions.
Former Minister of State for Petroleum Resources, Ibe Kachikwu, had stressed the need to boost the Fund. “The Fund needs to be sizeable to finance big ticket items. We will work internally, first to get BoI to contribute its counterpart funding. I also expect the oil industry to contribute. I will like to see investment drives that will bring in foreign direct investments into this Fund,” Kachikwu said.
He also championed transparent disbursement, geographical spread and application to different segments of the industry as he canvassed that the Fund be applied in acquiring assets and businesses driven by cutting edge technology and not facilities that already exist in-country.
Kachikwu during his tenure canvassed for a target date when Nigeria would have 100 per cent in-country capacity to fabricate every input needed in the oil and gas industry, including Floating Production Storage and Offloading (FPSO)vessels.
Executive secretary of th NCDMB, Engr. Simbi Wabote, explained that the NCI Fund is a portion of the Nigerian Content Development Fund (NCDF) drawn from one per cent of all contracts awarded in the upstream sector of the industry.
He added that the Fund was the realisation of NCDMB’s efforts to address a persistent funding challenge that hindered capacity and growth of local service providers in oil and gas.
He stated that the Board had channeled its efforts into supporting the federal government’s drive to stop importation of petroleum products, adding that its strategic initiative was to achieve 100 per cent local fabrication of modular refineries being promoted by the government.
He said, “We have commenced discussions with Original Equipment Manufacturers and local fabricators to make this a reality. We have set aside areas in our oil and gas park for practical training on operations, maintenance and running of modular refineries as a sustainable business model and for fabrication of the units.”
Apart from supporting and building indigenous capacity in the sector, the Bank of Industry (BoI), which superintends the fund, BoI, had the belief that the NCI Fund would generate employment opportunities and create linkages with other sectors of the economy.
BoI loans normally attract single digit interest, but this is single digit in dollars which would have been difficult if the funds were not coming from NCDMB.
The bank had set up a team of experts who would handle loan applications professionally and to ensure it takes only 45 days between when the application was made and when it was confirmed whether the application would go through or not.
The Nigerian National Petroleum Corporation (NNPC), is comfortable with the initiative and had commended the Board for addressing the challenges that were experienced with the old model of the Fund.
Dangote Keys Into Project In August 2017, Wabote, announced that the agency had obtained all necessary approvals to relaunch the Nigerian Content Intervention Fund (NCI Fund) and had increased the pool available for lending to qualified oil and gas players from $100 million to $200 million.
This was to increase the opportunities for more deserving companies to benefit from the fund.
This came as Dangote Refinery said it would select competent Nigerian vendors that would participate in the construction of its plant from the Nigerian Oil and Gas Industry Joint Qualification System (NOGICJQS), the database of available capacities in the oil and gas industry managed by the NCDMB.
Dangote made the commitment at a technical meeting held between top officials of the company and the NCDMB at the refinery project site in Lekki, Lagos State. Dangote said it saw many advantages in patronising the local market, and that Nigerian companies would get the first right of refusal.
In the course of the collaboration Dangote assured he would procure anything that is available in Nigeria as there were several Nigerian content opportunities in the company’s refinery and gas gathering projects but that interested companies must submit competitive bids and have technical capabilities.
Because the project was a private investment, Dangote is placing emphasis on best quality anywhere in the world at the most competitive price. Dangote also would like local vendors to quote reasonable prices when bidding for industry projects, rather than believe that they would win jobs because of the Nigerian Content Act, irrespective of the cost in their quotations.
The Group engaged the services of some Nigerian companies on its fertiliser project, which had reached an advanced stage of development and was committed to do the same on the 650,000 barrels per day refinery project, which would be completed in time soon.
Wabote, whose agency is spearheading the local content drive promised that the agency would assist Dangote in the utilisation of the NOGICJQS database to ensure that it maximises the utilisation of local personnel, goods and services in the construction and operations phase of the project.
The Nigerian Content Act applies to every player in the Nigerian oil and gas industry and not just international companies. If Nigerian companies and investors procure everything from abroad then the essence of the Act will be defeated, Wabote said.
Wabote maintained that slight cost differentials between Nigerian and foreign vendors should not be an excuse to export jobs, stressing that the opportunity cost of creating employment for Nigerians, developing local capacity, retaining spending in the economy and engendering a safe operating environment for companies justifies any marginal cost of execution charged by Nigerian vendors.
He explained that Nigerian companies were affected by the high costs of funds and powering their operations with diesel generators, assuring them however that investments and initiatives by the federal government was already improving the power situation in the country.
He disclosed that the Board had obtained all necessary approval to relaunch the Nigerian Content Intervention Fund (NCI Fund), adding that the pool available for lending to qualified oil and gas players had been increased from $100 million to $200 million to ensure that more deserving companies benefit at the same time.
The executive secretary said the agency would ensure that about eight indigenous oil and gas service providers access the fund every six months to boost job creation in the sector. Wabote, observed that for many years, the oil and gas sector was not known to create many jobs.
He, however, explained that with the intervention fund, service providers in the sector would have the capacity to employ more hands, a development that would increase the workforce in the sector by creating additional jobs.
He said, “With respect to the Nigerian Content Intervention Fund, in the last one year, we have launched the $200million intervention fund for our Nigerian oil and gas service providers who are contributors to the Nigerian Content Development Fund. It may interest you to know that we have released the $200m intervention fund to the Bank of Industry for adequate disbursement.
“The intervention fund has all-in single digit interest rate of eight per cent for loans extended to Nigerian oil and gas service providers and an all-in single digit interest rate of five per cent for loans extended to community contractors. We will also ensure that the NCIF becomes fully operational and provide statistics of service providers and community contractors who have benefited.”
On compliance and enforcement of local content in the oil sector, Wabote explained that the third party firms that were being put in place would sharpen intervention monitoring and raise the alarm when necessary.
“We will put in place third-party outfits to enhance compliance monitoring in the upstream, midstream and downstream sectors of the industry, as well as sharpen intervention monitoring based on complaints and whistle-blower alerts,” he said.
He further stated that the NCDMB had expanded its operations to cover the midstream and downstream sector of the oil industry, adding that the agency was part of the NLNG business activities and was engaging Dangote Oil Refinery on local content matters.
Wabote added, “We visited Dangote refineries where we agreed on steps to involve more Nigerian companies with capacities for patronage by Dangote Oil Refinery in the development of the project to meet cost and schedule timelines.
“Similarly, a compendium of ancillary businesses required to sustain operation of the refinery is under development to support the operational phase of the huge 650,000 barrels/day refinery.”Speeding Process Of Accessing NCI FundIn 2019, NCDMB disclosed that indigenous oil and gas companies have already accessed 70 per cent of the Board’s $200 million local content fund. Having achieved that , the Bank of Industry (BoI) is expected to replenish the 70 per cent of the fund already accessed based on how the borrower firms are able to pay back the loans.
Applications from local companies for the remaining 30 per cent are still currently being accepted, after the initial disbursement. President Muhammadu Buhari, further confirmed the disbursement of funds from the $200 million Nigerian Content Intervention Fund to indigenous manufacturers and service providers in the oil and gas sector.
The confirmation was part of the president’s speech during his June 12, 2020, Democracy Day Speech. This is part of the federal government’s effort to boost indigenous participation in the oil and gas sector in order to continue to grow local content and invariably increase investment in the sector.
According to the president, ‘’We continue to grow local content in other areas of the oil and gas sector with the disbursement of funds from the $200 million Nigerian Content Intervention Fund to indigenous manufacturers and service providers.’’
As at July 2019, the Nigerian Content Development and Monitoring Board (NCDMB), which has the responsibility to manage this fund had disbursed about $160 million to local oil firms.NCI Fund Climbing The LadderThe governing council of the Nigerian Content Development and Monitoring Board (NCDMB) this year further approved the expansion of the Nigerian Content Intervention Fund from $200 million to $350 million.
The enlargement of the Fund by $150 million was part of the decisions taken at the recent NCDMB governing council meeting, which held virtually on June 16, 2020. The meeting was chaired by the Minister of State for Petroleum Resources, Chief Timipre Sylva, who is the chairman of the council.
The council approved that $100 million from the additional funds would be deployed to boost the five existing loan products of the NCI Fund, which include manufacturing, asset acquisition, contract financing, loan refinancing and community contractor financing.
Similarly, the council also approved that $20 million and $30 million respectively should be deployed to two newly developed loan product types – the Intervention Fund for Women in Oil & Gas and PETAN Products, which include Working Capital loans and Capacity Building loans for PETAN member companies.
The NCI Fund was instituted in 2017 as a $200 million Fund managed by the Bank of Industry (BoI), engaged to facilitate on-lending to qualified stakeholders in the Nigerian Oil and Gas industry on five loan product types. So far, about 94 per cent of the NCI Funds has been disbursed to 27 beneficiaries as at May 2020.
The NCDMB has received new applications from 100 companies for nearly triple the size of the original fund. Guidelines for the NCI Fund provide that beneficiaries of the Manufacturing Loan and Asset Acquisition Loan can access a maximum of $10million respectively.
Also, beneficiaries of Contract Finance Loan can access $5million, while beneficiaries of the Loan Re-financing package can access $10million, with beneficiaries of the Community Contractor Finance Scheme limited to N20million.
The maximum tenure for all loan types is 5 years and applicants cannot have two different loans running simultaneously.
At the onset of the Fund, the applicable interest rate for the various loan types was pegged at eight per cent except the Community Contractor Finance Scheme, which was five per cent.
However, in April 2020,as part of NCDMB’s response to mitigate economic impact of the coronavirus pandemic, the governing council approved reduction of the interest rate from eight to six per cent per annum for all four of the loan products. The Board also extended the moratorium for all loan products.