Nigeria Plan To Retain $14bn Yearly In-Country Oil Industry Spend

The eventual takeoff of disbursement of the $200 million Nigerian Content Intervention Fund (NCIF), is a major policy implementation that will see the country bring down significant capital flight in the oil and gas sector, writes CHIKA IZUORA. The disclosure by the executive secretary of the Nigerian Content Development and Monitoring Board (NCDMB), Simbi Wabote, of disbursement of the $200 million Nigerian Content Intervention Fund (NCIF) brings a huge relief to local oil firms who have had to grapple with challenges of accessing funds to execute jobs in the industry which is highly capital intensive. Eyes Of Lagos gathered that, The NCDMB and the Bank of Industry (BoI) last year endorsed a Memorandum of Understanding (MoU), on the implementation of the $200 million Nigerian Content Intervention Fund (NCIF). The MoU, is significant for the oil and gas industry and the Nigerian economy because the NCI Fund has been long expected which is expected to go a long way in addressing the funding challenges which hamper the growth and success of indigenous manufacturers, service providers and other key players in the sector. At the launch of the Fund, minister of state for petroleum, Ibe Kachikwu, observed that over the years, Nigerian companies had found it difficult competing with their counterparts from jurisdictions where funding was accessible for 5 per cent or less as compared to Nigerian market where bank lending rates hover around 20 per cent. Some Nigerian banks are still unable to provide long-term financing required by the local supply chain to build needed capacity and the banks also lack sufficient knowledge of the oil and gas sector, of which the pedigree and operating model of the Bank of Industry (BoI) is expected to close this gap. The exorbitant cost of funds in Nigerian market is partly responsible for the high cost of service delivery by Nigerian Oil and Gas Service Providers (NOSPs) and this feeds into the unacceptable high cost of our crude oil production, Kachikwu said. The NCI Fund is a portion of Nigerian Content Development Fund (NCDF), which was established by Section 104 of the Nigerian Oil and Gas Industry Content Development, NOGICD, Act and is drawn from 1 per cent of all contracts awarded in the upstream sector of the oil and gas industry. Although the board began in 2012 to collect the funds, it has not been very successful with utilising it to support the operations of indigenous service companies in the industry and this has created a lot of frustration among stakeholders who felt that the purpose of the NCDF was not being achieved. The governing council of the board, approved the transaction with an initial outlay of $200 million which is to ensure that a wide spectrum of NOSPs access the Fund, and the board is also desirous of catalysing the growth and development of Nigerian content in all its facets, including manufacturing, asset acquisition, contract financing and contract financing for community contractors. The governing council’s approval is also in keeping with the Economic Recovery and Growth Plan of the Muhammadu Buhari- led administration, which recognizes access to cheap funds as a key enabler for industrialisation. Disbursement of the fund falls within the 10-year strategic plan, through which the board hopes to create over 3,000 jobs in the country, including indirect employment. The executive secretary explained that since the Local Content Act was enacted in 2010, the oil and gas sector had witnessed growth in terms of fabrication activities locally. According to him, prior to the enactment of the act, “out of the about 20 billion dollars, which the Industry spends in its annual activities, less than 3 per cent remained in the country,” adding that with the implementation of the Act, the trend has been reversed with major chunk of industry budget spent in-country. He explained that the aspiration of the Board in terms of its 10 years strategic plan was to have up to $14 billio out of the about $20 billion spent within the country annually, adding that over $5 billion has already been achieved due to policies of the Board. The executive secretary pointed out that the critical success factor of the Board had been the implementation of the Act itself. Wabote said, “The Act has been very critical to the success we have achieved. Prior to now, we practised what we call poles in terms of local content implementation.” Wabote further disclosed that one of the major impediments for most Nigerians in the oil and gas sector was high interest rates which between 15 and 26 per cent. He said the NCDMB, working in partnership with stakeholders; the sector came up with the type of facilities that involved a large range of funding up to $10 million with a single digit interest rate of only 8 per cent. He said, “But aside from that we also have a facility for contract financing for those that have short term contracts to access up to $15 million at the rate of 8 per cent.” Wabote explained that for community contractors, they can access up to $20 million with an encouraging interest rate of 5 per cent that can span up to five years. Currently the Board has received about 100 applications, while three companies he revealed, have accessed the fund. Realising the difficulties experienced by indigenous firms in accessing the fund, the NCDMB, with its partner the Bank of Industry (BoI) have also announced relaxation some of the conditions for accessing the $200 million Fund by qualified oil and gas service companies. The new step was agreed upon at a stakeholders’ meeting convened by NCDMB and BoI, in Lagos recently to address the major challenges applicants face in processing their loan applications. The forum was chaired by the executive secretary of NCDMB, Simbi Wabote, and the managing director of BoI, Mr. Olukayode Pitan, and it drew the participation of 84 delegates from different companies. Both the NCDMB and BoI agreed that “Bank of Industry may consider the inclusion of insurance bonds as collateral for accessing the fund, provided the bonds are issued by competent and major insurance companies qualified by the bank.” There was consensus that BoI should accept other forms of collateral outside of bank guarantees, which are listed against each loan type and applicants that have unencumbered collateral acceptable to the BoI can access the NCI Fund loan without recourse to bank guarantee. A key resolution is that an applicant can access loans for two different categories or product types, subject to the applicable single obligor limit under the scheme. The NCDMB would also consider increasing the single obligor limit for Refinancing from $2m to between $5m and $10m, particularly because many companies that attended the forum have such needs. It was also agreed that there would be no discrimination between international oil companies and national oil companies, rather the history and performance of the Nigerian oil companies would be considered by the BoI when taking a decision. The BoI also committed to standardise the conditions for obtaining bank guarantees from each commercial bank and this shall be issued to each applicant at the point of application to guide and speed up their pursuit of the document. As part of efforts to ease access to the NCI Fund, BoI would no longer insist on appointing a director on the board of borrowers; but would rather place an officer to monitor the project financed by the loan.