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NNPC: Local content’s place in multi-million dollar contracts

About 96 foreign and local firms have begun the battle to secure contracts for the rehabilitation of pipelines, depots and terminals of the Nigerian National Petroleum Corporation (NNPC). ADEOLA YUSUF, in this report, examines the important role local content should play in the award and execution of the contracts

 

Group General Manager, Group Public Affairs Division of the Nigerian National Petroleum Corporation (NNPC), Dr. Kennie Obateru, broke the news. Ninety six prominent and reputable companies from various jurisdictions have indicated interest in undertaking the rehabilitation of the NNPC downstream infrastructure ranging from critical pipelines to depots and terminals through the Build, Operate and Transfer (BOT) financing model, Obateru declared in a statement he personally signed and made available to journalists.

The corporation confirmed this at a virtual public bid opening exercise, which held at the NNPC Towers, Abuja, for the pre-qualification of companies for the contract.

The public opening of the bids for the contract was in keeping with the NNPC management’s commitment to transparency and accountability in all its processes and transactions.

An insight for the bid

Speaking at the event, the Managing Director of the Nigerian Pipelines and Storage Company (NPSC), Mrs. Ada Oyetunde, disclosed that the exercise was in conformity with the mandate of the Federal Government to prioritise the rehabilitation of critical downstream infrastructure across the country.

She listed the facilities that would be rehabilitated by successful bidders to include critical pipelines for crude oil supply to the refineries and evacuation of refined products, depots, and terminals, stressing that the objective is to get them ready to support the refineries when they become operational after their rehabilitation.

“An open tender for pre-qualification of interested companies was published in August 2020 in the national dailies, for the rehabilitation of NNPC downstream critical pipelines and associated depots and terminal infrastructure through Finance BOT to cover the 4 lots namely: Lot 1: Port Harcourt Refinery related infrastructure, Lot 2: Warri Refinery related infrastructure, Lot 3: Kaduna Refinery related infrastructure and Lot 4: System 2B related infrastructure,” Oyetunde stated.

The NPSC boss said that the BOT arrangement would provide a reliable pipeline network and automated storage facilities for effective crude feed, product storage and evacuation from  the nation’s refineries post-revamp through an open access model and charge market reflective prices and tariffs to recover the investment.
Infrastructure concession

Earlier, the Group General Manager, Supply Chain Management, Mrs. Aisha Katagum, commended the Infrastructure Concession Regulatory Commission (ICRC) and the Bureau of Public Procurement (BPP) for providing guidance for the project and assured the bidding firms of a fair, equitable and transparent selection process.

On hand to observe proceedings at the public bid opening exercise were representatives of the ICRC, BPP, the Nigeria Extractive Industries Transparency Initiative (NEITI) and Civil Liberties Organisations (CLOs).

Highpoint of the event was the display of the 96 companies that submitted bids for the rehabilitation projects.

The OPEC angle

While this is ongoing, Nigeria suffers 28.17m oil barrels production shut-in in 90 days as OPEC output embargo on the country and others takes effect on Q1 production.

This came as output ceiling placed on the country by Organisation of Petroleum Exporting Countries (OPEC) began to take effect on Q1 production.

A document of OPEC obtained by New Telegraph at the weekend showed that the cartel had upheld its December 3, 2020 decision to increase crude oil production output by 500,000 barrels per day for February and March, 2021.

The plan will, however, see Nigeria cut production by an additional 313,000 barrels per day in adherence to the resolution, with reference production set for the country by OPEC put at 1.829 million barrels per day in January, February and March.

“The required production per month will be 1,516 million barrels per day, a reduction of 313,000 barrels per day for each of the months,” he document showed.

In the 90 days of January, February and March, the 313,000 barrels daily reduction in production will, according to checksby New Telegraph, amount to 28.17 millon barrels.

It added that Russia and Saudi Arabia had a reference production of 11 million barrels per day respectively, but will only be allowed to pump 9.1 million bpd for the period under review.

 

 

OPEC directed its members and allies that have not fully complied with the output curbs agreed upon in April when the prices of some grades of oil in the international market became negative, to submit a compensation plan by January 15.

Tuesday’s decisions came after an intense two-day meeting of the OPEC+ on whether or not to stick with the plan of returning another 500,000 barrels per day of production to the market in light of fresh lockdowns amid the coronavirus surge.

The cartel failed to arrive at a decision on Monday because while Russia and the United Arab Emirates (UAE) insisted on the 500,000 bpd increase in production, Saudi Arabia, Kuwait and Algeria reportedly pushed to leave production unchanged.

Local content angle

Going back to the contracts fir the rehabilitation of pipelines, depots and terminal, every observer of event expected the contract to be geared towards the local content development.

The Nigerian Oil and Gas Industry Content Development (Local Content Act) 2010 was enacted to promote the indigeneous participation in the Nigeria’s oil and gas industry for the purpose of improving the economic and social well being of those engaged in operating in the oil and gas industry.

The Act provides for the development of Nigerian content in the Nigerian oil and gas industry, Nigerian content plan, supervision, coordination, monitoring, and implementation of the Nigerian content.

The Act stated the requirement of any company or organization that intends to operate in the Oil and Gas Industry in Section 2 of the Local Content Act, which states that “all regulatory authorities, operators, contractors, subcontractors, alliance partners and other entities involved in any project, operation, activity or transaction in the Nigerian oil and gas industry shall consider Nigerian content as an important element of their overall project development and management philosophy for project execution”.

 

The Act defines Nigerian content in Section 106 as “the quantum of composite value added to or created  in Nigeria through the utilization of Nigerian resources and services in the petroleum industry resulting in the development of indigenous capability without compromising quality, health, safety, and environmental standards.”

The sole purpose of the local content is to increase Nigerian participation in the oil and gas industry by prescribing minimum thresholds for the use of local services and materials for the promotion of technology and skill to the Nigerian labour in the oil and gas industry.

The Local Content Act is a vital instrument that empowers Nigerian companies to contribute tremendously towards the development of the Nigerian economy by encouraging value addition, job opportunities, and furthermore the award of different oil contracts and undertakings. In fulfilling this objective, Section 4 of the Local Content Act established the Nigerian Content Development and Monitoring Board (hereinafter referred to as ‘the Board’ or ‘NCDMB’), which is vested with the responsibility “to make a procedure that will guide, monitor compliance by operators, coordinate and implement the provisions of the Act within the industry.
NCDMB and power on contracts

The Local Content Board is empowered to execute its duties under the Act to ensure that all provisions contained in the Act are complied with.

For the purpose of the Local Content Act, Nigerian Company was defined in Section 106 of the Act as “a company formed and registered in Nigeria in accordance with the provisions of the Companies and Allied Matters Act with not less than 51 per cent equity shares by Nigerians.”

The general obligations applicable to operators, participants, and activities taking place in the oil and gas industry are contained in Sections 3, 7, and 11 of the Local Content Act. While the Local Content policy objectives imposed on transaction and projects are set out in Section 3 of the Local Content Act which provides that “(1) Nigerian independent operators will be given first consideration in the award of oil blocks, oil field license, oil lifting license and all project for which contract are to be awarded in the Nigerian oil and gas industry.”

There shall be exclusive consideration to Nigerian indigenous service companies that demonstrate ownership of equipment, Nigerian personnel, and capacity to execute such work to bid on land and swamp operating areas of the Nigerian oil and gas industry for contracts and services contained in the Schedule to this Act.

Compliance with the provisions of this Act and promotion of Nigerian content development shall be a major criterion for the award of licenses, permits, and any other interest in bidding for Oil exploration, production, transportation, and development, or any other operations in Nigerian oil and gas industry

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