Wednesday, June 27, 2012

LOCAL CONTENT IN NIGERIA: Ear of an Elephant or Head of a Chicken?

By Feso Bright

I recently had the privilege of attending the just concluded Federal Republic of Nigeria House of Representatives (Committee on Local Content) LOCAL CONTENT SUMMIT at Port Harcourt (25 - 26 June, 2012), Rivers State, Nigeria. The event was supported by the Nigerian Content Development Monitoring Board- headed by Engr. Ernest Nwapa and the Consultants to the event, Tandice-B Solutions- headed by Hon. Tam Brisibe and Hon. Daemi Kunaiya-Akpana who are industry pioneers in the mission to optimize Nigerian content development. This event was a natural progression from where the industry left off last October with the CWC Practical Nigerian Content conference. My eyes were further opened to the glaring need for Nigerian businesses to trend away from 'Chicken businesses' to 'Elephant businesses'. Let me explain.

The list of scheduled speakers can be found on this link if you click here --> .

Top of the agenda at the summit were the following areas of interest:
-  Operationalizing Local Content in the Power Sector, by the Hon. Minister of Power: Prof. Bart O. Nnaji, NNON, CON.

-  Developing a Local Content Agenda for the Communication Technology Sector, by the Hon. Minister of Technology Sector, Hon. Minister of Communication Technology: Mrs. Omobola Johnson.

-  Charting a course for Local Content, by the Honourable Minister of Petroleum Resources: Mrs. Dizani Alison-Madueke, CON.

-  Expanding the Local Content Frontier: A Roadmap for Industrialization, by Executive Secretary, Nigerian Content Development and Monitoring Board : Engr. Ernest Nwapa

-  Operationalizing Nigerian Content: The IOC Perspective, by Managing Director- Shell Petroleum Development Company: Mr. Mutiu Sunmonu

-  Operationalizing Nigerian Content: International Comparative Analysis and Success Strategies, by Managing Director- Association of Caribbean Energy Specialists Limited

-  Challenges of Indigenous Shipping under the CABOTAGE and NOGICD Acts, by Director-General- Nigerian Maritime Administration and Safety Agency: Mr. Ziakede Patrick Akpobolokemi

-  Enhancing the Capacity of Indigenous Oil and Gas Companies, by Executive Director- Pillar Oil Limited: Mr. Seye Fadahunsi

and last but not least:

-  Way Forward: Local Content Critical Success Factors & Action Plans for Delivery in Nigeria, by  Chief Executive Officer, OildataWireline Services Limited and President -PETAN: Mr. Emeka Ene

The Issues
Unfortunately I was only able to attend day 2 of the event due to prior engagements but I MUST
 ADMIT, Day 2 felt like I was in the front seat of the Nigerian Content Revolution...!!!! You did not want to miss a moment of this significant industry event. Here we had the House of Representatives taking the initiative...the proverbial 'bull by the horn' and leading the discussions with the full participation of the private sector; with a communique to be adopted subsequently. Way to go!!! Various punch-lines and issues surfaced. We had speakers who decried the state of Analysis Paralysis and Analysis Fatigue in Nigeria concerning local content. Others wondered if Nigeria has a productive/ appropriate educational system. 

Quite interestingly, the banks were hammered squarely for being grossly insensitive to the indigenous companies in Nigeria- bleeding to death and entering into cash-flow oblivion every passing day. A genteman from one of the old generation banks apparently had the effrontery to direct the "aggrieved industry operators" to visit the Corporate Energy, Oil and Gas desks in banks. He had the nerve to suggest that the reason for the funding woes of the indigenous operators is because they have been approaching the 'retail banks and branches' rather than the  Corporate Banks. Suffice it to say that the near ruckus vibration across the hall suggested that an unarmed crowd is always a safe crowd; this position was clearly not tenable to the audience. Fortunately for the previous gentleman, another banker stood up much later to state the case for the Nigerian banks: stating his institution's impressive credentials in supporting five marginal field operations to first oil and numerous rig acquisitions. He outlined the nature of fund-sourcing for the banks themselves; to thrive in an economy where banks survive on multiples of 30-day liabilities (short-tenored funds) in some cases and to be expected to lend for periods in excess of 5 to 10 years may be bordering on the realm of the extraordinary. So...whither way out? 

Reforms or private initiatives by IOCs using their buyer-power to force through some change perhaps. Left to some IOCs the Nigerian banks would rather wait for windfalls than take the bull by the horn and look for lasting solutions to the funding predicament facing contractors and engineering companies in the industry. How many bankers are sufficiently trained to handle upstream, engineering service-type transactions anyway; what is the orientation for these bankers: a quick-win liability with the occasional 'absolutely and infinitely secured asset creation' granted to a blue-chip- ultimately leading to lovely appraisals for relationship managers and healthy profits for the banks OR a long, winding road to profits- sticking it in with the oil services companies, struggling with these companies to get through the rigorous work completion cycles, heavy sunk cost requirements and very long payback periods? The incentive systems currently will continue to create a divergence of results till there is some serious real collaborative, cross-industry approach to the financing challenges.

Crux of the Matter
I heard an expression at that event and it has the potential to become the new local content mantra in my view: " is better to be the ear of an elephant than the head of a chicken...". A delegate at the summit alluded to the fact that many indigenous companies are not faring well because they choose to weather the harsh business terrains of Nigeria alone. This reasoning particularly appeals to my strategy-thinking. How best to deal with your business context- evolve, adapt, survive and thrive or engage in speculative corporate existence of sorts; one in which your major business strategy is to HOPE to stay alive for just one more day? How does this work out? Some engineering service companies will never, never, ever, ever........ get a deal from Eni Agip, Mobil, Shell, Total and the others....not because life is not fair but because they just do not stand a chance when competing in an industry with extremely competitive, tedious, occasionally distorted and highly unpredictable tendering cycles. The porters 5 forces are strong in Nigeria as well. What are the chances for small companies to survive in such a harsh operating environment? 

Chicken Enterprises VS Elephant Enterprises
To make matters worse in Nigeria, for the neutral observer, there appears to be a trend in which almost everyone who runs an engineering services company is the CEO of ''NOTHING". Technical partnerships have become the in-thing and portfolio companies in the corridors of power have severely distorted efforts to even give some of these small organizations with some appreciable competence a chance to prove their mettle. As such, life for the average small-sized engineering and oil services firm is nasty, brutish and often-times short: Lack of funding, lack of capacity to deal with project over-runs and endless tendering cycles, lack of adequate expertise, all sorts of challenges. This position is not to argue against the development of SME's in-country however there is the case for the adoption of  collaboration and cooperation as a way-forward. Many business men simply do not care about the place of Strategic thinking in business. What is wrong with a couple of small engineering firms merging, setting up joint ventures, special purpose vehicles and generally cooperating to win bids? Why remain the Chairman/woman and Managing Director of a 'Chicken Enterprise'?  In order for Nigerians to maximize the benefit of 'Nigerian Content' industry analysts are beginning to recognize the need for Nigerian technical and commercial bids, corporate enterprises to demonstrate the strength, capacity and tenacity of the elephants. It is high time we start to develop 'Elephant Enterprises' in Nigeria. The case of Shebah Exploration and Platform Petroleum readily comes to mind.

 Platform Petroleum Limited and Shebah Petroleum Development Company combined   in 2009 as a Special Purpose Vehicle (SPV) for the acquisition of 45% Interest in Oil Mining Licenses 4, 38 and 41 in a  Sales and Purchase Agreement (SPA) with Shell, Total and Eni. With this combination came access to onshore acreage in Western Niger Delta covering about 2,, with 30 Wells and a production capacity of approximately 50,000bbls of Oil equivalent per day. Notwithstanding the fact that Shebah and Platform Petroleum still retain their 'stand-alone' operations they have by the Seplat effort provided an example of the synergies and strategic advances achievable with what I describe as the 'Elephant Company mentality'- one in which two or more hitherto CEOs of 'Chicken Companies' ( i.e companies with a higher opportunity cost of operating and doing business alone) can negotiate, build bridges and collaborate on corporate strategic imperatives. Shareholdings and power may be unequal but ultimately, the shareholders and stakeholders win. To buttress our point we find that  Maurel & Prom, a French Independent energy company, subsequently acquired a 45% equity in Seplat while Shebah E &P & Platform retained 55% to maintain Seplat’s indigenous status. Maurel & Prom has a track record in E & P Operations in Gabon, Republic of Congo, Tanzania and Colombia. Elephant businesses are attractive and this combination has definitely put Seplat in good stead to tread Nigeria's stormy business waters. 

The Home-run
The goings-on at this Local Content Summit have been far from mere political rhetoric, in my view. The Nigerian content issues are complex and present a strong challenge to this prolific oil-producing nation. Speakers have come and gone; positions have been made- some in agreement with the subsisting Nigerian Content Act and some challenging sections or seeking to improve them. Overall, the resolve towards progress appears immutable. One of the summit presenters shared some hope- Dresden in Germany was completely destroyed in the second world war; but was completely rebuilt in about forty-five years and is standing tall today. Nigeria's oil and gas industry is replete with 'Chicken Companies'- not a bad thing in itself- but they must transit to 'Elephant Companies'- to give Nigeria a fighting chance at improving its industrial, fabrication, technological and general capacity in oil, gas, energy, maritime and relevant sectors of the economy. Nigeria badly needs some competitive advantage and Nigerian Content Development is a strong route towards attaining such a status. As Seye Fadahunsi (Executive Director- Pillar Oil) succinctly put it on the day: "East or West, home is BEST...!". As a business you may not have the capacity to be an 'Elephant company'. Would you rather be the ear of an elephant or remain the head of a chicken? Be the best you can be for Nigerian Content Development. Ear of an elephant....ear of an elephant?

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