Lagos — As the government floats several policies and implementation committees on increased local content input in the oil sector, Energy Correspondent SOPURUCHI ONWUKA, here, observes that a fresh holistic approach is the only option.

USING Nigeria's oil wealth to grow and develop the economy has been the theme of series of industry summits and official policies. Nonetheless, depending on the forum, strategies have been evolved on how to deploy the nation's huge dollar earnings from crude oil export in providing growth incentives for other sectors of the economy that are operated not exclusively by indigenous players but also foreigners in the local environment.

So far, two strands of the same issue have been evolved in both the oil and gas sector and the overall fiscal structure. Whereas the ministry of finance and economic planning is occupied with strategies of harnessing oil money to build savings that will guarantee future fiscal stability, the ministry of petroleum resources in collaboration with the Nigerian National Petroleum Corporation (NNPC) has been relentless in pursuing domiciliation of oil industry and ancillary activities in the country.

Therefore, the local content policy that promotes sourcing of materials and services internally is part of the broader macro-economic process of reversing Nigeria's resource curse manifesting in the inverse relationship between the country's growing dollar earnings and its worsening internal economic development profile.

Local content input in Nigeria's oil and gas industry has remained a subject of heated debate since the present administration came to power probably because of the conscious economic reform efforts that seek to empower the private sector to drive the nation's economic development. Otherwise the issue had remained in oblivion 25 years after its first appearance as an industry policy in 1969. Since then, local content has undergone several notional mutations as successive governments redefined it to match different economic programmes.

These definitions, observers noted, appeared to had always been modified to the pleasure of foreign oil multinationals whose activities in Nigeria's oil and gas sector for over three decades now have failed to grow the capabilities of other sectors of the economy to make relevant inputs in the money spinning oil exploration and production activities.

At series of recent workshops on the subject, stakeholders agreed that the level of Nigerian content in her oil and gas exploitation activities was unacceptably abysmal and identified the need to maximally disperse the potentials of the industry within the economy to strengthen the nation's economic base and stimulate sustainable and measurable national development.

The local content policy also trails the strategy of not just to source industry inputs form the domestic environment but specifically to directly involve Nigerians and others across the real sector in the domestic environment in meeting the service and material needs of the oil and gas sector.

This way, patronage and the associated huge dollar expenditure will flow down and across the economy in forms of increased economic activities and proportionate rise in gross domestic product (GDP) and per capita income.

For instance, the Nigerian oil and gas industry spends an annual average of whopping seven billion dollars or N998 billion, nearly equal to the federal budget, but less than two per cent of the whole money, except salaries to Nigerians on the joint venture staff, trickles down the economy. This simply implies that the country has failed in the past 38 years to produce sizeable materials and services required by the industry.

Multinational firms operating Nigeria's different production agreements readily point at the high percentage of Nigerians on their staff to explain their sensitivity to host country objectives. They argue, most logically, that high absorption of indigenous labour will facilitate technological transfer, local capacity building and exposure to wider industry trends.

But the crucial questions seek to know how these salaries to Nigerians on the staff of these companies have yielded growth effects on the economy, how the staff structure has benefitted indigenous firms and contractors, and how the employment of these Nigerians has domiciled industry services and material inputs in the local environment.

On its own, the government readily points to allocation of marginal oil fields to indigenous companies, granting of innumerable other licences to indigenous operators in the upstream, midstream and downstream petroleum sectors as laudable efforts it has made in addressing the imbalance.

Again, the crucial question remains the effectiveness of these incentives. For instance, none of the marginal field owners has taken effective steps at developing them, neither are there cheering news that licensees of private refineries in the country are busy with construction projects.

This amply raises the issue of distinction between local content and local fronting as drawn by the Director of Petroleum Resources, Mr. Mac Ofurhie.

Mr. Ofurhie, in his speech at a recent NAEC event, called for evolution of a reliable parameter for measuring local content and local fronting for foreign companies, adding that existing proposals for joint qualification system was needed in the industry to separate the wheat from chaff.

Another question is the reason why local companies and contractors appear reluctant to seize the opportunities offered by the government incentives to launch into the high yield upstream business.

In a paper he presented at the NAEC seminar, the managing director of Nigerian Agip Oil company (NAOC), Mr. Danielle Bertorelli, pointed out that "the sector has a high capital and material absorptive capacity, harbours some of the best trained and productive manpower in the nation, and has demonstrated efficient operating and management systems."

There is hardly a better way to declare that Nigeria should first build the local capacity to produce the required materials, strengthen the finance sector, raise education quality in its institutions and dismantle official corruption and ineptitude before rolling out discretionary licences to incapacitated indigenous companies.

Mr. Ofurhie acknowledged this in his paper when he stated that the indigenous companies that benefitted from the 1992 Discretional Allocation Policy were unable to muster the required competence, thereby attracting justifiable criticism against the policy.

Another industry need so far neglected by the government is the high level manpower required to deliver the meticulous services needed in the high precision industry.

After several failed attempts to foist Nigerian graduates on oil companies for employment, Mr. Ofurhie, in the recent presentation, called on Nigerian tertiary institutions to" strive proactively to improve their curricula to reflect the actual needs of the Nigerian oil and gas sector."

The external affairs manager of Shell Nigeria Exploration and production Company (SNEPCO) Nigeria Limited, Dr. Eddie Wikina, had at another local content seminar decried poor job delivery by local companies, pointing out the risk of compromising industry standards for increased local content input.

This issue of poor job delivery integrity of indigenous companies can only arise from poor execution capacity especially in terms of funding the procurement of the right materials and services.

This problem was also amplified by DPR's Mr. Ofurhie when he stated his fears over the ability of the beneficiaries of the marginal field allocation to "surmount the excruciating financial challenges to start work on the allocated fields and meet our collective expectations."

Before the current recapitalisation process in the banking sector, Mr. Olukayode Pitan of the energy finance unit of FSB International Bank had said at an industry workshop that the Nigerian banking industry was too weak to support the huge capital investments in the oil sector.

He had however recommended indigenous players in the industry to seek syndicated loans from offshore banks through Nigerian commercial banks.

Perhaps the most critical challenge to the local content policy, industry players have consistently pointed out, is the near complete absence of manufacturing capacity in the local economy. They say that even most of the nuts and bolts used in coupling equipment are bought offshore.

According to the managing director of Amni International petroleum Development Company Limited, "even when companies are willing to patronise the Nigerian local market, the goods are not available.

The oil industry in India is for all intent and purposes non existent, yet they manufacture drilling rigs in India."

He explained that "importing finished products is not local content." Amni, an indigenous exploration and production company, had to co-opt foreign partners to develop its IMA fields in order to muster the technology, funding and materials required to meet all industry standards.

However, out of the total cash expenditure of $400 million spent on the project, less than $20 million was spent in Nigeria!

The MD said "the answer can be found in the fact that none of the equipments used in the drilling, completing, and field production infrastructure was manufactured in Nigeria."

The instruction impinging most powerfully from the foregoing analysis is that the goods and services to be absorbed by the Nigerian oil and gas industry must first be available in the local environment, must meet industry standards, and must satisfy operators' needs for them to form the cross sectoral bridge expected to grow the economy.

Although the Presidential Adviser on petroleum and Energy Matters, Dr. Edmund Daukoru, has in one one of his papers, stated that government was pursuing increased local content input through bilateral cooperations with some countries and establishment of special committees locally, these efforts can only yield very limited goals if there are no inputs to absorb.

It is therefore crucial to point out at this point that challenges facing local content input in the petroleum sector are safely lodged in every other sector outside oil and gas. The education sector must be aligned with the nation's peculiar economic needs; businesses in the country must be provided access to funds at low single digit interest rates; while the steel industry must be remodeled to embrace high precision fabrication and moulding of industrial parts.

Most importantly, the local environment must be made more investor friendly by addressing sundry infrastructural deficiencies, official corruption and high security risks. This way, the full value of local content will not only satisfy industry needs and completely domicile every activity in the country, it will also attract oil related service firms to invest in the country as additional value since local content goes beyond the individual to include all players in the local environment.