Nigeria: Local Content to Crash Oil Production Cost - NCDMB

10 December 2019

The Nigerian Content Development Monitoring Board, NCDMB, has allayed concerns that its plan to grow local content implementation in Nigeria by over 70 per cent by 2027 would hamper the directive by the Federal Government to operators in the oil and gas sector to crash crude oil production cost by at least five per cent.

Minister of State for Petroleum Resources, Chief Timipre Sylva, had consistently harped on the high cost of production of crude oil and gas in Nigeria compared to its peers in the Organisation for Petroleum Exporting Country, while he directed operators to ensure a reduction in the cost by at least five per cent.

Addressing newsmen at the just concluded 9th Practical Nigerian Content seminar in Yenagoa, Bayelsa state, Executive Secretary of the NCDMB, Engr. Simbi Wabote, argued that on the contrary, local content implementation would bring about a sharp decline in the cost of production and boost returns on investment in the medium to long term.

He noted that initially, the investments required by operators to promote local content might be high in the first instance, stating however, that subsequently, the cost would crash considerably.

He said, "As a matter of fact, local content will only accelerate a reduction in cost of production. In the next couple of weeks, we would talk a lot more about Train 7 and what local content has been able to do to drive cost down.

"There are loads of examples of companies that have reduced their cost of production as a virtue of patronising local contractors. Chevron is one of them. In one of their big projects with Marine Platform, there were able to reduce the cost by as much as 40 per cent, which is much more beyond the five per cent.

"You just take even the issue of expatriates in many operating companies versus Nigerians. You would agree with me that your salary today, that of the expatriates would probably be 10 times that of yours. Getting you to work for them, instead of the expatriates, would reduce cost.

"There is no gainsaying that local content does reduce cost. Yes, in certain instance, there has to be an initial investment which may probably be high, but continuously, it comes down low.

"Another example is the integration facility that we have today in Lagos by Samsung, which was built on the back of Egina. In the next project, if they want to integrate in Nigeria, almost about $300 million would be saved in building that kind of facility for integration.

"The ultimate and ripple effect of local content is to reduce cost at the end of the day. It very much fits into the issue about cost reduction."

Wabote further stated that the Board had recorded significant success in the operation of the Nigerian Content Intervention Fund, NCIF, insisting, however, that the conditions for accessing the fund would remain stringent to discourage unqualified borrowers.

He said, "As at today, Bank of Industry, BOI, is approaching NCDMB, requesting additional funds, because with the approvals that they have, they have already exhausted the funds.

"One thing that you need to be wary about is that if you take the statistics of failed loans with commercial banks, it is quite enormous and when people saw this funds, as usual with Nigerians, they thought it was free money and they wanted to use the same process with which they collected money from the banks which they could not pay, to access this fund; we said no, because this is a revolving loan where others would benefit from. You must go through the stringent requirements in order to access the fund.

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