NNPC to Enforce Content Act, Revises Oil Lifting Guidelines

Tanker vessel

A major breakthrough has been recorded in the efforts to enforce compliance with the Nigerian Content Law by oil and gas operations, as the Nigerian National Petroleum Corporation (NNPC) has finally reviewed the 2012/2013 crude oil lifting guidelines to comply with the Act.

The NNPC was accused by local operators of acting above the law when it deliberately issued 2012/2013 guidelines for crude oil lifting contracts to favour foreign contractors, prompting the intervention of the Nigerian Content Development and Monitoring Board (NCDMB) and the Presidency.

But following our report, which prompted the intervention of the NCDMB and the Presidency, NNPC at the weekend issued new guidelines to conform with the Nigerian Content Act.

Under the new guidelines, the NNPC adopted part of the 2011 rules, which required that the contractor must show evidence of yearly turnover of $500 million; minimum net worth of $100 million; and investment in the upstream sector to increase national oil reserves and production capacity.

In the previous guidelines, the NNPC had required that each applicant would pay a $5 million deposit before buying the first oil cargo, but this deposit has not only been reduced to $2.5 million in the latest guidelines but would also form part payment for the first cargo.

Also to ensure that the guidelines comply with the Act, interested applicants are now required to provide commitment from prospective shippers to lift Nigerian crude, “that a minimum of five slots per cargo shall be set aside for ocean-going attachment of Nigerian cadets for the purpose of obtaining international certification”.

“Interested applicants must submit a Memorandum of Agreement with shippers demonstrating a credible strategy to grow Nigerian equity in the tankers nominated to lift allocated Nigerian crude to 25 per cent by 2014 and 90 per cent by 2017. It should be noted that evidence of Nigerian equity in the nominated tankers prior to conclusion of the process shall give trader competitive advantage,” said the guidelines.

The new guidelines also require interested applicants to submit a detailed Nigerian Content execution strategy to the satisfaction of the NCDMB, clearly setting out Nigerian Content commitments for subcontracting in some selected areas of the economy.

These areas include insurance and legal services; banking and financial services; training and capacity building and cargo inspection and survey.
A local operator, who spoke on the new development on condition of anonymity at the weekend, expressed appreciation to the Federal Government for “calling NNPC to order”.

  We had reported that the Federal Government might be forced to cancel the earlier guidelines issued by the corporation as it violated the Act and would have effectively excluded local companies from the crude oil lifting contracts.

Before the intervention of the Presidency, the NCDMB had directed NNPC to cancel the initial guidelines but the spokesman of NNPC, Dr. Levi Ajuonuma, insisted that the guidelines had come to stay, adding that it was meant “to separate the boys from the men”.

Some local contractors had threatened to challenge the guidelines in court, alleging that the Group Managing Director of NNPC, Mr. Austen Oniwon, had pitched his tent with foreign contractors by making the conditions too stringent for the local companies.

The NNPC had complied with the Nigerian Content Act in the 2011 tender, as it required participants to show evidence of compliance with the Act before being considered eligible for lifting Nigerian crude.

The 2011 guidelines also required applicants to show evidence of yearly turnover of $500 million; minimum net worth of $100 million; and investment in the upstream sector to increase national oil reserves and production capacity.

Other requirements were: evidence of investment in the downstream projects, refining, petrochemicals, distribution and storage of petroleum products, gas utilisation projects; Independent Power Projects (IPP); and readiness to invest in railway.

But in what would have ensured that indigenous companies with massive investment in Nigeria were disqualified in the initial tender for 2012/2013, the NNPC excluded investments in the country as part of the criteria and also jacked up the yearly turnover and net worth to $600 million and $300 million respectively.

Also, in what would further ensure that the scheme favoured mostly foreign contractors with very deep pockets and easy access to international capital, the NNPC had also provided that each applicant would pay a $5 million deposit before buying the first oil cargo.

Swiss-based Vitol, Glencore and Amsterdam-based Trafigura are some of the foreign traders that would have been more favoured if the first guidelines had succeeded.

  We gathered that it is only in Nigeria that foreign traders buy directly from national oil company as most crude oil exporting countries prefer to deal directly with refineries.