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High costs of executing contracts by local firms hobbling IOCs

The observed drop in oil and gas activities linked to sustained downward trend in global oil prices has been traced to be the reason for dullness in local content growth in the sector.

The Nigerian Content Development & Monitoring Board (NCDMB) said the scenario has forced International Oil Companies (IOCs) to seek reduction in the cost of executing projects by indigenous oil firms.

This is the Lagos Deep Offshore Logistics base (LADOL), is currently playing host to the fabrication of $3.8 billion oil and gas logistics service facility commonly known as the Floating Production Storage and Offloading (FPSO), otherwise called the Egina project.

It would be recalled that IOCs in the wake of the oil price crash had directed indigenous contractors’ to cut costs by at least 50 per cent; a development the firms said was suicidal to their businesses.

Explaining issues during a courtesy visit to Niger Dock in Snake Island, Lagos, the Executive Secretary of NCDMB, Simbi Wabote, said the low oil price regime had forced many oil companies to embark on cost-cutting strategies.

He said “The call for reduction in the cost of executing projects is not peculiar to the Nigeria oil environment. This is what is being done everywhere around the world. Companies are trying to survive the tough oil environment and it will in no way affect the quality of project executed”.

While promising that the Board will continue to protect the interest of indigenous operators and the implementation of the local content policy in the country, Wabote revealed that the Board is planning to expand local content projects in the country, with strategic partnerships with the IOCs, noting that “Before 2010, local content services in Nigeria were attaining three per cent, but since 2010 the attainment has increased to over 20 per cent.”

Responding, the Director, Corporate Affairs, Jagal, Joy Okebalama, said Nigerdock the company would continue to work towards the development of the Nigeria content initiative having injected well over $500 million has been invested in infrastructure at Snake Island, Lagos.

She described Niger Dock facility as a World Bank/Federal Government project, privatised in 2001, and acquired by Jagal in 2003, adding that Nigerdock is the first privately owned free zone that is 100 per cent Nigerian, with all the full free zone benefits.

Corroborating Okebalama’s presentation, the Managing Director, Ladol, Amy Jadesimi, said “LADOL has come to prove that real local content actually lowers cost because one of the excuses that people give for not complying is cost. But if you look at what happened in Brazil, Norway and even China that have carried out real local content, where everybody complied, you actually have cheaper cost of doing business.”