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www.thomas-douglas.com 1
09 June, 2014.
Speech by Nimi Godfrey Erekosima,
Principal Partner @
Thomas Douglas Nigeria Limit...
www.thomas-douglas.com 2
SLIDE 7
I will make my presentation with the following learning goals
(1) We will be introduced t...
www.thomas-douglas.com 3
Thirdly, most fabrication work are done onshore and then loaded out sometimes in modules to
offsh...
www.thomas-douglas.com 4
SLIDE 11
Let us now have our brief lesson on the history of the Nigerian content.
Oil and gas act...
www.thomas-douglas.com 5
SLIDE 14
Moving on … In order to identify the relevant NC strategies applicable in the offshore
c...
www.thomas-douglas.com 6
SLIDE 17
The focuses of the strategies applicable to the construction category are:
(i) Training ...
www.thomas-douglas.com 7
(v) The Nigerian Content Equipment Certificate (NCEC) and the
(vi) Nigerian Content Development F...
www.thomas-douglas.com 8
Considering the negatives:- the impact on the GOP comparing pre- NC 2009 and post NC
2013 has bee...
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Part2 Presentation by Nimi Erekosima of Thomas Douglas Limited at the Subsea Vessels Africa Conference

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Part2 Presentation by Nimi Erekosima of Thomas Douglas Limited at the Subsea Vessels Africa Conference

  1. 1. www.thomas-douglas.com 1 09 June, 2014. Speech by Nimi Godfrey Erekosima, Principal Partner @ Thomas Douglas Nigeria Limited. At the Subsea Vessels Africa Conference, Labadi Beach Hotel, Accra, Ghana. SLIDE 2 Once upon a time there was a couple who had been married for over 30 years without a child. SLIDE 3 Then one day the man left his wife and went on a sojourn around Africa looking for answers. SLIDE 4 After a few years he came back with a love child and asked his beloved wife to take care of the child as she would her own. The child‟s name was local content. SLIDE 5 Would she accept the child? As an indigenous local contractor Thomas Douglas is very interested in the dynamics of this marriage because the full acceptance of local content would greatly impact our success in ways that I would highlight here today. I want to thank the organizers of this Subsea Vessels Africa Conference here in the breathtaking Labadi Beach Hotel in Accra, Ghana. It is truly an honor to be here. I am a young Chief Executive who would try to impress you with my presentation therefore I implore you to laugh and clap hysterically when I try to be funny…Thank you. SLIDE 6 My chosen topic is “Local Content Strategy on Implementing Construction Plans” with the three sub topics namely (1) Understanding the content rules involved in offshore construction, (2) Capabilities needed and required in the industry and, (3) Cost mgt and critical aspects of the offshore construction project.
  2. 2. www.thomas-douglas.com 2 SLIDE 7 I will make my presentation with the following learning goals (1) We will be introduced to the fundamentals of offshore construction (2) We will able to define the Nigerian content Policy (3) We will learn a brief history of the Nigerian local content (4) We will identify the Nigerian content strategies applicable in the offshore construction industry (5) We shall then view critical aspects of a construction project through the concept of value addition (6) Finally we shall conclude by examining the impact (both positive and negative) of Nigerian content with my T E S T recommendations. SLIDE 8 Offshore construction could be divided into three major categories: (1) Platform construction (2) Offshore Pipe laying and, (3) Major maintenance modification of existing facilities. I have also included a fourth category which is the construction of onshore support facilities such as maintenance workshops, pipe mills etc. No construction work is possible offshore without the use of offshore support vessels SLIDE 9 Let‟s now look at the characteristics of offshore constructions: - They are capital intensive – with figures like $250m for the construction of a subsea manufacturing complex or $3b for the Egina FPSO. Offshore construction projects place a high premium on Quality, Health, Safety and Environmental concerns, with the lives of personnel and high cost of production at stake, first- rate mitigation strategies are being employed to tackle design, construction and operational risks.
  3. 3. www.thomas-douglas.com 3 Thirdly, most fabrication work are done onshore and then loaded out sometimes in modules to offshore locations for installation and hook-up activities. This strategy reduces exposure to risks associated with logistics and geohazards. Fourthly, with obvious geological and logistical constraints, working offshore demands innovative skills in project planning, work sequencing as well as specialized skills in operating ROVs and DP vessels Favorable weather is needed to perform lifting and installation activities offshore. The race to first oil means that operators often fight to use identified preferred vendors and suppliers even with the advent of local content. Finally assuming you were not swallowed by any of the big fish above; of course the rewards could enormous not only in financial terms but also technology transfer. SLIDE 10 Now that we have an understanding of what offshore construction entails, let us now examine the Nigerian content by starting with the definition: it is the quantum of composite value-added or created in the Nigerian economy through the deliberate with utilization of Nigerian human and material resources in the provision of goods and services in the extractives industry without compromising on QHSE. So why is the definition important you may ask? It is important because it helps us remember why we need local content; how to achieve local content and how to know when we have achieved it. The essence of local content is value-addition to the local economy: In this instance, value addition means; Development of Individual and Business capacity to international standards and the Retention of capital in the local economy to stimulate the economy, it also means Linkages to local institutions such as training centers, legal institutions, financial institutions, manufacturing, R & D etc.
  4. 4. www.thomas-douglas.com 4 SLIDE 11 Let us now have our brief lesson on the history of the Nigerian content. Oil and gas activities started way back in 1936 when shell-Darcy was given the concession to explore all of Nigeria for oil. However it wasn‟t until after the Nigerian Civil war in 1969 that the Petroleum Act was promulgated wherein Regulation 26 advocated the employment and promotion of Nigerians into top level managerial positions. SLIDE 12 In 1971 the NOC (Nigerian National Oil Corporation) was established and later merged with the ministry of mines and steel to form the Nigerian National Petroleum Corporation (NNPC) in 1977 with a duty to protect Nigerian interests by acquiring strategic assets and also retaining significant portions of the oil and gas derivatives. Nothing much happened in the 80s and early 90s due to slow global economic growth. Mid 90s saw resurgence of significant oil and gas activities and with it violent agitations by host communities for greater share of the dividends of oil and gas activities in their domain. You may remember the Ken-Saro-Wiwa saga of 1995. SLIDE 13 Fast forward to 2010, after years of anticipation the Nigeria Oil and Gas Industry Content Development Act was passed and signed into law by President Goodluck Ebele Jonathan. The NCDMB was also established outside of the NNPC, with a mandate to set up policies and guidelines of implementing the NOGICDA. Highlights of the act include (i) Giving indigenous companies exclusivity on land and swamp activities (ii) Right of first refusal for licenses, oil blocks & contracts (iii) Interested multinational companies were to invest 50% of the assets in their Nigerian subsidiary (iv) A Nigerian company defined as being 51% owned by Nigerian (v) NCDMB reserved the right to impose fines for non-compliance (vi) Operators and contractors were to remit 1% of the sum of all contracts to a central NCDF
  5. 5. www.thomas-douglas.com 5 SLIDE 14 Moving on … In order to identify the relevant NC strategies applicable in the offshore construction industry, let us observe the STRATEGIC MANAGEMENTCYCLE. Strategic mgt begins with the question “Having seen the future we desire, how do we create it?” It is divided into the strategic planning and strategic implementation phases. During the planning phase, we do an appraisal of our current capabilities vis-s-vis our targets, then do gap analysis and come up with action plans. While during the Strategic implementation phase we restructure our organizations /sector to achieve the set goals. It ensures that resources are effectively deployed and performance monitored and evaluated objectively. SLIDE 15 Consequently the NCDMB launched the Nigerian Oil and Gas Industry Content Joint QS in the 2nd quarter of 2012 to gather and manage data in relevant areas. These areas stated here are relevant to the offshore construction industry. They include: Marine Vessels Ownership data, Contract Processing data, Equipment Ownership data, NC Compliance Certification data, and the Training & Employment data etc. These captured data are then used to formulate plans such as the Marine Vessels Ownership Scheme (MAVOS), the Nigerian Content Employment Initiative (NCEmI) and so on. SLIDE 16 According to the current appraisal, Nigeria has achieved about 90% target in the provision of engineering design of offshore facilities. Under fabrication and construction category the targets range from 50% for topside process modules and 100% for pipeline systems & risers. In the maintenance/modification category NC target ranges from 45% with subsea systems and 90% for platform maintenance Finally for moving the support vessels category, moving services has a 100% target and 45% for FSU. Still under this category hook-up and commissioning services has a 75% man hour target, and 55% for dredging services.
  6. 6. www.thomas-douglas.com 6 SLIDE 17 The focuses of the strategies applicable to the construction category are: (i) Training and employment of Nigerians (ii) Promotion of indigenous ownership of marine assets such as offshore support vessels and rigs and (iii) Establishment of key facilities such as pipe mills, dry docks, topside integration facilities etc. Let us also agree that successful implementation requires the collaboration of all stakeholders from regulatory bodies to the operators, to the indigenous contractors and their foreign technical partners. SLIDE 18 The first focus area is on Training & employment. This strategy is four pronged as shown (i) Industrial attachment on on-going projects. (ii) NCDMB direct training of host communities on environmental remediation and on construction skills. (iii) Identified institutions get upgraded into oil and gas Training Centers of Excellence (TCES). (iv) The fourth prong is the monitoring of the expat quota where every position held by an expat must have a Nigerian understudy for seamless succession. SLIDE 19 On implementation candidates load their documents unto the joint qualification system where NCDMB evaluates and categorizes the vessels and vendors for engagement in the industry. The NCDMB also collaborates with Nigerian Maritime Admin and Safety Agency (NIMASA) to enforce the cabotage law on coastal & inland shipping. Other Nigerian content strategies that impact the construction industry include (i) Equipment components manufacturing initiative (ECMI), (ii) Original Equipment Manufacturer Strategy (OEM), (iii) Offshore Rig Acquisition Strategy (ORAS), (iv) Nigerian O&G Industrial Park Scheme (NOGIPS),
  7. 7. www.thomas-douglas.com 7 (v) The Nigerian Content Equipment Certificate (NCEC) and the (vi) Nigerian Content Development Fund (NCDF). These strategies seek to encourage foreign manufacturers to set up shop in country and take advantage of the opportunities, while the NCDF is expected to guarantee funding to local contractors to own critical assets. SLIDE 22 I define a project as a business decision implemented in order to convert and opportunity into an asset which creates value to its owners. The key word here is “value” and the first step is to understand what „value‟ is to the project stakeholders. These values which are the objectives of the project must be optimized throughout the oil and gas value chain, critical aspects of the project must be considered through the eyes of „value addition‟. The value of the asset must be maximized across the project constraints using tools and techniques such as, lean construction, life-cycle costing, value engineering, and earned value management. Value also takes different forms depending on the phase in the project life-cycle, at initiation we talk about „value articulation‟, at execution we „optimize value‟ and at the end of the project we document „lessons learnt‟ which we take onto the next project. Finally, these objectives should be cascaded down the project team hierarchy. SLIDE 23 So when managing the processes of cost which includes estimation, budgeting and control, value for money principles instead of the traditional cost saving mechanisms should be employed; the cheapest route isn‟t necessarily the best route. Cheap tin no good and good tin no cheap. Consider the lasting effect of every decision you make. SLIDE 24 How has these NC strategies impacted local offshore construction industry? It has improved employment according to statistics with over 40 thousand Nigerians employed in 3years. It has increased the desire of and actual ownership of marine assets. It has retained about 50% of the nations annual $20b spend and Aided linkages to other sectors of the economy.
  8. 8. www.thomas-douglas.com 8 Considering the negatives:- the impact on the GOP comparing pre- NC 2009 and post NC 2013 has been negative i.e. from 17.8% to 14.4% respectively; of course this is expected short term but with wider acceptance and implementation the story will change. Also in the short term NC increases the cost of construction projects. This should happen when the tested procurement routes are abandon for newer local suppliers therefore contingency costs applied would impact the cost baseline. Lastly LC by nature protects local goods and services thereby going against the principles of international free trade. However local industries need to be developed in order to achieve trade balance SLIDE 25 In conclusion to whole hearted acceptance of NC by this family means more work for the local contractor today we are constructing new pipe mills, new vessels, an industrial park etc. We are also guaranteed better access to funds through the NCDF, and our staffs are being better trained. SLIDE 26 All these must be done in T E S T manner. Timely manner – the world is looking to other sources of energy and with increased global exploration more fields are getting discovered. Effective manner – focus more on manufacture which accounts for 54% of the total DC of offshore construction projects, Establish Enterprise Development Centers to position businesses to meet international standards Strategically focus on the big picture as a robust NC will eventually benefit all stakeholders. Transparent collaboration between stakeholders especially with the passing of pending regulations such as the PIB will increase overall investment in the sector. THANK YOU

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