Simon Kolawole: Local content policy – Deconstructing Samsung’s $3.1 billion oil contract

by Simon Kolawole

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 But I am excited by matters of local content. I am. I care a lot about how Nigerian companies are faring in the oil sector  not just because they are Nigerian but also because we need to create jobs and retain some of the wealth gushing out of the oil industry. What shall it profit us to generate billions of dollar every year from the oil sector and only a pittance goes into locally-owned companies? 

Has this ever occurred to you? When we discuss oil in Nigeria, we are always concerned about the budget benchmark and the international prices of crude oil.  Well, that is all we can see with our short sight. That is the reason state finance commissioners gather in Abuja every month in the name of Federation Account Allocation Committee (FAAC) to share the national cake. All the fuss about revenue allocation, resource control and fis cal federalism is based on the figures coming out of FAAC meetings. We hear of billions and go berserk. Even much of our interest in the “missing” $20 billion is based on what could have gone into the federation account and shared by the three tiers of government.

Why, I ask, do we care less about other happenings in the oil sector which are equally important  or even more important? The other aspects of the oil industry are just not attractive enough for discussion. They neither arouse our common curiosity nor excite our senses the way earnings from crude oil sale do. They are rather too boring. We care little about issues such as how much of the multi-billion dollar activities in the oil sector actually benefit Nigerians. We hardly bother about how many Nigerians and Nigerian companies are being economically empowered by our natural resources. We worry not about how much capital grows wings and flies abroad because our own people are tactically and institutionally excluded from the real wealth in the sector.

But I am excited by matters of local content. I am. I care a lot about how Nigerian companies are faring in the oil sector not just because they are Nigerian but also because we need to create jobs and retain some of the wealth gushing out of the oil industry. What shall it profit us to generate billions of dollar every year from the oil sector and only a pittance goes into locally-owned companies? What shall it profit us to hand over our lives to foreign companies while Nigerian-owned companies lose their souls? These questions pounded my heart once again when I read a story in ThisDay last week on the dispute between shipbuilding giant, Samsung Heavy Industries (SHI) of South Korea, and a Nigerian company, LADOL.

It is a very long story but this is the summary I could glean from it: in order to win a major contract for the construction of an offshore oil production facility in Nigeria, Samsung needed to partner with a Nigerian company as required by law. It chose LADOL. It then won the $3.1 billion contract for the construction of a Floating Production Storage Offshore (FPSO) vessel for the Egina deep-water oil field development. When completed, the field will have the capacity for 200,000 barrels per day, one of the nation’s biggest. Part of the agreement was that Samsung would do a legacy project, in this case the upgrade of the fabrication and integration facilities at LADOL. This is part of the Nigerian Content Law aimed at empowering Nigerian companies in the oil sector.

The long and short of the story, as we say here, is that Samsung has now decided to handle the fabrication and integration in – just guess where – South Korea! The excuse? It would save them $500 million and you wonder when they discovered this fact. They also spiced up their strategy with a threat that the project would be delayed by 10 months and you wonder again when they discovered that. These guys are smart. Now that they have the $3.1 billion contract in the bag by partnering with a Nigerian company as required by law, they are trying to be clever by half. They know what such a fabrication and integration contract means to the economy of Korea. They would rather plough $214 million into the Korean economy. They would rather create 200,000 jobs in Korea than in Nigeria.

I care about these things because I know what such a loss means to the economy, the private sector and the development of Nigeria.

One of the biggest achievements in this democratic experience is in the area of local content. Four years ago, President Goodluck Jonathan signed the bill into law and the story has changed positively. When the Executive Secretary of the Nigerian Content Development and Monitoring Board (NCDMB), Mr Ernest Nwapa, was highlighting the achievements sometime last year, I was very encouraged. Many Nigerian companies, hitherto on the margins and struggling to survive, have gained expertise and improved capacity since the law came into being. For the first time in our history, Nigerian flag is flying high in the oil sector, especially in technical services and engineering.

According to Nwapa, over $200 billion worth of procurements and nearly $10 billion worth of research and development (R&D) used to be sourced to North America, while technical services  valued at nearly $80 billion and $39 billion worth of engineering works were done in Europe. The Nigerian Content Act meant $191 billion investment was now being retained in-country and hundreds of thousands of jobs in manufacturing, engineering, sciences and technical services could be created in a matter of years. This, I would say, would be more beneficial to Nigerians than the billions of dollars being shared by FAAC every month. The FAAC one goes into government coffers from where we are not allowed to peep into what they are doing with it.

Conversely, wealth generated in the private sector will be more beneficial to millions of Nigerians especially in job creation and knowledge diffusion (we call it technology transfer). In fact, since local content became a matter of law, a company like Shell has sold its interest in four oil blocks to indigenous companies. Many Nigerian companies have become proud owners of upstream assets and this has in turn led to the engagement of indigenous contractors. They have never had it so good. Nigerian companies are now handling lucrative pipeline construction projects. Things can only get better for them. The more patronage they get, the more they are able to improve their capacities. It is a virtuous cycle.

Like I said, this is not a trending topic. We are more excited by FAAC. This is why companies such as Samsung will seek to rub our face in the mud and we do not even see anything untoward in that. A company will do a $3.1 billion contract and we get nothing out of it? This is an affront on the development of local companies in the oil sector and if they get away with it, then we are just a bunch of jokers. And this is no laughing matter.

BRING BACK OUR GIRLS!
All my life, the kidnap of over 200 teenage secondary school students by Boko Haram insurgents must rank as one of the most distressing. Days have transformed into weeks and there is yet no sign of them. I imagine the mental and emotional state of their mothers, fathers and other members of their families. Even though the Yoruba would say “to know that my child is dead is better than not knowing my child’s whereabouts”, we still have to hope against hope that these out-of-control militants, whom I insist are predominantly foreigners, will have a change of heart. Heartbreaking.

 
Have we finally found an opportunity to unite this country, even if for a moment? I was pleased to see the expanded meeting of the National Security Council last week. It was good to see friends and foes shaking hands and sitting together to discuss the way out of our severe security challenges. I am not saying hurray yet, but for once they did not allow 2015 to build a wall between them. One day, these politicians will come to realise that the national interest is bigger than any political interest. We all need a stable and peaceful country. Fact.

NYAKO’S EPISTLE
Olusegun Adeniyi did an excellent job of deconstructing Admiral Murtala Nyako whose letter to Northern governors accused the federal government of carrying out genocide against Northerners. The Adamawa governor, who used to be President Jonathan’s supporter, is now in the opposition and has even become his fiercer enemy than Governor Rabiu Musa Kwankwaso, who has never been a Jonathan ally. My worry about Nyako is that at his age, and with his service to this country, you expect tact and restrain in his public conduct. Some things are better said by less distinguished people. He simply let himself down. Pity.

LAUNCHING OUT
On Tuesday, I will be unveiling my online newspaper, TheCable (www.thecable.ng), in Lagos. It is a newspaper without the newsprint, as I love to put it. To welcome the website which targets leaders in business and politics we shall be reflecting on the future of Nigeria in a panel discussion. The panellists are: Gov. Babatunde Fashola, Alhaji Aliko Dangote, Senator Chris Anyanwu, Mr. Segun Ogunsanya and Mr John Momoh. The moderator is “my chairman for life”, Mr. Nduka Obaigbena. Former Head of State, Gen. Abdulsalami Abubakar, is Chairman. My sister, Kadaria Ahmed, is anchoring the event. All set. Go…

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Op-ed pieces and contributions are the opinions of the writers only and do not represent the opinions of Y!/YNaija.

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