Interview: Ernest Nwapa
What have been the challenges to implementing the Nigerian Content Act (NCA)?
ERNEST NWAPA: When the Nigerian Content Bill was signed into law in April 2010, there was some scepticism regarding Nigeria’s commitment to follow through on its implementation. So our immediate challenge was to convince the public that we were serious about local content. I think it is fair to say that this concern has been addressed now. The next challenge relates to capacity. The NCA states various ambitious targets and timelines and there was some concern about the support the Nigerian government would receive from major multi-national corporations. Moreover, after the bill was signed into law by the president, it was to be implemented immediately, with no transition period. Whereas the private sector had been actively involved in the drafting of the law, there was some concern that the speed of implementation would raise opposition.
When defining parameters and deadlines, we were well aware of the local content gap that existed between Nigeria and other oil producing nations. We quickly realised that the issue did not lie in the quality of the legislation, but in the will to implement it. However, we have made good progress on our initial three-year goals. Moreover, we have been successful at changing the mindset of people when it comes to local content.
What are the priorities of the NCA going forward?
NWAPA: At the top of our list is the establishment of a domestic pipe industry. We are actively encouraging the expansion of existing pipe-mill capacity as well as attracting greenfield investments. Nigeria’s 5000-km pipeline network is largely dilapidated and in need of renewal over the coming five years. On top of that, the Gas Master Plan will create demand for another 2000 km of pipeline. This gives rise to ideal conditions for the development of local production capacity.
A second priority is the establishment of a dry dock. Vessel ownership is increasingly in Nigerian hands, both through Nigeria Liquefied Natural Gas’s fleet and the Vessel Replacement Strategy, providing the critical base for the establishment of local assembly, maintenance and repair activities. It would also feed into the global demand for dry-dock space, which suffers from frequent shortages. Nigeria could claim a competitive position among the world’s shipyards.
What are the consequences for companies that fail to comply with the NCA rules?
NWAPA: The NCDMB will continue to strive for full compliance on the first evaluation round scheduled for April 2013. As such, we are now focused on localising components manufacturing, and we have already achieved success in bringing original equipment manufacturers into the country. At the same time, we have to be realistic. Nigeria will not be able to localise the entire supply chain within three years or, in various cases, within any given timeframe. The NCA is not set up to defeat the theory of comparative advantage or to defy the principles of free trade. When the date comes, we will evaluate how far we have progressed and the contributions of individual players. In cases where there is proof that a company has not made an effort to comply with the rules, measures will be taken. These could range from monetary penalties to exclusion from tenders. In some cases this has already happened.
How will the Local Content Fund be allocated?
NWAPA: First off, the essence of the fund’s management will lie in transparency. We have identified external, independent fund managers who have developed a model that will be based on two financing vehicles. The first one, containing 70% of the fund’s capital, will provide guarantees for financing indigenous companies. This will address the high interest rates and short tenures of most commercial loans in Nigeria, so businesses can secure financing on reasonable terms. The remaining 30% will be used for direct intervention. Major priorities here are land acquisition for pipe mills, for example, or power generation for a new dry dock.
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