Local content gains traction with $200m intervention fund

Nigeria is beginning to put its money where her mouth is, as regards deepening local content with the inauguration of a $200m local content intervention fund last Thursday.

Africa’s largest oil producer created the fund with the objective of a creating a commercially oriented and profit-driven business environment that encourages increased private sector investment; open up the sector to full private sector participation and reduce government dominance and monopoly in the downstream and midstream sectors.”

According to Ibe Kachikwu, minister of state for Petroleum Resources, the Nigerian Content Intervention Fund would go a long way in addressing the funding challenges which hamper the growth and success of indigenous manufacturers, service providers and other key players in the sector.

Kachikwu said the high cost of funds in the sector has made service delivery difficult. “Over the years, Nigerian companies have found it difficult competing with their counterparts from jurisdictions where funding is accessible for 5 percent or less as compared with our market where bank lending rates hover around 20 percent

Some Nigerian banks are still unable to provide long-term financing required by the local supply chain to build needed capacity; the banks also lack sufficient knowledge of the oil and gas sector. The pedigree and operating model of the Bank of Industry (BOI) is expected to close this gap,” said this

The $200m fund that was inaugurated is a portion of the Nigerian Content Development Fund (NCDF), which was established by Section 104 of the Nigerian Oil and Gas Industry Content Development (NOGICD) Act and is drawn from 1 percent of all contracts awarded in the upstream sector of the oil and gas industry.

Set up in 2013 with $50m in 2012, the fund have seen grown to about $100m but local firms have expressed frustration over inability to access the funds due to stringent conditions.

In order to access the fund, a local oil company approaches its bank to discuss funding needs; backed up with a loan application and must notify NCDMB and/or its accredited financial advisers on the engagement with the bank to facilitate appropriate follow-up. If successful, the lending bank submits executed offer and loan facility agreement to NCDMB or its accredited agent. NCDMB reviews the Loan facility agreement for compliance and notifies lending bank of any approval, rejection, or suspension pending submission of additional information on the application.

Where the application is suspended, the approval period will start to run from the date the required information is re-submitted. If approved, the NCDF will issue the Partial Guarantee Agreement to be executed between the bank and the Fund. But the company must be duly registered under the Companies and Allied Matter Act (CAMA) of 1990, and registered with the Nigeria Joint Qualification System (NJQS).

The company also must be carrying out businesses within the oil and gas industry upstream value chain and must scale through their bank’s minimum credit appraisal test, which will facilitate the Bank asking for the NCDF Guarantee Appointment of independent advisers to provide financial advisory assistance for the Fund’s implementation.

Kachikwu says the process would now be easier. “I have been assured by the Executive Secretary of NCDMB that the modalities for accessing the NCI Fund have been simplified and is now devoid of cumbersome processes and conditions that affected the old model,” Kachikwu assures.

Last year, the House of Representatives began to probe the funds but the government is not backing down on a policy of cheap funds as a key enabler for industrialisation.

Kachikwu advised local firms to be diligent in utilisation of the funds if their applications are successful. Companies would be wrong to assume it is free money and decide not to repay, this will limit opportunities for other firms.

“To forestall this, NCDMB and BOI must adhere strictly to the detailed operating model, to ensure that only serious, companies with bankable business plans and prospects of repayments access to the funds,” Kachikwu said.

ISAAC ANYAOGU