How taming protracted contracting cycle will give respite to oil and gas sector, curb corruption

Recently the Nigerian Content Development and Monitoring Board (NCDMB) and the Oil Producers Trade Section (OPTS), the umbrella body for major international and indigenous operating oil companies signed a Service Level Agreement (SLA) aimed at shortening the often protracted industry contracting cycle.

This development has been hailed by industry watchers who say it would be nice if it can be achieved. They said it is a very good development because reducing the contracting cycle will help in many ways to cut the cost of contracts and by extension the cost of producing oil in the country. Oil and gas contracts in Nigeria are, most often, inflated.

The SLA commits the 28-member Oil Producing Trade Sector (OPTS) companies to comply with the provisions of the Nigerian Oil and Gas Industry Content Development (NOGICD) Act, essentially to submit to the NCDMB documents like their Quarterly Job Forecasts, Nigerian Content Plans, Bidders Lists, Nigerian Content Evaluation Criteria, Nigerian Content Technical Bids among other relevant information in relation to industry contracting and procurement cycles.

The aim is to reduce the contracting cycle or shortened it to six months. Even though it is believed in some circles that through the efforts of the NCDMB, the cycle had been cut significantly to 14 months from 24-36 months. The Board on it part has pledged to respond on specific timelines and committed that should it fail to meet the set deadlines, the companies can proceed with their tendering processes after duly informing the Board.

According to Simbi Wabote, executive secretary of NCDMB who stressed that operations of the oil and gas industry were time sensitive a shortened contracting cycle would cut the cost of projects considerably.

However industry analysts believe that the government is the worse culprit in this matter and it knows what to do to reduce contracting circle in the industry.

They are of the view that corruption and long contracting cycles are among factors responsible for the high unit cost of production per barrel of crude oil in the country.

To some of these operators it is only the government that can bring down the cost of production of crude and contracts in the industry and it knows what to do.

Professor Wumi Iledare said most of the cost increases recorded in the sector are process induced, occasioned by the bureaucratic process within the Nigerian National Petroleum Corporation(NNPC) which is avoidably long and winding and overtaken by inflation.

He said the cumbersome contracting cycle which has almost crippled the industry, was cited as one of the major factors responsible for the high cost of production per barrel of crude in the country.

“ it is true that the unit cost of crude oil per barrel is high but put the blame at the door step of the government that created room for such as situation to happen , he said this on the sideline of an occasion organized by the Nigerian Society of Engineers.

Other industry players said government actions encouraged oil companies to inflate the cost of projects because they feared that by the time final approval is given the cost of materials would have increased astronomically.

In spite of the fact that there are insecurity issues, these are not major factors, they are probably not contributing as much as what the contracting circle is contributing to increase the unit cost.

The stakeholders also want the government to check the corruption in the system as government officials that are suppose to oversee the projects allegedly see any project as an opportunity to make money.

Most often government officials are alleged to have reviewed their allowances upward against what the oil companies have put in place for the purpose of supervising projects or carry out inspections. Such inflation is also added to the cost of production.

Emmanuel Emielu, managing partner, Oil and Gas Soft Skills limited, who also spoke on how the cost of production can be reduced, said even though insecurity is a factor, the government needs to reduce the contracting circle.

Contracting cycle for projects in the industry must have to come down to within a six-month band to reflect on the production cost, adding: There is no reason why this country should have a contracting cycle that is in excess of six months.

Today, we have moved it from 18 to 24 months, down to 13 to 14 – it is still struggling, but we must put speed to this because it costs money and has a direct linkage with cost of producing a barrel of crude oil , we must thereof reduce the cost of production by shortening the process of contracting circle.

Olusola Bello