Napims Paper by MR Adisa Adetoun

A PAPER ON INFORMATION TECHNOLOGY FUNDING
AND NATIONAL CONTENT DEVELOPMENT

September 21, 2007
The oil and gas sector is fundamental to the Nigerian economy, providing
the bulk (about 90%) of total revenue as well as the foreign exchange
earnings for the country.
However, despite the huge investments made by the Federal Government of

Nigeria in this sector, an average of $10 billion per annum, its contribution
to the Gross Domestic Product (GDP) has been very minimal.
This can be attributed to the low Nigeria content in the industry. The Local
Content is therefore an initiative of the Federal Government to help develop
the local capacity building and to enable Nigerians participate actively in
this vital sector.
The National Petroleum Investment and Management Services (NAPIMS) is

a corporate service unit of Nigerian National Petroleum Corporation
(NNPC). It is the upstream arm of NNPC that manages the Federal
Government investment in the oil and gas industry. It is set up to earn
margin arising from the investments and also protect Nigeria strategic
interest in the business activities with the multi-national and local
companies.
There are three types of petroleum arrangements operating in the industry.

These arrangements preserve the contractual framework within which
NAPIMS on behalf of NNPC and the multi-national companies conduct
oil/gas operations in Nigeria.
The arrangements include Joint Operation Arrangement (JOA), Production
Sharing Contract (PSC) and Service Contract (SC).
Under the JOA, each party one of which is designated as ‘operator’
contributes to the operation of the Join Venture in proportion to its
participating interests and receives the same proportion of the crude oil and
natural gas produced by the joint venture.
Whereas, in the PSC, the contractor bears all the costs of exploration and
production without such being reimbursable if no find is made in the
acreage. Cost is recoverable with crude oil in the event of commercial find
Page | 1
with provision made for Tax oil and Cost oil. The balance is to be shared
between NNPC and the contractor in an agreed proportion.
In the Service Contract arrangement, Oil Prospecting License (OPL) title is

held by the NNPC while the operator designated as the service contractor
provides all the funds required for exploration and production works.
In the event of a commercial find, the contractor recouped its cost in line
with the procedures stipulated in the contract.
The difference with the PSC is that while the SC covers only one OPL, the
PSC may span more than two or more OPLs at a time. Also, the SC covers a
fixed period of five years and should the effort result in no commercial
discovery, the contract automatically terminates. Only Agip Energy and
Natural Resources (AENR) operates SC.
Examples of JV arrangements are as follows:
NNPC/SHELL/ELF/AGIP – 55%/30%/10%/5%
NNPL/CHEVRON – 60%/40%
NNPC/MOBIL – 60%/40%
NNPC/AGIP/PHILIPS – 60%/20%/20%
NNPC/ELF – 60%/40%
NNPC/PAN OCEAN – 60%/40%
NAPIMS review investment proposals from the oil/gas companies in order

to ensure that corporate investment guidelines are adhered to, economic
analysis are run on proposed projects and most important government
inspirations are met.
One of the strategic mandate assigned to her is to grow oil reserve base from
the current level of 35 billion barrels to 40 billion barrels and the production
capacity from 2.8mbopd to 4.5bopd by the year 2010
The Nigerian petroleum market place, (NIPEX) was established by NNPC

through NAPIMS in 2005 to deliver an electronic market place with
integration to Joint Qualification System (JQS) database that facilitates
supplier selection and contract approval processes and ultimately
procurement of goods and services between the international oil companies
(IOCs), suppliers and NNPC.
Page | 2
This enhances transparency in the oil and gas industry contracting supply
structure. The petroleum market place provides a virtual space where buyers
and sellers of goods and services in the Nigerian oil and gas industry can
come to transact business under the management and regulation of NAPIMS
and DPR.
It is an on-line bidding system with a comprehensive suite of capabilities.

Since inception, it has executed several transactions for the operating
companies and has also recorded high cost savings from transactions
processed through it.
The joint qualification system (JQS) will provide specific database service
that will enable sourcing and prequalification of current potential suppliers
of major projects, services and works.
All suppliers of goods and services in the oil and gas industry are invited to
be pre-qualified into JQS to facilitate their participation in relevant contracts
as may be advertised by potential buyer/clients. Prequalification
forms/questionnaires are available. You may wish to visit NIPEX website
for more details; http://www.nipex.com.ng/
There are currently 2,603 suppliers uploaded into the database.
NAPIMS is also in the forefront of the implementation of the Local Content

as it pertains to the operations of the oil and gas companies.
National Local Content can be seen as the utilization of the Nigerian human
and mineral resources in the exploration and exploitation of Nigerian oil and
gas. Nigerians have very little share of the oil and gas business, local
participation is very low and in order to arrest and dissuade capital flight, a
draft of Nigerian content development has been submitted to the
Government. The regulation which is the responsibility of Department of
Petroleum Resources (DPR) will be ready once the bill is enacted.
It is hoped that the local content development would ensure that the quantum
or percentage of the locally produced materials, personnel, food and services
rendered to the oil and gas industry, without comprising standards, is
increased thereby generating more employment and economic empowerment
for the citizenry.
Page | 3
NNPC also set up a National Content Division, which is sufficiently
empowered to work with industry stakeholders and relevant Government
agencies to develop strategies, drive implementation and ensure compliance
with directives by the oil and gas companies.
The objectives of the local content policy are:

o To promote a framework that guarantees active local participation
without comprising standards.
o To promote value adding in Nigeria through utilization of local raw
materials and human resources.
o To promote steady, measurable and sustainable growth of Nigeria
content.
The roadmap for Local Content initiative is as follows:
• Achieve target of 45% Nigeria Content by 2006 and 70% by 2010

(current level is about 37%)
• Development of Legal framework to ensure compliance with Local
Content.
• Promotion of increased participation of Nigeria companies in
Engineering, Procurement, Fabrication and other Services.
• Draw up program for accelerated use of local materials.
• Establish guidelines for improving local staffing of multi-national
oil/gas companies.
• Develop strategic plans for technology transfer.
The Nigeria content bill will empower DPR to participate in the processing
of expatriates quotas in the oil and gas industry. Also, the requirement for
professional bodies like yours to certify foreign professionals who want to
practice in Nigeria is another way to ensure that only unavailable expertise is
imported.
The Nigerian content policy applies to all sectors of the Nigerian oil and gas
industry. However, current effort is primarily focused on major contracts
and operation in Upstream (JV, PSC and other indigenous producers),
midstream (gas and power projects), and downstream (refinery,
petrochemicals and other) sectors. The plan is to progress this initiative to
the extent that other segments of the national economy begin to benefit from
the capacity in the oil and gas sector.
Page | 4
Some of the achievements experienced in the sector are as follows:
• Domiciliation of 2,500,000 engineering man hours

• Increased fabrication tonnage performed in Nigeria from 12000 tons
per annum to over 100,000 tons per annum.
• Financing of more than 200 Nigeria engineers in Design engineering
program(HYSYS) and Plant Design Management System(PDMS)
The Nigerian content consultative forum (NCCF) was also inaugurated with
eight sectorial working committees covering the fabrication, engineering,
manufacturing, petroleum engineering & subsurface, banking & insurance,
and shipping & logistics sub-sectors.
The NCCF comprises of representation from oil and gas industry organized
private sector, MAN, Bankers committee and Nigeria Society of Engineers.
Each forum holds monthly working sessions for respective industry sectors
to obtain input and feedback for planning and implementing the Nigerian
content agenda.
The sectorial committees also interface with Nigeria companies and IOCs
for early identification of opportunities, capacity gaps and required
competencies for upcoming projects.
It is also mandatory through NCD efforts that any work that can be executed
in Nigeria or by Nigerians is specified in the Nigeria content scope in the
ITTs (Invitation To Tender) before they are issued.
It is also pertinent to note that through active monitoring of contract awards

by the NNPC/NAPIMS there is significant achievement by Nigerian
companies in servicing oil and gas contracts.
A Nigerian content support fund of $300-$500 million was launched in

December 2006 to support local companies with working capital and
medium to long term financing and is now operational.
Currently, the primary focus areas are in Procurement, Fabrication,
Engineering and Construction services.
It was observed that about $10billion is spent annually in the oil and gas
sector with 54% in Procurement, 26% in Fabrication and 20% in
Engineering and Construction.
Page | 5
Prequalification of first batch of fund applicants and other interested local
contractors who have applied for the fund is being carried out by the
Program Manager in conjunction with Technical Due Diligence Consultant.
Key features of the NCSF:
• $350m available at single digit interest rate for local suppliers as

working capital.
• NNPC and IOCs provide an $100m unfunded guarantee anchored on a
robust legal framework
• Commitment from local banks to the tune of $345m out of the initial
$350m from a pool of 10 banks.
The key to sustaining modern economy is the information and

communication technology (ICT) infrastructure.
Recent world bank studies indicate that for every $1.00 invested in ICT
infrastructure more than $6.00 is generated in economic returns by its impact
on local employment and general economic growth.
Access to ICT is therefore critical to the development of all aspect of

national economy including manufacturing, banking, education, agriculture,
oil and gas industry operations, and government.
The year 2007 budget on Information and communication from selected oil
and gas companies is as shown in the table. The budgetary provision is very
low compared to the focus areas and this may partly be responsible for not
giving it a priority in the national content initiative.
IT is the bed rock of technological development and should be given the

highest priority in the national content drive.
By March 2008, no contract award in this vital sector will be made except
through on-line bidding process.
Therefore, all contractors including the IT providers should avail themselves

of the opportunities of NIPEX and NCSF for efficiency and transparency.
Page | 6
YEAR 2007 IT BUDGET FOR SELECTED OIL AND GAS
COMPANIES
S/ COMPANY CAPEX OPEX

N
1 SHELL 50,507 50,273
2 CHEVRON 1,714 1,718
3 MOBIL 3,169 9,316
4 NAOC 9,497 5,127
5 PAN OCEAN 163 572
6 ELF 11,933 24,696
Page | 7

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A PAPER ON INFORMATION TECHNOLOGY FUNDING

AND NATIONAL CONTENT DEVELOPMENT

However, despite the huge investments made by the Federal Government of

The National Petroleum Investment and Management Services (NAPIMS) is

There are three types of petroleum arrangements operating in the industry.

In the Service Contract arrangement, Oil Prospecting License (OPL) title is

Examples of JV arrangements are as follows:

NAPIMS review investment proposals from the oil/gas companies in order

The Nigerian petroleum market place, (NIPEX) was established by NNPC

It is an on-line bidding system with a comprehensive suite of capabilities.

There are currently 2,603 suppliers uploaded into the database.

NAPIMS is also in the forefront of the implementation of the Local Content

The objectives of the local content policy are:

The roadmap for Local Content initiative is as follows:

• Achieve target of 45% Nigeria Content by 2006 and 70% by 2010

• Domiciliation of 2,500,000 engineering man hours

It is also pertinent to note that through active monitoring of contract awards

A Nigerian content support fund of $300-$500 million was launched in

Key features of the NCSF:

• $350m available at single digit interest rate for local suppliers as

The key to sustaining modern economy is the information and

Access to ICT is therefore critical to the development of all aspect of

IT is the bed rock of technological development and should be given the

Therefore, all contractors including the IT providers should avail themselves

S/ COMPANY CAPEX OPEX

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