How NLNG, ExxonMobil, Shell rescue indigenous contractors
One of the greatest challenges confronting indigenous contractors operating in the oil and gas sector is paucity of fund. However, with the enactment of Nigerian Oil and Gas Content (NOGIC) Act, 2010, which compelled International Oil companies to make provision for 30 per cent retention of their projects for indigenous contractors, some International Oil Companies (IOCs) saw the need to provide fund guarantee for successful vendors/contractors to executive their projects in a low-interest financing scheme.
The Nigeria Liquefied Natural Gas (NLNG), ExxonMobil and Shell Nigeria have established what is called ‘Contractor Financing Scheme’ aimed at helping vendors with limited funds to finance their Local Purchase Order (LPO).
The fund is made available to registered vendors with prove of a job offer to help them carryout and deliver their contracts within the time frame stipulated.
NLNG started its scheme in 2013 with a whopping $1billion fund in partnership with five banks.
ExxonMobil Nigeria, though also started in 2013, but signed a Memorandum of Understanding with 12 banks to manage its $8.6billion fund earmarked for the contractor financing scheme. As contained in the MoU, ExxonMobil Nigeria targeted Nigerian vendors seeking access to better funding options to fulfill ExxonMobil awarded contracts/orders.
Contractors participating in the scheme will have access to competitive loan rates from participating banks. Loan processing time will also be significantly reduced due to upfront definition of eligibility criteria by the banks.
In 2016, Shell Companies in Nigeria signed MoUs with eight Nigerian banks under the refreshed Shell Contractors’ Support Fund, to improve access to finance for Nigerian vendors and suppliers in the oil and gas industry.
Under the MoUs,the scheme provides support for contractors to enable them finance projects executed for Shell Companies in Nigeria in line with the aspirations of the Nigerian Content Act. To access these funds, the contractors must have a valid purchase order and meet the banks’ risk assessment criteria. This refreshed version is in response to market realities and will offer loans faster and at cheaper rates.
“Supporting SMEs under this scheme is for the mutual benefit all the parties. While the scheme reduces the pressure from requests for advance payments from contractors, it also ensures optimum delivery by our contractors, leaving the banks with a de-risked client base in addition to the comfort of domiciliation of payments,” the Country Chair of Shell Companies in Nigeria, Osagie Okunbor, has said.
Executive Secretary of the Nigerian Content Development and Monitoring Board (NCDMB), Engr. Simbi Wabote, stated recently at Nigeria Oil and Gas opportunity Fair (NOGOF) 2019 that fabrication, engineering, and procurement in the oil and gas industry were done abroad prior to the enactment of the NOGICD Act in 2010. But today, the narrative has changed because major projects like Total’s Egina FPSO is a testament to the fact that NOGIC Act has ensured retention of over 30 per cent job in-country and several billions of dollars have also been retained in-country.