The Nation Newspaper

Category: Business

  • Equities beat fixed-income securities

    Equities beat fixed-income securities

    Quoted equities have scaled up to the top of returns’ table among investment securities as sustained rallies continued to build up real positive return on investment for equities.
    The Nation’s check showed that most fixed-income securities opened this week several notches below average equity return, with gap as wide as five percentage points in some instances.
    Average return by equity opened this week at 22.22 per cent, 10 per cent above fixed-income benchmark Monetary Policy Rate (MPR) of 12 per cent and some 9.4 per cent real returns above current inflation rate of 12.8 per cent.
    Official data by the Central Bank of Nigeria (CBN) showed that 91-day Nigerian Treasury Bills currently carry a yield of 13.64 per cent while three-month tenor deposit rate of banks stand at 8.57 per cent. Average inter-bank call rate stands at 16.14 per cent.
    Market data showed that seven-day Nigerian Interbank Offer Rate (NIBOR) opened trading at 16.71 per cent while the 30-day and 90-day NIBOR started at 16.96 per cent and 17.33 per cent respectively.
    The Nation’s market intelligence shows that bonds currently have coupons of between 4.0 per cent and 19 per cent, indicating the yield spread within the fixed-income segment.
    Coupons or interest rates within the corporate bonds segment ranged between 10 per cent and 19 per cent. The UPDC 2015 bond issue carries the lowest interest at 10 per cent while Tower Funding Plc bond carries the highest rate of 19 per cent.
    In the sovereign bond segment, the five-year tenor Federal Government of Nigeria April 2015 bond has the lowest interest rate of 4.0 per cent while the 10-year long-term bond due for maturity in 2012 has the highest rate of 16.39 per cent.
    Sub-national bonds-comprising mainly of bonds by state governments, indicated return range of between 10 to 15.5 per cent. The N57.5 billion seven-year Lagos State Government bond carries the lowest coupon of 10 per cent while Imo State Fixed Rate Redeemable Bond indicates highest rate of 15.50 per cent.
    Market analysts said the improvement in returns at the equity market could lead to bandwagon gains as late adopters follow the track of the bullish rally.
    Investment analyst, TWR Stockbrokers Limited, Abdu-Rasheed Momoh, said equities still have headroom for growth, noting that market’s benchmark index could rise as high as 27,000 points, after some initial resistance. This implies possible addition of some eight percentage points to reach average return of 30.2 per cent.
    “My own momentum indicators, which are short-term, still indicate a positive trend, and the overall index is still below the middle of the trading ranges of the individual components,” Momoh indicated.
    He outlined that several stocks including Access Bank; Chemical & Allied Products, Evans Medical, First Bank of Nigeria, Guaranty Trust Bank, Okomu Oil Palm, Presco, Nestle Nigeria and Zenith Bank among others were still below resistant levels.
    He however, cautioned that the few stocks that have been leading the pack might not have the capacity to move the overall average return as they approach their five to eight- year resistant levels, except new bull leaders take over.
    Analysts at Partnership Investment Company Plc also shared the optimism that equities would sustain its lead noting that substantial upswing would remain, in spite of expected profit-taking transactions.
    “Some stocks however, still trade below their intrinsic value and are a pick for bargain hunters and value investors,” analysts stated.

  • Global equities: Egypt, Germany, Nigeria lead

    Global equities have sustained double-digit returns with Egypt, Germany and Nigeria leading returns across the developed and emerging markets.
    Global return analysis pointed to general recovery in the equity markets with only one out of 16 benchmark indices for key developed and emerging markets in America, Europe, Asia and Middle East and Africa indicating negative.
    Comparative year-to-date analysis of major markets showed that Egyptian stock market, which has ratcheted up its recovery after a successful presidential election, leads global equities’ returns with more than 186 per cent. Germany, which has shown resilience amidst the Euro crisis, shows average return of about 24 per cent. Nigeria trails with more than 21 per cent.
    The United States of America (USA) stock market continued to show all-positive outlook. The Dow Jones Industrial Average (DJIA) and Standards and Poor’s 500 index, two key indices for the USA market, returned 10.82 per cent and 16.09 per cent respectively. NASDAQ Index indicated a return of 8.69 per cent.
    France’s benchmark CAC 40 Index posted a return of 10.83 per cent while United Kingdom’s FTSE 100 Index returned 4.44 per cent. Japan’s Nikkei 225 Index posted a return of 6.38 per cent. Brazil’s Bovespa Index indicated average return of 9.17 per cent. India’s BSE 30 Index recorded 16.60 per cent while Hong Kong’s Hang Seng Index posted average gain of 8.75 per cent;
    In Africa, South Africa, Africa’s largest stock market, showed considerable return with the All Share Index (ASI) of the Johannesburg Stock Exchange (JSEASI), indicating average gain of 12.19 per cent. Ghana Stock Exchange’s All Share Index (GSE ASI), the benchmark index for the Ghanaian stock market, also posted a year-to-date gain of 6.95 per cent. Switzerland’s stock market index-SMI showed positive returns of 9.72 per cent. Only Spain was on the downside with its benchmark index-SMSI, suggesting negative return of 6.36 per cent.
    With the differences in trading hours across the jurisdictions, the global indices were measured on September 13. Primary market data were provided by FSDH Securities.
    Many analysts were optimistic Nigerian equities may catch up with Germany’s index to emerge in the second position in the next few trading weeks.
    Analysts at Financial Derivatives Company (FDC) Limited said Nigerian equity market was still undervalued and held out considerable prospects for appreciable long-term returns.
    Analysts said although investors need to still be cautious, the market remains attractive to long-term investors.
    According to analysts, investment opportunities remain in several sectors, with inherent values easily identifiable in the banking and consumer goods sectors.
    It noted that aside from the fact that the market is undervalued at current levels, investors should bear in mind that stocks are poised to keep going higher in the long term because the market is still in a bull market and the market is still fuelled by measurable growth from key economic indicators

  • Total Nigeria vs Mobil Oil Nigeria: Neck to neck

    Total Nigeria Plc and Mobil Oil Nigeria Plc are the two most capitalised petroleum-marketing companies in Nigeria. Altogether, they accounted for some 52 per cent of total market capitalisation of the downstream oil sector at the stock market. Total Nigeria leads the capitalisation table with 28 per cent while Mobil Oil Nigeria trailed with some 26 per cent. A subsidiary of French multinational and Europe-leading oil company-Total S. A, Total Nigeria is a company of considerable influence and size in Nigeria and globally. With more than 500 retail outlets, five Liquefied Petroleum Gas (LPG) bottling plants, three lubricant blending plants, four aviation depots and many other facilities, Total Nigeria is undoubtedly a leading oil-marketing company.
    Mobil Oil is the earliest petroleum-marketing company to be incorporated in Nigeria and has operated for more than six decades in Nigeria. Mobil Oil Nigeria is a subsidiary of Mobil Oil Corporation of the United States of America and it runs a nationwide network of outlets that make the company a household brand throughout Nigeria.
    Both companies shared many similarities. With some 60 years of operations in Nigeria, they have etched their brands and stocks as blue chips. Interestingly, both companies were listed  same year, same month and within the same week.
    Audited reports and accounts of both companies for the year ended December 31, 2011 showed a similar pattern, with recovery in sales characterised with decline in profitability and returns. Where the performance trends differed, the companies intermittently switched roles. While Total Nigeria  led in terms of size of growth, Mobil Oil Nigeria made more profit per every unit of sale and its returns were quite higher than its competitor.
    Sales generation
    Both Total Nigeria and Mobil Oil Nigeria grew the top-lines in 2011 as against general declines in the previous year. Total Nigeria increased sales by 8.3 per cent in 2011 as against a drop of 10.1 per cent in 2010. Mobil grew sales by 6.4 per cent in 2011, a major recovery from the declines in the past two years when sales dropped consecutively by 7.1 per cent and 5.9 per cent in 2009 and 2010 respectively.
    Profitability
    Mobil’s gross profit grew by 4.2 per cent in 2011 but profit before tax dropped by 3.4 per cent in 2011 as against significant growth of 41 per cent. Net profit after taxes also slipped by 3.4 per cent in 2011 compared with increase of 37 per cent in 2010. Gross profit margin dropped marginally from 16.6 per cent to 16.3 per cent while pre-tax profit margin contracted to 8.9 per cent in 2011 as against 9.8 per cent in 2010.
    On the other hand, Total Nigeria’s gross profit grew by 6.6 per cent in 2011 as against a decline of 4.5 per cent in 2010, showing a two-year average growth of 1.05 per cent. The company also replaced its 6.2 per cent decrease in profit before tax in 2010 with a growth of 1.3 per cent. But as margins diminished on item-by-item basis, profit after tax caved in with a decline of 4.0 per cent in 2011 compared with negligible growth of 0.1 per cent in 2010. Underlying profit-making capacity of the company was however, generally weak. Gross profit margin dropped below average to 12.9 per cent as against 13.1 per cent in 2010. Pre-tax profit margin also decreased from 3.6 per cent to 3.4 per cent.
    On the average, Mobil still maintained its lead with higher gross margin and pre-tax profit margin. Compared with Total Nigeria’s average gross margin of 13 per cent, Mobil made about 16.5 per cent while Mobil’s average pre-tax profit margin of 9.35 per cent more than doubled Total Nigeria’s 3.5 per cent.
    Actual returns
    Mobil returned 18 per cent on total assets in 2011 as against 24 per cent posted in 2010 while return on equity slipped from 65 per cent to 55 per cent. Average return on total assets over the past two years stood at 21 per cent while average annual return on equity stood at 60 per cent.
    Meanwhile, Total Nigeria’s return on total assets was almost unchanged at 10 per cent while return on equity dropped from 44.5 per cent to 38 per cent. Average annual return to shareholders thus stood at 41.25 per cent.
    The bottom-line
    Protracted reform in the petroleum sector and continuing controversy that exacerbate global oil variables tend to undermine the potential of Nigerian petroleum companies. These compounded the almost monolithic nature of the business where little product differentiation gives less room for marginal errors. The margin of profitability, and sustainability of such, thus depends on high level of appropriate mix of often-difficult variables.
    Both companies obviously need to explore ways to accelerate sales growth and control cost to deliver higher margins and ensure better returns to shareholders. For now, it’s a neck-to-neck contest of the two oil majors.
  • Capital market to adopt risk-based capitalisation

    Capital market to adopt risk-based capitalisation

    Following the pattern of the banking sector, the Nigerian capital market may adopt risk-based capital adequacy structure whereby each operator is expected to maintain certain minimum capital in line with its scope of operations.

    Both the Securities and Exchange Commission (SEC) and Nigerian Stock Exchange (NSE) are considering changing to risk-based capital adequacy instead of the current system where all operators are required to have the same level of capitalisation.

    It would be recalled that the most current capitalisation requirement by SEC, for all stockbroking firms is to have a minimum of N70 million paid-up share capital. Some firms have share capital above that benchmark, while others operate below it.

    SEC had attempted to raise the capital base to N1 billion in 2008, but later withdrew this.

    However, given the recent  market downturn and development in the global capital markets,  the need to strengthened regulation has thrown up  issue of   setting adequate capital base for operators in the Nigerian capital market.

    But instead of setting a one size-fits-all capital base for stockbroking firms, SEC and NSE would adopt a risk-based framework in the market.

    Although details are still being worked out, the Chairman of Association of Stockbroking Houses (ASHON), Mr. Emeka Madubuike, confirmed last Friday in a telephone chat that it was a consensus among stakeholders in the market that  a risk-based regulation should be adopted.

    According to him,  a committee in that regard, comprising officials of SEC, NSE, Chartered Institute of Stockbrokers (CIS) and ASHON, was set up to work on the issue of capitalisation early this year.

    “The committee was chaired by the former Commission of SEC in charge of operations, Ms. Daisy Ekineh.  After several meetings, it was agreed that in line with what is obtainable in other jurisdictions, risk-based supervision and regulation should be adopted.
    This implies that each operator would be required to have capital base depending on the level of risk it is carrying. The arrangement and framework is being worked and would be made known at the appropriate time,” he said.

    He added that the broking firms would be classified into different categories including broker/dealer, broker or sub-broker. This is said would determine the level of capital each would require.

    “Besides, the NSE would then be reviewing each operator using the   base set by SEC.  The NSE will look at the performance of each firm, the volume of transactions and decide to advise on the need to increase the share capital or otherwise,” he said.

    Speaking on mergers and acquisitions, the ASHON boss said it was a matter of fundament business decision by operators. He explained that nobody would like to operate a business at a loss, noting that any opportunity to improve on performance is always a welcome development.

  • Govt targets .5m tonnes of cocoa by 2015

    Govt targets .5m tonnes of cocoa by 2015

    Nigeria, the world’s fourth biggest cocoa grower, aims to double output to 500,000 tonnes over the next three years as it tries to expand its exports beyond oil, an industry body said on Friday.

    The Cocoa Processors Association of Nigeria (COPAN) said the government had distributed around 10,000 improved seeds to farmers in its 14 cocoa-producing states and production increases would start by 2014.

    “There are a lot of initiatives by the government to raise production volumes. In another three years, we see cocoa volumes going from 250,000 to 500,000 metric tonnes,” COPAN secretary Felix Oladunjoye told Reuters.
    The government had also started to subsidise fertilizers for farmers, strengthen industry regulation to boost volumes and distribute chemicals to fight disease.

     
    Demand for the raw beans from Nigeria was growing, he said but this was not the case for the semi-finished cocoa products. Demand for those had dropped by around 70 per cent over the last three years, he added.
    The debt crisis in Europe has led to big cuts in demand for cocoa products – butter, liquor, powder and cake – from Western and Asian markets, he said, noting that most European chocolate makers preferred to buy raw beans.
    Grinding had fallen to 20,000 tonnes a year, out of a capacity of 150,000 tonnes, owing to low global demand, Oladunjoye said.
    Nigeria was processing around 230,000 tonnes in 1986 when the sector was first deregulated.
    Volumes of beans produced had stayed between 200,000-250,000 tonnes over the past three years, Oladunjoye said. He expected local demand to pick up some of the slack from lower sales in Europe.

  • Content board begins pilot scheme on fund deployment

    The Nigerian Content Development and Monitoring Board (NCDMB) said it has started a pilot scheme with two Nigerian companies on how the Nigerian Content Fund (NCF) should be deployed.

    The Fund which is built through the payment of one per cent of every contract awarded in the oil and gas industry, is meant to be used in assisting the development of indigenous content and capacity in the petroleum industry.

    The Executive Secretary, NCDMB, Ernest Nwapa, said the fund is growing and that it has secured the services of fund managers to operate it and ensure transparency.
    He said by the way the management of the fund is structured, 30 per cent would be used to stimulate growth of capacity, while the remaining 70 per cent would used to guarantee local oil firms’ loans from banks.

    He said: “To ensure transparency, the Board brought in fund managers to manage the fund. Currently 30 per cent of the fund will be used for stimulating capacity building, while 70 per cent will be used as guarantee for oil firms’ borrowing s from bank.

    “For example, if an indigenous oil company goes to a bank to borrow $20 million, besides guaranteeing the loan with the fund, the interest that accrues on the loan will be shared 50-50. While the company bears 50 per cent of the interest, the fund will bear the remaining 50 per cent,” assuring that the 70 per cent part of the fund would not be depleted. “The 70 per cent of the fund will not be depleted. It will be made to continue to grow.

    Nwapa, said currently, the Board is running a pilot on the fund usage and deployment with two members of the Petroleum Technology Association of Nigeria (PETAN). The association is made up of Nigerian oil companies, particularly those in the services sector of the upstream segment of petroleum industry.

    He said between 2010 and June this year, the country has recorded investment inflow of $2.8 billion as a result of the Nigerian Content Act, adding that before the Act, Nigerian firms were increasingly buying equities in new rigs because it was pretty difficult for them to buy new ones alone, as one new rig can cost as much as $200 million. None of the companies currently has new rigs, but they are making headway in marine vessel acquisition.

    Nwapa, said once a vessel is owned by a Nigerian company, it is given priority for jobs, adding that the board is uploading evidence to confirm that these vessels truly belong to Nigerians. Part of what the board wants to use to confirm evidence that the vessels belong to Nigerians, he said, is try to see the banks that are financing the vessels.

    To buttress the increasing involvement of Nigerians in marine vessel business and management, Nwapa said four of Nigeria’s Liquefied Natural Gas (NLNG) carriers are completely manned by Nigerians.

  • MAN to Fed Govt: Raise wheat flour tariff

    The Manufacturers Association of Nigeria (MAN), has urged the Federal Government to review upwards the existing 15 per cent duty on imported wheat flour, ahead of the 2013/2017 Common External Tariff regimes.

    The President, MAN, Kola Jamodu, told The Nation that the introduction of 10 per cent composite cassava flour in bread has necessitated the need for upward review of duty imposed on wheat flour.

    He said this would accelerate the manufacture of composite flour locally.”We are aware that duty is a veritable instrument for generating revenue for the Government. To this end, I want to recommend an upward review of the tariff rates of imported flour from 15 per cent to 20 per cent. This will discourage importation of foreign flour, while the cassava products will be promoted,” he said.

    Jamodu called on both the States and Federal Government to encourage its ministries, departments and agencies to patronise locally made products in all their activities, adding that this is the only way local manufacturers  can be promoted. He commended the government for the positive impact of some of its policies.

    He said: ”We are not unmindful of the onerous challenges facing the government. “In this regard, we want to assure the Federal Government of our  commitment to your noble mission to bring positive changes to our economy and sustenance of the manufacturing sector, especially in the area of job creation.

    ”This is even as the Director General of the Federal Institute of Industrial Research Oshodi, FIIRO, said consumption of cassava bread can save the economy N318 billion yearly.

    ”This figure is half of the N635 billion (about $3.9 billion) being spent annually to import wheat into Nigeria by the Flour Millers for bread making and other confectioneries. Since wheat is not produced in Nigeria it has to be imported.
    Furthermore, bread is produced from 100 percent wheat flour and as such huge amount of hard earned foreign exchange is used every year for its importation,” he disclosed.

  • Interbank rates climb as NNPC, forex drain cash

    Interbank lending rates climbed to an average of 16.33 per cent last Friday, compared with 13.5 per cent last week, on the back of cash withdrawals by the state oil firm and foreign exchange purchases.

    The market according to Reuters opened with a negative balance of N42 billion ($266.08 million) on Friday, after the NNPC recalled a portion of its deposits with some lenders, and the Central Bank of Nigeria (CBN) debited the accounts of banks for foreign exchange purchased at a Wednesday auction.

    The NNPC supplies the bulk of dollars traded on the interbank foreign exchange market and usually withdraws a portion of the naira proceeds to its account with the CBN to fund its obligations to the government. It sold about $450 million to some banks two weeks ago.

    The secured Open Buy Back (OBB) rose to 15.75 per cent, compared with 12 per cent last week, 3.75 percentage points above the CBN’s 12 per cent benchmark rate, and 5.75 percentage points above the Standing Deposit Facility (SDF) rate.

    Overnight placement closed at 16.50 per cent, from 14 per cent last week, while call money rose to 16.75 per cent, compared with 14.50 per cent last week.
    “We see rates falling by the middle of next week on the back of improve liquidity from budgetary allocations and open market operations (OMO) treasury bill maturities,” one dealer said.

    A total of N570 billion was shared between Nigeria’s three tiers of government – federal, state and local – on Friday and about half of the amount belonging to state and local governments is expected to flow through the banking system by Tuesday.

    The Federal Government plans to sell N60 billion in 5- and 7-year bond next week and this is expected to reduce liquidity, although dealers said it would be unlikely drive rates any higher.

  • ‘Nigeria’s debt to GDP ratio hits 17%’

    Nigeria’s debt to Gross Domestic Product (GDP) ratio has hit 17 per cent, Managing Director, Financial Derivatives Company (FDC) Limited, Bismark Rewane, has said.
    The FDC Economic report for September, said the total amount of government debt outstanding in Nigeria is N6.89 trillion, representing a mere 17.9 per cent of GDP.

    He explained that although Nigeria‘s debt is not yet at the 30 per cent debt to GDP threshold set by the government, two alarming trends are beginning to develop. The first is the rate at which Nigeria‘s debt level is currently rising and the second, is the rising cost of government’s borrowing.

    Currently, the cost of government borrowing is above 12 per cent on three,, five and 10 years bonds, and N559.6 billion has been budgeted for debt servicing this year. While Nigeria is still a fair distance from reaching the government‘s 30 per cent threshold, he insisted that it is important for policy-makers to recognize these trends and learn from our past mistakes and the mistakes of European countries.

    He said the percentage does not include Asset Management Corporation of Nigeria (AMCON) and sub-national bonds. He said that if these are to be added, Nigeria‘s debt-to-GDP percentage is in the mid 30s. “Nonetheless, currently, Nigeria’s debt-to-GDP ratio of 17.9 per cent is comparatively low, relative to the debt to GDP ratio of Ghana (41.2 per cent) or South Africa (38.8 per cent),” he said.

    Rewane said Nigeria’s debt to GDP financial crisis has led to a sharp increase in global government debt as governments scramble to save their financial systems from collapse. According to International Monetary Fund (IMF) figures, the aggregate net government debt in the world rose to $54 trillion in 2011 from $22 trillion in 2007, an increase of 145 per cent in four years.
    However, to curb the increasing debt, governments have implemented austerity measures and increased taxes. In reaction to such policies we have seen riots across Europe, as citizens pro-tested in response to the effects of these policies, which included increased government cuts and rising unemployment.

    “What has become clear from the euro-zone sovereign debt crisis is that rising government debt can no longer be ignored due to its direct impact on economies and citizens. In the last three years, two important lessons have been learnt from the European sovereign debt crisis: When government debt levels are rising it is difficult to anticipate when the threshold will be crossed, leading to the debt level spiraling out of control; When investors lose confidence in a government’s ability to afford its debt, problems can compound and potentially lead to a funding crisis,” he said.

    According to him, the two main factors that determine the interest burden on government debts are investor demand for debt and the amount of outstanding debt. Germany and the United States, he said, are selling 10 years of government debt at historically low yields of 1.16 per cent and 1.42 per cent respectively.

    a sign both of investors’ confidence in those governments’ ability to repay the debt, as well as being a product of the artificially low interest rate set by these governments. Consequently, these countries are perceived as safe havens by investors.

    He said that while the debt in Nigeria may be lower, there is a key difference with other advanced economies. “Instead of using debt for investment in government capital expenditure projects or fundamental transformations to essential services, the majority of the Nigeria‘s debt has been used to plug holes in its budget, while the rest has been spent on recur-rent expenditure.,” he said.

    Rewane argued that the 2012 budget deficit stands at N1.11 trillion, the majority of which will be financed through debt. The deficit is 2.85 per cent of GDP, in line with the provisions of the Fiscal Responsibility Act 2007, which pegs it at three per cent of GDP.

    He insisted that Nigeria‘s increasing debt-to-GDP ratio has not been matched by investments in infrastructure projects, or by increased spending on healthcare or education. “If the government deficit is spent on infrastructure, basic research, public health and/or education it can increase its potential output in the long run. There are also issues surrounding the crowding out effect of the private sector,” he said.

  • ‘PIB’s non-passage is a disaster’

    ‘PIB’s non-passage is a disaster’

    How would you assess the success of the Local
    Content Act in terms of bridging skills gap and empowering local players?

    The Local Content Act is a combination of efforts, which originated from the private sector. The Federal Government keyed into it and got the Nigerian National Petroleum Corporation (NNPC) involved. So, between the private sector service companies such as ours and the NNPC, we were able to put together what we have today.

    We thank the NNPC (representing the Federal Government) for moving when it was required. On the effect and importance of the Act in terms of local content capacity building, it will improve local content capacity. Capacity is not about rhetorics, it means more opportunities for Nigerians and trickling down of value. It amounts to more funding and will expose more Nigerians to the industry.

    Exposing Nigerians and creating more opportunities within the Local Content Act, we synergise and have a system that will allow more players to come in. This means that at the end of the day, Nigerians will have better control over the exploration, production and other activities in the oil and gas industry. Beyond providing more jobs and boosting the economy, the Local Content Act provides better security as far as control of our energy resources is concerned. In many ways, the Local Content Act impact is positive.

    The pioneer Executive Secretary of the Nigerian Content Development and Monitoring Board, Mr Ernest Nwapa, an engineer, is very experienced. I know there are lots of works to be done but I assure you that he is up to the task. The management of the board can make a lot of difference but if issues are not managed properly, it can backfire in many ways; but we don’t expect that.

    Operators are contesting some provisions of the Act, which they say are grey areas that should be addressed, what is your view?
    You can call them grey areas or potential pitfalls.

    The way we do things sometimes is not very good. We have to ensure that the award of contracts to briefcase contractors who will inturn give the contracts to foreigners in the name of local content, is discouraged. This will not help us to build capacity. Secondly, politicians should ensure that nobody makes them use their influence where they don’t have to.

    They should avoid negative influence by supporting companies and contractors not qualified in the sense that they are not prepared to develop capacity but to take up the contract, collect the money and disappear without doing the job.

    This will create serious credibility problem and it will affect the Local Content Act and its practice. It is not just the politicians but anyone in position of authority should know that the Act is primarily for Nigeria and Nigerians. Our ability to use it positively will enhance the economy in many ways. Another issue is the local content fund being put together by virtue of the Act where one per cent of all contracts go into. This fund has to be deployed properly for capacity building. It has to be used in a way that builds up local content.

    Stakeholders including PETAN chairman have identified funding and not skills gap as the major challenge to local capacity building. Do you agree?
    I agree with them 100 per cent. Skills can be acquired. I can tell you that the skills in Nigeria are enormous, but there are still areas we are yet to build up skills. There are many ways to get the technology we need.

    Some 20 years ago, it was a different ball game. We were not opportuned to have the technologies of today. That is history because some of us are handling projects worth more than $200 million at a time. So skill is not the issue. The issue is finance, as the chairman of PETAN said.

    The finance regime in Nigeria is counter-productive. There is no way you can raise funds at 20-25 per cent interest per annum and make profit. There is no way you can build capacity with that kind of cost. There has to be a concerted effort to get finance cost lowered to build capacity. I know it cannot be done by fiat, the government cannot decree but it is important that it establishes some fund or even some security that will enable banks lend at a cheaper rate.

    It is our duty as practitioners to give support so that risks borne by the banks are also reduced. It will encourage them to lend more. It is not a major issue but it is not an easy one to deal with. I believe that until we deal with cost of finance, our ability to grow will be limited.

    Oilserve has subsidiaries that play in the exploration and production (E&P) segment of the industry, as well as in the power sector. How would you rate Nigerians’ participation in the E&P. Is it encouraging?
    It is not encouraging but that doesn’t mean that it is bad.

    There has been movement in the past 30 years. We have some Nigerian E&P companies today and we expect to have more. Certainly we have to work on it but what is important actually is the way the blocks are given. The government has to conscientiously put a process that is very transparent to encourage the real players to come into the industry. If you look at some of the players today, you will see a difference. Some years back many blocks were awarded, how many of them came to fruition? Only very few are being operated by Nigerians.

    They are the few examples that I can give and both are managed by professionals. Although you cannot stop anybody from being an investor, you don’t have to be an expert in oil and gas to invest today but you can be an investor and you risk your money. But it is important that when that is done, there has to be a proper process in place to ensure that Nigerians get the best out of it.

    How would that happen? It is by ensuring that these fields are run by Nigerians mostly? You can achieve this by putting up a proper process during bidding in such a way that there have to be criteria; with the criteria that encourage Nigerians to manage the blocks, that will make a lot of difference.

    I believe that the future is still looking good, we have learnt from our mistakes and like I said earlier, we want to be higher than where we are today. Where we are today is a major move from where we were 20 years ago.
    Can you talk on your marginal field?
    We are only a participant in it. We are not the operating arm, at all. But I can tell you also that one of our sister companies, Frazimex won a block in Sierra Leone. It is a deepwater block offshore Sierra Leone.
    Do you have any intention of playing in the E&P terrain in Nigeria?
    Yes, it is a matter of having the right plan and system put in place. Our major purpose in Nigeria is entirely service delivery but we are ready to move into E&P because we can now synergise. We move into this field, we now have what it takes even to support most of the farm-ins. We are waiting for the next bid round to come up. We will also be involved in the next round of bidding for marginal fields.

    The passage of the Petroleum Industry Bill (PIB) has been delayed for long. Do you believe the non-passage of the Bill has impacted the oil industry negatively?
    You are conservative and modest. I can tell you categorically that non-passage of the PIB is a disaster to Nigeria oil and gas industry. It is a complete disservice to Nigerians. We have to make sure that we pass a PIB that reflects a situation where we get the best value for our resources while encouraging foreign participation as much as possible. It has to be a PIB that opens up the industry further to investments by Nigerians and non-Nigerians. It has to be a PIB that lays a ground work that will enable Nigeria as a country tap the most out of the resources they have.

    We have experienced people in the National Assembly. In my opinion, the onus is on the executive arm to do the right thing for Nigerians. I’m urging everyone involved in the process to realise that it’s time to move. I know that they are patriotic but they also know the duty they owe Nigerians, and I’m sure they will be able to do that because the cry is getting louder by the day and I know they know what to do.
    As an operator, can you list some challenges facing indigenous players?

    There are challenges but funding is the major one. Availability of finance and cost is a major issue, if not more than 50 per cent of the challenges. The other is security. It has to be dealt with to reduce the cost of doing business. Also, we have to continue to build capacity in terms of skills. To move forward, we have to keep building capacity and skills. Even America as advanced as it is today continues to build capacity and skill. They train people, retrain them and give them the opportunity to keep growing and learn new things because technology evolves.

    The technology we have today may be obsolete in a year or two, so we have to keep training and retraining. It is a fact that we have to make a conscious effort to work on because, without that, we cannot be in a position to tap the best out of our resources.

    The oil industry says that Nigerian graduates are not employable. Don’t you think, it is a serious blow to the already extant gap we have in the industry as a country?
    There is a major issue with the quality of our education.

    To say the least, it is very poor and many things led to this. But again I’m one of those in life who don’t believe in just complaining about something but also in doing something about it. Until Nigeria does something about our education, the country will remain limited in her ability. And the issue that is even more disturbing is our ability to take the best advantage of what we have. If we don’t have people that can compete with the rest of the world, what it means is, we will end up holding the wrong end of the stick, end up always being on the losing side because education is key.

    Without education, people, nations and systems will have a bleak future. The only way we have to improve is education. Take yourself as an example, if you didn’t have the opportunity to go to school in one form or the other, you wouldn’t be here today. You probably would be wasting or wasted somewhere and the same thing applies to me. The reason why we can sit down today and talk about competing with the rest of the world is because we were given the opportunity to go to school and we got quality education. So, education is the key and until the government gives the sector serious attention, we are not going anywhere.

    Do you see a Nigerian company being competitive enough to rub shoulder with international oil companies in future?
    I see that. It is possible, not only from standpoint of belief that anything is possible but looking at the factors that are involved, it is possible. It is just that it doesn’t just happen; you have to make it happen. You have to work for it, plan for it and it is not just by the efforts of the investors including Nigerians, it is also by concerted efforts of the government in setting up policies that will encourage that. It is a multitude of factors that will lead to that but it is very possible and that is what we want to do.
    What is your assessment of the government’s amnesty pro-gramme?
    In my view, it is a very good programme and to a large extent it has been executed very well. I give kudos to the Federal Government for thinking about that and taking the right decision but we have to go beyond that. What I mean by this, is that we have to find a way to empower Nigerians, particularly, those in the Niger Delta, so they will have work to do, think properly and not resort to carrying arms and that requires longer term plan and execution.

    Your company has done a couple of projects in Nigeria. Which one excited you most?
    It is a difficult question you asked because we have done a myriad of projects and each of them is peculiar. For example we did phases one, two and three of Greater Lagos pipeline project for Oando. That is peculiar because it was the first time pipeline is being laid in a very densely populated area, such as Lagos. People thought it would not be possible.

    We started it in 2001 but by 2002, we finished the first phase, did the second phase and finished the third phase three years ago. It is a peculiar one; it is something we are proud of. It is even more peculiar because in a situation we have a local company like Oilserv executing a major EPC project for a local company like Oando. There is nothing more important and significant like that when you talk of local content. Another one is clear intervention we did for Shell. I remember when Nembe oil field was taken out because of sabotage of a pipeline.

    Normally it was to take four weeks to solve the problem because getting into the swamp, detecting the leak, excavating, building a cofferdam, preparing, testing and reinstating, will take you a longer time but we went in there instead of doing it in two months or so, we delivered that in 14 days. It was a major activity and it was an activity that foreign multinational companies could not do, but Oilserv did that. We also built a 36-inch TNP manifold for Shell. That was a project that commenced in 1993 and was abandoned. In 2001, we moved in there and started it all afresh and delivered it in less than six months. These are key projects we’ve done that are very typical but beyond that, we have done many other projects such as building major export pipeline for Global Gas Refining, which is an indigenous company, from Cawthorne Channel to Bonny River six years ago. It is 26km in the swamp.

    We built a power plant, which included 13km of pipeline from Ikeja to Akute to power the Lagos Water Corporation and Akute Power Plant. That was the first time an indigenous company took such an EPC job from beginning to end. There are quite a lot of others but we are glad to have done all these.
    Why don’t Nigerian operators play in the deepwater terrain?

    The major difference between offshore and operating on land, or in swamp is purely the issue of the cost of the project and the issue of logistics. The technology is there, we can lay pipelines in offshore the way we lay on land. All it requires is that we need to invest more, get a lay barge that will cost millions of dollars but make sure that you have the opportunities because you cannot get a lay barge and keep. It is infeasible. Basically, the major impediment in offshore projects that doesn’t allow Nigerians not to move into offshore is cost. We require deep pocket to do that because the technology and knowledge are there already.

    An Oilserve subsidiary undertakes power projects, why shouldn’t Nigeria fix its power problems?
    It is not a big problem. Every technical challenge has a solution. And trying to use the solution, you create opportunities. We don’t run away from problems, we deal with them. Nigeria’s power sector has suffered tremendous difficulties. It was neglected for many years and when decision was taken to act, the decisions were good but the processes were not well thought through and some errors were made at the very beginning.

    I know now there is a lot of effort to solve the problem. I know the president is very committed but let us be clear about the issue. Improving capacity in power is not a one day affair, it takes time. It is a long process because here we are talking of generation, transmission and distribution.

    You have to put all those things together in order to achieve result. If you generate a lot of capacity and you cannot transmit, there is no power still. If you generate and you can transmit but the distribution system doesn’t have the capacity to take the power and give to various end-users, you still have a problem. So, you have to integrate entirely and it is only when you do this integration that you can be in a position to solve the problem.

    How would you describe the importance of Offshore Technology Conference (OTC) to the oil and gas industry?
    OTC as an event is very important to the oil and gas industry in many ways. We have to accept certain facts. One is that OTC is the biggest oil and gas show in the world as far as it concerns a show that showcases technology, the activities and all the various opportunities in the oil and gas industry. So, participation in OTC is most important way of showcasing the oil and gas industry to the rest of the world.

    The industry is quite active in Nigeria and we know that it is our duty to make sure the world knows what we are doing and put to the world all the opportunities that are available that can create synergy as far as production or exploration is concerned. It is also good for Nigerians to come here and see the technologies that are coming up that can be deployed in operations in Nigeria that can make our own work more efficient.