NNPC Spends N3 trillion Yearly On
 Procurement , Launches  Electronic
 Purchase Mechanism
By Mathias Okwe
 13th DEC 2006

 
The Nigeria National Petroleum Corporation (NNPC), has disclosed that it spends $24 billion (about N3 trillion) yearly on public procurement for services and programmes.
This amount represents all expenditures incurred by Multi-national Joint Venture Operators as well as government equity funding contribution in the Production Sharing Contract (PSC) On a worrisome note, about 80 per cent of the amount, according to the corporation, are being taken out of Nigeria as capital flight as most of the purchase and companies handling the procurement are foreign outlets.
The Group Managing Director of NNPC, Mr. Funsho Kukpolukun, disclosed this at the launch of the $350 million Local Content Fund for oil and gas companies in Nigeria as well as the inauguration of a Steering Committee for the newly established Nigerian Petroleum Exchange (NIPEX), which is to henceforth conduct all NNPC's procurement activities electronically.
The newly adopted strategy is part of the corporation's efforts at stamping out corruption and institutionalising transparency in its procurement processes. The electronic bidding and procurement strategy also aims at ensuring competitive pricing; process cost reduction and better collaboration between suppliers; buyers and the NNPC.
Again, to encourage indigenous companies' participation in the procurement, most of which the NNPC is looking inward for local fabrication, the Local Content Fund facility would be available for them at a single digit interest rate.
And to safeguard and guarantee the security of the fund, which is a revolving one against abuses as recorded in past programmes such as the National Economic and Reconstruction Fund (NERFUND) and the Petroleum Equalisation Trust Fund (PTDF), a consortium of banks with the United Bank for Africa (UBA) has been appointed as the mandated Lead arranger while the BGL Securities Limited is the fund's financial adviser.
It is part of efforts by the (NNPC) to institutionalise Nigerian local content in the oil and gas industry. International Oil Companies (IOC) and the NNPC are also expected to boost the fund with additional $1 million.
The initiative will provide a pool of local funds for the execution of oil & gas projects in the country, thereby gradually reducing the dependence on foreign financial institutions for such funding and also helping to stem capital flight in the industry.
Besides, UBA Global Markets and BGL, others involved in this historic project include all the oil majors, 10 other banks and key stakeholders in the oil & gas industry.
For years, stakeholders in the Nigerian oil & gas industry have been brainstorming the issue of improving local content in the industry. The NNPC had given a deadline of 2008 for the proportion of Nigerian content in the financing and contracting of oil & gas-related activities to be increased to at least 45 per cent.
On Friday, 25th November 2006, while delivering a paper at a symposium on Developing Internal Capacity for Financing Nigerian Content in Oil and Gas organised by the Senate Committee on Petroleum Resources (Upstream), Mr. Tony Elumelu, the Group Managing Director/Chief Executive Officer of UBA Plc had praised the NNPC for sustaining the initiative, asserting that the programme was capable of providing evergreen funding of term-debt capital for the Nigerian oil service companies.
Last Friday’s ceremony involved legal documentation and agreement signing among all concerned parties and the NNPC.
Already in anticipation of the take off of the local content fund, first in the 50 year history of oil & gas exploration in Nigeria, about 50 applications from indigenous oil service companies who wish to benefit from the funding for the execution of their contracts, according to the NNPC had already being receiving and were lodged immediately after the agreement signing.
Given this fact, it is evident that the NNPC is well on its way to achieving its 2008 target of 45 per cent indigenous participation level in major oil and & service contracts.
Speaking at the launch event, the Managing Director/CEO of UBA Global Markets, Mr. Sonnie Ayere, stated that Nigerian oil & gas companies would soon be relieved of the burden of sourcing funds from abroad for their projects with its attendant huge costs on operators and the nation.
This is the first time Nigerian investment banks are providing advisory services and arranging funds via innovative financing structures for the NNPC to benefit indigenous oil & gas operators, Mr. Ayere said, adding that Nigerian banks, with UBA taking a lead role, are growing and playing in areas that hitherto were the exclusive preserve of JP Morgan, Merill Lynch, CSFB and other foreign investment banks.
He lamented that Nigeria had in the past been losing billions of naira to capital flight as a result of the absence of a deliberate local content policy and concluded that with the emergent regime, Nigerian banks, indigenous oil & gas companies and other stakeholders in the nation’s oil & gas industry will soon begin to record exponential growth while the frustrations of locating funds for executing projects would be a thing of the past.
As concerns the capacity of Nigerian banks to absorb the risk involved in big-ticket oil & gas projects, the Executive Director of BGL, Mr. Chibundu Edozie, said that Nigerian investment banks are now able to structure and arrange funds for sizeable transactions of this nature.
Mr. Edozie proclaimed that Nigerian banks are better organised, better skilled and have a larger risk appetite .He called on all stakeholders to support the initiative.
The Local Content Fund will, by default, serve as a first recourse to accessing local funding for Nigerian oil service companies because of its attractive and competitive pricing structure.

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