In the year 2010, the Federal Government of Nigeria introduced the Nigerian Oil and Gas Industry Content Development (NOGICD) Act as a tool to assist indigenous companies scale-up their scope of business participation in the industry, especially with the aid of the Nigerian Content Development Fund (NCDF) that the NOGICD Act also established. In a recent interaction with Valuechain, Obinna Ofili, who is the general manager, NCDF, at Nigerian Content Development and Monitoring Board (NCDMB), spoke extensively about the evolution of NCDF and how the Nigerian Content Intervention Fund (NCIF) eventually emerged from it, writes YANGE IKYAA. Excerpts:
What was the philosophy behind the Nigerian Content Development Fund and how did it come about?
The Nigerian Content Development Fund (NCDF) was a creation of the Nigerian Oil and Gas Industry Content Development (NOGICD) Act of 2010 and the contribution to the fund was supposed to start immediately in April 2010 but there was some form of resistance because when it comes to money, it is not easy to part with money, so it took up to 10 years for Nigerian Content Development and Monitoring Board (NCDMB) to see how it could implement the Act and see how far it could go in meeting the requirements of its purpose before going into the creation of regulations and guidelines to support it. This process took about nine to 10 years.
This same template was adopted with regards to managing the finance, as the board started to collect the one percent financial contribution from oil companies’ revenues but did not do enforcement to ensure compliance and payment by oil companies. Instead, moral persuasion was used to try to encourage the industry to cooperate or comply with the law, and these funds were beefed up for three years from 2010 to 2013 before we now established what we call the partial guarantee scheme.
Give or take, the aspiration of the board was to bring down the interest rates on loans taken by the industry to single digit, which has been an aberration in this country; businesses don’t get loans with single digit interest rates, so that was the first aspiration of the board. We tried everything we could to get the banking industry to do that but it was difficult, making us to come up with the partial guarantee scheme, whereby we guarantee every loan given by commercial banks for the purpose of increasing capacity and capabilities of Nigerian oil and gas firms and growing Nigerian content in the country’s oil and gas industry.
We supported them by issuing 30 per cent guarantee on the loans such that if any loan fails, the 30 per cent will be paid to the lender from the NCDF, that is the bottom line. In addition, we said that we will give 50 per cent on interest repaid, that is to pay back 50 per cent of the interest incurred on performing loans by any Nigerian oil and gas company that has accessed money from the content development fund. Then, interest rates hovered between 18 and 19 per cent, meaning that if NCDMB facilitated the payment of 50 per cent of these interests through NCDF, the burden could go down to single digit, that is just the philosophy.
How did the fund perform in terms of meeting the Federal Government’s aspirations for its establishment?
Incidentally, only three companies were able to access this wonderful package, so NCDMB went and did a review and realized that there was something wrong. It’s either the commercial banks were not cooperating or the industry was not receptive to that product, so a review was conducted by NCDMB, and it was that review that gave birth to what we now have that is called the Nigerian Content Intervention Fund (NCIF). This means that NCIF was born from the desire of the board to make sure that we remove those who have very deep motive in profits, so the bottom line was to get the manager of the fund to be a development bank with pedigree, and the biggest and the best, owned substantially by the Central Bank of Nigeria as the principal shareholder, is the Bank of Industry, and that is how NCIF went to the Bank of Industry.
What is different about NCIF as compared to NCDF?
The introduction of new products is the main difference. Five products were developed in this regard, one of which is asset acquisition, and leveraging these products, about 53 companies have been able to access this fund within a relatively short period of time.
The oil and gas industry is so capital intensive because most of these assets needed for projects come from outside the country and are priced in dollars and that is why most of the asset classifications in the policy documents are denominated in dollars, since most of these things are acquired in dollars.
Talking more on asset acquisition, most of the assets in the Nigerian oil and gas industry were owned by foreigners, yet we have the mandate to increase Nigerian content, increase the participation of the locals or Nigerians in the nation’s oil and gas industry. So, any single borrower can access up to $10 million if what you are borrowing for is manufacturing or to produce inputs or items used in the oil and gas industry; this can qualify you to take a loan of $10 million under the fund under the Bank of Industry. This is the same thing for asset acquisition, such as the purchase of vessels like security vessels, oil lifting vessels, and other forms of assets. Then, for contract financing, if you have a contract in the oil and gas industry, you could access up to $5 million. And, just like I have said, so many companies borrowed for very good purposes but were dying under the heavy interest burden, high interest rates, so there is another financing product that helps you to go and exit that loan and come into the NCIF and enjoy the privileges of this facility.
Now, the community contractor finance is another product, which is meant for the indigenes of host communities, and the contracts they usually get are small; so the maximum loan value they can get from this fund is N20 million. This product is denominated in naira.
How do you address the issue of collateral with regard to these loans?
Let me talk about the collateral, which is usually a bank guarantee; you must get a bank guarantee and it is very important to also say that when you talk of success, it is fundamental for everybody to know that this loans are not a gift; it is business. The oil and gas industry entails very serious business and only very serious minded people or companies and individuals play in the field, or are supposed to play in the field. So, if you access this facility, the bottom line is that you must repay. And to make sure that you repay, it is structured in a way that it is really secured and the most fundamental security in this regard is the bank guarantee. If you get a guarantee from your bank, you can get the loan, and that is if the bank guarantee is sufficient for the value of the loan you want to get.
Alternatively, you can get a legal mortgage from properties acceptable to the fund manager, which is the Bank of Industry, that will cover both the value of the loan and, normally, there is some allowance to cover for the interest rate. Federal Government bonds or treasury bills that will cover the value of the loan are also acceptable. Then, like I said, the major collateral that is easier to get and without much difficulties involved in being cashed back is bank guarantee.
How about the interest rate?
The interest rate for the loans under the NCIF is 8%, single digit, whether you are borrowing in dollar or you are borrowing in naira, it is 8%. We know that there is nobody that matches that in this country; no body matches that. Even for the 8%, as we moved from 2019 to Covid-19 in March 2020, the top management looked at it and decided to give palliatives on every facility because when the pandemic came, the economy almost collapsed globally, not only in Nigeria. So, as palliatives were being given in other countries, we also gave palliatives by reducing the interest rate on the loans under the NCIF from 8% to 6% and that is what is still applicable now until March 2022 because the palliative is for two years.
Besides that, we also increased the tenor; the tenor is five years but we increased the tenure by the same two years on principal repayments and the moratorium will also be increased by the same two years. So, these are all the palliatives we added. Usually, the moratorium is between six months and 12 months but the moratorium on principal repayment is now two years for those that desire this facility till March 2022.
One other good thing about this fund is that the credit risk is 100 percent borne by the fund manager, that is BOI; they are the ones that will process, review applications and disburse the loans. This ensures that there is due diligence, professionalism, and seriousness on the part of all parties, especially the borrowers, and the process can seamlessly run as a business.
