Poor financing structure hinders local competitiveness in oil sector

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RigPaucity of funds has been identified as major constraints to growing indigenous companies positioned to operate in the nation’s oil and gas sector.

Indigenous operators in the sector have continued to lament the poor financing structure adopted by local banks, which they claimed was not encouraging to business Nigerian business climate.

The Chairman/Chief Executive Officer, Elshcon Nigeria Limited, Emi Membere-Otaji, told The Guardian that the financing structure has “not been very good”, compared to what is obtainable in other part of the world.

He explained that most of the Nigerian banks give facility based on LPO financing structure, which portends danger for the upcoming indigenous firms that aspire to venture into the oil and gas industry.

Besides, it left a big challenge on the realization of the local content agenda of the Federal Government, as many of the aspiring firms may find it difficult to attain the required standard of level that would enable them to compete favourably in the capital intensive sector.

According to him, “Most of our banks want to do LPO financing; this means that the company must first secure a huge contract before they can grant facility.  Meanwhile, before you get the LPO from the multinationals, (for example in the EPCI business), you are supposed to have a yard, fabrication equipment and necessary manpower. All these require money. So, it only those who are already well established, that may get headway.

“Also, in the marine sector, they will request for a new generation vessels. You know the oil majors are going deeper into the ocean and they needed more sophisticated vessel and they are very expensive. So for you to be able compete with other foreign companies, you need to have these. The oil companies will say go and get these facilities to get the job, the banks will say go and get contract to get money. So, how do you go about this? It remains a problem that has continued to militate against the growth of local firms,” he said.

Citing the case in Asia, Europe and America, he said, business deals were done on premium basis, therefore the opportunities for expansion are enormous.

He however, applauded Access Bank for offering support to the company without LPO financing, to purchase two vessels.

“I think that is laudable. They just examined our other assets, the business and they gave us money to purchase two new vessels. Although, we also met the 30 per cent.” he said.

 

[The Guardian]

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