Cost of expansion phase 2:USD 500 billion
Quay wall expansion completion date:March 2016
New private competitionApril 20, 2016
Amy Jadesimi, the managing director of Lagos Deep Offshore Logistics Base (LADOL), talks to TOGY about the impact of the base’s expansion on the country's economic interests, strategies to attract IOCs despite the low oil prices as well as possible diversification plans within the base.
Can you give us an update on LADOL and the road to it being completed in August?
LADOL started developing in 2001. Back then it was just a logistics base and ship repair yard. By 2011, we were the largest rig repair facility in Nigeria.
In 2012 we started phase two, which had different components. The first one is the shipyard, which we built with Samsung as our technical partner. It is large enough to host an FPSO. We are currently working on the Egina FPSO. The yard has been operational since August 2015. The quay wall is going to be completed in March of 2016.
The other part of phase two is expanding the existent infrastructure, including a 24-MW power plant; accommodation for 500 people; a new passenger terminal, which is more like a small airport because we’re a free zone; and an additional 300-m quay wall.
By the time we finish phase two completely, we’ll have about 1 km of quay wall and a lot of other infrastructure. We will spend about USD 200 million on the general infrastructure in the free zone and USD 300 million on the Samsung facilities. Phase one was around USD 150 million, and phase two is USD 500 million all together. We are about halfway through phase two.
How do you deal with the turning basin challenges?
The turning basin is not an issue, but it keeps coming up for some reason. Lagos Harbour is the largest harbour in Nigeria, and it gives you the shortest, deepest draught from the open sea into the quay wall. We specifically chose LADOL’s location because of the harbour’s geography.
Prior to building any facilities, we carried out marine simulations that identified LADOL’s location as being the safest and easiest location to bring the largest vessels in the world, including FPSOs, into berth.
For example, the shipping lane is at its widest at about 500 m all the way through, so you could fit the FPSO. There are two turning circles in the harbour: one opposite LADOL and the other around the corner. Simulations done by the NPA’s [Nigerian Port Authority] own team show that both of these turning circles can be used for the FPSO.
Far from there being an issue, Lagos and LADOL are actually ideally suited for the FPSO. Because the FPSO is such a game changer, people want to make sure everything is going to work, but everybody should be assured that Total Upstream Nigeria and LADOL would not have spent USD 300 million building this yard if we were not absolutely sure this will work.
In fact, large vessels have already been coming into Lagos. FPSOs are about 300 m wide and Maersk has already had a 300-metre vessel berth directly opposite LADOL. We know that Lagos Harbour itself can handle a vessel of this size.
The only area where we’re going need to up our game a bit as Nigeria is actually when it comes to the tugs. For an FPSO you need bigger tugs than when you’re pulling a container vessel.
Other than upgrading those tugs, I think Lagos is ready. That’s partly because the Nigeria Port Authority has been so good about dredging the channel for the past six years or so. They’ve been really methodical and maintained the draught at 10 m or less, so big vessels now come into Lagos routinely without worrying about the draught.
A lot of people think that LADOL will affect economic interests or jeopardise those of others. Can you explain what investors should realise about what LADOL would provide?
I think that we have, as many other emerging markets have, created monopolies in Nigeria. In the logistics sector, certain ports were concessioned with very favourable terms in 2006, such as the four ports given to Intels. Intels is 100% funded by government to this day and that has allowed them to monopolise the provision of oil and gas logistical support.
LADOL is 100% privately funded, and I think we are the only 100% Nigerian operator. Our value proposition is very different to the value proposition of this monopoly. Our constituents and our clients are the oil and gas companies and the other industrial companies with servicing, and it is in our interest to add as much value as possible because that’s the only way that we can get business.
If you are funded by the government, your main priority is to stay on good terms with or otherwise influence it. While our interest and those of our clients are aligned, a government-funded monopoly has no incentive to add value to its clients.
In addition, as with all monopolies, Intels prices are extremely high, probably the highest in the world and at least double those of LADOL.
Legitimate private sector investors and operators are essential for solving Nigeria’s major issue, which is lack of infrastructure capacity, in the first instance, and human capital development in the second. Human capital development happens pretty quickly once you can actually do the work in facilities in country.
There are a handful of people who are acting in their own self-interest and fighting legitimate private investors. This is clearly inimical to the growth of Nigeria. Historically, these people have stopped Nigeria from developing but under this government we believe we will make great strides as the rule of law will be enforced.
There are a handful of short-sighted people running a crumbling and corrupt monopoly whose time has now passed that would like to stop private investors from developing the country. This isn’t just about Ladol versus a foreign-owned monopoly, this is about the emergence of a new generation of Nigerians who are investing heavily in capacity, vessels, oil blocks, logistics bases, new agricultural enterprises and power stations.
This is a dramatic change in the way the Nigerian economy is run, this is like MTN coming into Nigeria and revolutionising our telecom industry, but the impact from modernising the petroleum sector in the same way could propel Nigeria into the G20. LADOL is just one of the private investors in the maritime and petroleum sectors ensuring that we get into the G20 sooner.
How do you think Intels is coping with the competition?
I think Intels is going out of its way to try and shut down companies like LADOL. There’s no question about that. They would openly say they believe they should be the only company in this business.
That argument itself is self-defeating because no government could agree to that. Our government has made it clear on several occasions that they don’t agree with that.
As long as they continue to receive favourable terms from government, they continue to receive financing from government. We don’t have a problem with that; we don’t have a problem with them at all. In fact, the existence of LADOL, which is increasing the size of the local market fourfold, will of course mean more business for Intels. What’s important is that we have a level playing field and that it is impossible for companies like Intels to continue to hold Nigeria back by forcing a monopoly on the country’s two largest economic sectors.
We can’t waste any more of our time even discussing whether or not it’s a good idea for private sector to invest. We’re beyond that. If we’re talking about that, we’re having the wrong conversation. What we should be talking about is where we need the private sector to invest and how can we get them to invest. Those are the only conversations that should be happening.
What policies do you think could be implemented by the Central Bank of Nigeria to help long-term financing of projects?
We should move to long-term lending for infrastructure based on naira loans. I would also like to see the vice-president’s economic plan include ways in which investors and industrialists can access the foreign capital they need only buy equipment and materials they need to import to develop local capacity.
I can see where both sides of the “to devalue or not to devalue” argument have a point, but they’re also both missing the point. The real issue is when we spend dollars, what are we spending it on? Are we importing toothpaste? Or are we importing the machinery to make toothpaste?
I would like to see the vice-president put out a plan that says if you’re importing machinery to make toothpaste, here is how I’m going to make sure you get the cheapest possible debt locally and also get access to the dollars you need. Then the next three years would be highly productive.
How do you think that NIMASA could boost their efforts to help you on security matters?
The reaction in different parts of Nigeria needs to be more specific. In Lagos, the private sector could play a big role. The security situation in Lagos is very different from the situations in other parts of the country. We have to do a better job of making sure that we project the right information to the rest of the world and let them know where they can or can’t go.
For example, when we had the problems with the IRA in the city of London in the UK, for a time every car going into the city was stopped and searched. The entire UK was not a no-go area, and business continued as normal.
We have to collaborate more as an industry because we need collective bargaining when it comes to certain things such as insurance. Every vessel that comes into Nigeria is classed like it is going into a war zone, as if there is no difference between here and Libya. Clearly, that’s incorrect.
We are subjected to enormous surcharges because we are not working together, we’re not collectively going to the government and saying, look, there are some security problems, but let’s distinguish between when you’re on ISPS [International Ship and Port Facility Security Code] 3 or ISPS 1, the lowest out of three.
There are some things the private sector can do by working together, and there’s some things government can do. Maybe the government and the private sector together need to do a better job at projecting the reality, which is that Lagos is an extremely safe place. It’s a cosmopolitan city. Abuja is also extremely safe, and the areas where we have problems are being dealt with.
You’ve said that while oil prices are low, you are looking to attract IOCs. Why do so while the oil prices are low, and how do you plan to attract IOCs?
It’s already happening. Because we’re in Lagos and because our prices are cheaper, we can save the deep offshore operators and offshore close to Lagos 50% of their operating cost. That’s pretty much undisputed. Half of the reason that it’s undisputed is that in 2006 the three biggest IOCs in Nigeria – Chevron, Shell and ExxonMobil – did a tender for a deep offshore logistic base in Lagos consisting of components that have now all been built in LADOL.
They’ve already done their internal analysis, and they know that just being in Lagos for offshore support will save them 25% without doing anything else. Then you get into the cost comparison. We’re an integrated base, so everything happens faster. This is a different type of service position. I don’t usually get pushback on the 50% saving. In fact, I was in a meeting earlier where I was told that the savings is more like 60-70% depending on your oil block and how close you are to Lagos.
The problem we have is when the oil prices are above USD 100 per barrel, people behave irrationally for lots of reasons. Certainly, there isn’t enough of a drive for them to save costs when their margins in Nigeria are actually pretty good anyway.
Now that the oil price has corrected, maybe overcorrected, and we have a government that is seriously talking about renegotiating its contracts with the IOCs, it is imperative to get costs down and for offshore that means Lagos. Companies that services oil companies are also desperately trying to look again at how they do business in Nigeria and save costs. That’s going to include moving to Lagos for their servicing clients with offshore blocks.
Which elements of local content would you like to see enforced by this new government?
Before 2010, local content was more of a “nice to have” rather than a “must have.” Now it’s the first, second and third thing people talk about. I think we’ve already done a good job as a country of making local content front and centre in discussions.
We need to work on making local content work the way it should: It should lower costs. In Nigeria, the market has the incorrect impression that local content raises cost. I would like to see the government be very strict about how they approve local content in terms of the Nigerian partner involved. In other words, if you have an agent who has no local capacity as your local content partner, then your cost would be higher because you’re just adding an agency fee to the cost of whatever you’re doing outside the country because there’s no capacity to do it in country.
You need to make sure that the Nigerian workers actually have the ability to do the work locally and that the foreign partner or the company that’s given the contract actually does what they are supposed to do in the country. I think that will revolutionise things overnight. It’s happening partly because of LADOL, but also the oil price, which, even where the naira is right now, is driving people to purchase locally.
You can easily go into a virtuous cycle. Repairing your rig in Singapore is enormously expensive, not to mention the cost of taking it over and bringing it back. It would clearly be more beneficial to repair your rig locally. But you have to, first of all, have faith that the capacity is here. Then, you need a bit of stick, because oil and gas operators don’t like to change. They get used to doing things in a certain way.
You do need to give them a bit of a push to do what it logically makes sense for them to do. I think the oil price is giving them a bit of a push, and I think the full enforcement of local content would also help with that. But the two things have to work together; you can’t tell people to follow local content and then not give them anywhere to do the work locally.
How can companies be motivated to join LADOL more quickly?
We need to keep doing what we are doing but maybe a little louder. Right now there’s a lot of awareness about us within the oil and gas industry, particularly in Nigeria, but we need to do more internationally. We need to raise our profile internationally; we need to explain who we are. We’re a company that is 99% focused on work on the ground and now we need to focus more on telling people about the good work we’re doing.
One comment people often make is that LADOL is one of the few places where the reality is better than the reception. This isn’t actually a good thing, particularly if they are talking to me as the managing director. This means I’m not doing a good job on the perception side. We definitely need to raise our profile, and we need to explain the value that we have on an international level.
How do you plan to do that?
We are already doing a lot more. We are getting involved in a lot more international conferences and international dialogues. We are having meetings outside of the country, where a lot of IOC decisions are made. I also think that our relationship with this government is helped in the sense that this government is looking for solutions and we’re are a solution provider. Dialogues at high level of government and internationally help.
In December we launched our advisory board. We have Lord Mark Malloch Brown, Professor Fidelis Oditah QC and Tanimu Yakubu. Tanimu is the former chief economic adviser, currently advises several DFIs [Development Finance Institutions] and he is well known in that world. Fidelis sits on the board of a number of oil and gas institutions and is the foremost legal mind in Nigeria, and Mark was cabinet minister in the UK and the number two at the UN, he actually wrote the Millennium Development Goals [MDGs].
Having that technical advisory board has helped a lot in the types of dialogue and in the way people see us. I have recently joined the Global Commission On Sustainable Development, which is also going to be enormously helpful as we want to bring the SDGs [Sustainable Development Goals, which replaced the MDGs in 2015] into our corporate policies and I personally believe that the private sector will be essential to making the SDGs a success.
Although I have some scepticism about the role some NGOs play in Nigeria and Africa in general, I think this particular commission, working alongside the UN, focused on how the private sector in different countries can achieve sustainable development will do a lot of good.
It is essential for companies, growing markets and even highly developed countries such as the US to close achieve the SDGs. For example, the US needs to look at their environmental policy, and they need to look at how they can get special interests to see environmentally friendly solutions as a business opportunity.
All around the world, irrespective of the state of development of your country, I think the SDGs have a role to play. Obviously for a growing economy like Nigeria, the goal is to get them right and embed them in a business model that creates infrastructure, jobs and attracts foreign investment.
In your interview on BBC in December, you talked about President Buhari and his rule of law and how this is going to affect the image of the country. People have this skewed perception of Nigeria because of all the bad press; do you think Buhari has overall helped companies like LADOL with his campaign?
I think it has already helped tremendously. I think that we live in a world where there is a lot of corruption, particularly in the oil and gas industry. When I was growing up, the last thing I wanted to do was to be in the oil and gas industry. I hope in another five years, we will be equally represented in other industries.
It is very difficult to talk about corruption as a Nigerian without feeling hard done by. We didn’t invent corruption, but we get blamed for most of it. The President’s focus on rule of law, both in terms of security and in clamping down corruption, is necessary because Nigeria is seen as the worst offender, even though I now we aren’t. The perception people now have, that corruption is not tolerated, even in the oil and gas industry is enormously important in attracting new investment into the country.
More than that, at LADOL we’ve invested all our money on the ground. Our value added is that, if you are a transparent company that’s following the rules, you will want to do business with us. If you are not a transparent company and you’ve been gaining a lot of business using back channels, you don’t want to do business with us, because if you are the sort of company that gets waivers or uses some other means of avoiding local content then the last thing you’re going to want to do is contract with Ladol.
In this environment, where those sorts of activities won’t be tolerated, naturally local people are going to gravitate towards us as well. I think in terms of perception and in terms of the reality on the ground, the President’s position of zero tolerance of corruption is very important.