Having pioneered a one-stop approach to logistics services for Nigeria’s oil and gas industry, Intels Nigeria Ltd. has become the logistical leader in providing key support services to the country’s most important sector. Managing Director Simone Volpi discusses Intels’ plans to take the industry forward, how the port and free zone at Onne have the edge over rival installations, and the government rubber stamping a new, $500m phase of development at Onne.
How would you assess the potential of oil and gas on the African continent?
According to a study by McKinsey in 2010, future oil discoveries in Africa are set to increase five times more than their current level; this is the reason why the International Energy Agency (IEA) predicts that about $2.1 trillion has to be invested in African oil and natural gas supply infrastructure between 2010 to 2035. This is the only way for us to realize our true potential for oil and gas.
In the end, it is all about infrastructure. We cannot move forward without the right infrastructure.
Nigeria is the leading oil and gas producing country in West Africa. What are the factors behind the country’s strong economic performance?
Nigeria is the largest economy in West Africa, and is one of the fastest growing economies in the world (comparable to Brazil, China and India). Its robust oil and gas industry drives the country’s economic growth. The oil and gas sector comprises more than 90% of the country’s foreign exchange and 80% of its exports.
How does Intels tap into all this activity?
It is important to have the proper logistics support available. One day lost because of a logistics error means millions [of dollars] lost. According to McKinsey, the cost of logistics in countries like Nigeria could be as much as 30% of a project’s total cost. This covers logistics across the board, including offices, housing, air tickets, and so on. As you know, every new company coming in is going to need housing for their employees and an office. After which, they have to consider the supply of materials. It is a crucial part of their operations.
is a specialized logistics company that was created specifically to cater to the oil and gas industry. That is our main focus. We have the facilities and the resources to cater to their logistical needs.
What is your outlook for the industry in Nigeria?
The oil and gas industry will continue to develop. New technologies and alternative sources and solutions will develop over time, and particularly in the area of power generation. We need to diversify into other areas if we are to survive. It would be wise for the country to invest a portion of its oil and gas revenues in sectors such as agriculture and other industries, including logistics.
You mentioned the need to diversify and invest in other industries. What opportunities exist for logistics companies?
We need to invest a portion of the country’s oil and gas revenues in infrastructure to allow for smooth logistical operations. This includes developing sound rail and road systems. Right now, we have the Onne Oil and Gas Free Zone, which is fully dedicated to oil and gas. The difference between the Onne Oil and Gas Free Zone and the other free zones under the Nigeria Export Processing Zones Authority (NEPZA) is that it really works. Other free zones are not as active. You have the likes of Calabar that has seen huge investment, but has little or no activity. Onne is successful because it is has a free zone that is dedicated to oil and gas, where investments are huge. Safety, security and infrastructure are among its key attributes, and we have approximately 150 companies working out of Onne.
Intels, for instance, is managing three ports in the country on behalf of the Nigerian Ports Authority (NPA). It has a 25-year concession with the NPA (starting from the year 2006) with an extension opportunity for another 25 years. We manage a four-kilometer stretch of jetties in Onne, with drafts ranging from eight meters to 14 meters.
We have received approval from the government to invest approximately $500 million in Phase 4A of the Onne project. You see, Onne Port has two terminals; namely, the Federal Ocean Terminal (FOT) and the Federal Lighter Terminal (FLT). A Dutch company started the construction in the 1970s, but never got to finish it. In 1982, they began developing the FLT under a PPP structure. Intels, which took over these developments, was established about then with a vision to develop “one-stop” transit and supply bases within the government-owned port complexes and in close cooperation with the Nigerian Ports Authority. Today, the total length of the quay is around 1,670 meters. The second, third and fourth berths have been deepened to an eight-meter draft. Apart from that, we are talking with the government about the creation of an additional 2,000 meters of jetty. These are all within the oil and gas region.
What are some of the benefits of the free zone?
The free zone contains existing facilities and infrastructure (roads, ports, etc.) that allow for the establishment of big industries such as methanol plants, fertilizer plants, and the like. Besides, the Act establishing the free zone encourages foreign direct investment and technology transfer, and the available tax incentives makes for the promotion of trade and value addition within the zone.
How vital are these ports to the economy?
Ports are essential to the economy. This is particularly true for the Nigerian oil and gas industry.
When will Phase 4A be completed?
Phase 4A of the Onne project will be completed in a year’s time.
How would you comment on the Petroleum Industry Bill (PIB)?
I know that things will start to pick up once the whole issue of the PIB has been settled. Right now, there is a slowdown in the industry. People have taken a more prudent stance as they wait for the PIB to be implemented before making major investments. Big oil companies continue to maintain their production, but they are not going for exploration activities. Big oil companies, as you know, tend to go offshore because of the technology needed. Smaller local companies, on the other hand, tend to explore onshore fields.
Nigerian logistics is rather unique.
The peculiar aspect of Nigerian logistics is that the Nigerian oil and gas industry is a mix of offshore, deepwater, and onshore operations. Logistics companies need to be able to cater for three or four types of solutions. The demands of offshore operations have more to do with materials, while onshore operations face other problems such as community issues, environmental concerns, and the like. Offshore, there is limited space on the rigs and on the platforms. Even the more spacious new generation rigs still need a lot of support from the shore base. Normally, you have three vessels attached to it – one for security reasons, and the other two for transporting materials from the base to the offshore platform or rig.
Intels managed to position itself as a one-stop shop. How did it become so dominant in the industry? What major challenges did you face?
Our founder had us operating out of a base in Onne at the beginning. Because of his shipping industry background, the initial plan was for the container terminal. At a certain point, we were asked if we could store some pipes and so on. We began to expand our offerings to include storage services for oil and gas companies.
To give you an idea, 20 years ago a supply vessel with a five-meter draft and a certain length capacity was enough to cater to the supply. Today, we have more and more deep-water operations in the industry. We have supply vessels with a 9.5-meter to 14-meter draft. The sailing time is longer so they need to bring enough materials to continue operations.
Apart from the FOT and the FLT in Onne, we have worked on the Warri and Calabar Ports. We have commercial and residential developments in Onne, Warri, and downtown Port Harcourt. The one-stop approach we pioneered in the industry has had far-reaching cost savings effect on the operations of the oil and gas companies.
You are right; we are the leaders in logistics for the Nigerian oil and gas industry. The company’s growth over the last couple of years has been tremendous.
A number of deep-sea port and free trade zone projects have sprung up, including the one in Olokola, Bayelsa, Ibaka, and Lekki. We understand that you are involved in a deep-sea project yourself.
Yes, we are working with a consortium of companies (namely, the Chagoury Group, the Macquarie Group, Orlean Invest, APM Terminals, Oando Plc., and Terminal Investment Ltd.) on a project in Badagry. It is a realistic project, in the long run. Badagry is actually 16 kilometers out of Lagos. It is still in Nigeria. It is a mega port set to service not only Nigeria, but also the likes of Ghana. It is set to decongest Lagos. It is the same system as you see in Hamburg, London, and other ports worldwide. It will be a state-of-the-art, full water service port with a seven-kilometer quay and a 1,000ha dedicated yard. It will have bulk and container facilities, as well as general cargo, barge terminal, and Ro/Ro services, and oil and gas operations support.
How would you describe the support you get from the financial sector?
As we started out as a small company, it was initially difficult for us to approach banks to acquire funding. Nonetheless, we managed to survive and gain financing for our projects. It is a mixture of reinvesting and equity (mostly, the former). For instance, we have worked in Angola. When the group decided to pull out of Angola and they sold our shares, the entire revenue from that sale was reinvested in Nigeria.
We have managed to self-finance in the past, but considering our size and the scale of the project, we might have to source additional funding from elsewhere. I think that, considering our track record and growth, approaching the banks will be much easier.
In terms of local content, what can you tell us about your human resource development (HRD) programs for your Nigerian personnel?
About 90% to 95% of our work force is Nigerian. This includes the management team. We spend a significant amount of our resources in training. We have programs for both local and expatriate personnel. We have an annual offshore training program. About a year and a half ago, we started our own in-house academy to provide specialized technical training for our personnel. The building is not ready yet – you can see the sand in front of you right now, but there will be a training center there. The idea is to provide training for our personnel, because we have realized that nobody has the right profile to work in a company like ours. Intels is a mixture of shipping, trading and forwarding (so you need to be familiar with customs procedures and so on), oil and gas, as you have to talk to clients of the likes of Exxon Mobil. If I do not use the terminology that an oil and gas professional from Texas for example wants to hear, he will not listen to me.
We are involved in two areas, so we need someone who is familiar with it. Our holding group is called Orleans Invest, which owns 100% of Intels and our other group companies. We also do coating, and we have a joint venture with an American company. We are going to be investing heavily in Lagos soon. So you cannot hire someone to go out and do whatever he needs to do on day one. The idea now is to find both expats and locals to undertake training for a certain period, such as six months, after which the academy will come back to the management and tell them if this person is OK and where they can be located in a suitable post in the business.
When I came here in 1996 we were 20 expatriates, and now we are over 450 working here in the Onne Oil and Gas Free Zone. Now we are talking about 30,000 Nigerians working here also. People were hired in the past if they knew people in the company, who would act as their mentor and would be a point of reference. Mr. Aganga is one of the most prepared men. Besides being a gentleman, he knows what he is talking about, and he is one of the few I have ever met in Nigeria at this level.
Last year we jointly organized an oil and gas conference in Port Harcourt, whereas normally these conferences take place in Lagos or Abuja. Niger Delta is actually the place for oil though; so we organized this conference together with Mr. Aganga and the Ministry of Trade and Investment. I would say it was quite successful, despite it being the first time. So we decided to hold another conference this year. This is good because it gives smaller local companies, which might not be able to afford to go to a conference in Houston for example, the opportunity to show their expertise.
Over the past two to three years, a lot of local companies have taken on a proportion of work that has historically been completed by large service companies. Local companies are taking over a certain share of the market, slowly but surely, especially on the onshore and shore areas, where technology is not so important. I believe it is fair for them to have the chance to participate in the entire industry.
Of course, local content is a fantastic idea, and is similar to what Scotland, Norway, Malaysia and Brazil have done, in order to industrialize the country. We are 100% in favor of local content. My father, my brother and I all have Nigerian passports, and this shows how much we believe in Nigeria and Nigerians. The Local Content Act is a fantastic move, even though it will probably mean that the industry will require more investment. But in my opinion, it also needs to be done in a certain way. Firstly, you need time, and you need infrastructure as well as electricity, and you need to give companies time to grow. At the same time, Nigerian companies need to understand that they need to reach a certain level, because the oil and gas industry standard is the same worldwide, and you cannot do without it.
We were talking to Mr. Egbe of Weltek about why he is not in the free zone, and one reason is the cost. We talked about the need for the government to subsidize these companies, because they cannot compete globally. They do not have the economies of scale or cannot compete with companies outside the country where their power costs are a lot less. Would you like to see a situation where you were able to fill this free zone with companies and get the government more involved with local content companies? You talked about a ‘crutch’ that is needed.
Yes. I would love to see a situation like that. We are very much involved with the Nigerian government. We do not own anything yet – we have been given a concession for 25+25 years. In 2006, the Nigerian government decided to privatize the ports in Nigeria, and of course, we participated in the process. I believe that it makes sense for the government to let Intels continue to manage on this basis, but still, the government is very much involved in all activities in Nigeria.
If you are talking about industrializing Nigeria, we are constantly talking to companies that are willing to come to Nigeria. One of the latest examples is a company called Tenaris, which is the number one producer of pipes for the oil industry. They are from Argentina and we have a joint venture with them. They have a coating plant in Onne, which is managed by them because we believe that they have more expertise in pipes than we do. The idea is also to go into a joint venture on the drilling side.
So we decided to build a pipe mill with them so they can produce pipes. We have the space, and I am sure the Nigerian government will be more than happy, but it is not happening because in order to build a pipe mill, you need a private sector market. But today the Nigerian market will not cover the production of one mill. Secondly, you cannot have a pipe mill on generators. The ports in Nigeria were built by the British during the colonial times to export palm oil, bananas etc. They are not meant to receive sea cargo – they are for exports. Where do you put the pipes? There is no space. You need ports to receive cargo, and that is why Onne is successful compared to the other ports. The costs are high compared to European ports or ports in North America but if you had electricity, you could develop whatever you wanted here, and it would be much cheaper and better for the environment.
How close are you to solving that power issue?
The idea is to have an IPP (Independent Power Plant) to support Onne, although do not ask me when and how. We have been talking about this for the past 10 years. Eventually, I hope there will be one in the future. Six kilometers away from this office there is an existing gas line, so it would be fairly easy to connect the pipe to bring gas in and provide energy and electricity to everybody.
It does not make sense for Nigeria to keep on importing so many refined products, when they could just produce it for themselves. The same goes for gas – they are not commercializing it.
What is the future for gas in Nigeria?
The plans are there. There is an oil and gas master plan, but I do not know when it will be implemented. There are plans to connect Chad with Nigeria and connect an existing water line. I have heard that for the past two years, and I am sure there are plans, but I am not sure when. Then there is a gas pipeline planned to go to Congo and Benin etc. They are selling oil and gas to the U.S. and Europe, and they have contracts with Gazprom, Spain and a French company. You have the fertilizer company, which I know is linked to gas, and they are producing urea. I know they are exporting, but I do not know the volumes.
One of the major perceptions is that there is insecurity in Nigeria. You have had a very successful run here at Intels with security – how did you do it, and how do you feel the security issue is?
It is true that a few years ago up to 250 people were kidnapped mainly on the offshore locations. There has always been a high level of piracy offshore in Nigeria. In Lagos, the number of incidents compared to Port Harcourt is nearly four times more. In Lagos, they are attacking fishing boats and smaller vessels. The situation was not so good four to five years ago. We invested a lot of money in providing cameras and security. I am not an expert, so please do not ask me about this, but facilities were provided for better security. We have five or six experts supporting our security department, and normally they are all former soldiers from foreign legions, although you would not know it. Thirdly, we have a very good relationship with our community. That is the most important aspect. If you have this and you provide a certain number of jobs for the locals and if you engage with them, they are the first ones to protect you. Every year we allocate some money to the community and they give us a list of their priorities. We try to choose the projects that would have a direct impact on a generality of the people.
Your family has been very committed to Nigeria. How has your commitment been fostered over the years, and what is it about Nigeria that makes you so committed?
I cannot answer for my father – I do not know why he decided to come here in 1976. I am 40 years old today, and my brother is four years older than me. I came here when I was five, and I only got a Nigerian passport three years ago, simply because my father only qualified after living here for 20 years. It is pretty difficult to get a Nigerian passport. We both got it because we were sons of a Nigerian, so legally we could have a Nigerian passport. We are so attached to Nigeria because I grew up here. From a business point of view, Nigeria is a fantastic country. Nigeria is a fast-developing country, but needs a lot of services and expertise, and new things. I am not criticizing Nigeria – I am not saying that we would not be able to provide the same services in another country.
From a business point of view, it is a fantastic country, with a lot of potentials. It is not just about how much money you can make – we have the potential to make something that goes beyond the business itself. We were in other countries in Africa. Up until 10 years ago, we focused on expanding in West Africa, and we did. We went to Angola, Congo and the Ivory Coast. But for one reason or another, we decided to close everything and concentrate on Nigeria. I should not say this, but it was largely because of the unavailability of the requisite human resources in those nations. I believe that human resources is one of the biggest issues for any company that is trying to expand its activities, because you need the right people with the right experience, and that takes time and investment. So at the end of the day, we decided to concentrate our efforts on Nigeria, which has always been our major location.
Besides that, I personally like the Nigerian mentality. I was raised with a bit of Italian culture and Nigerian culture. I have a lot of Nigerian friends of course.
With the oil industry, they are just trying to copy what happened in the North Sea and other areas, where the industry is a bit more mature, especially on the logistics side. So far, it is a challenge, but very rewarding, not just from the financial side.
What final message would you like to send to the readers of World Report and The Independent?
From Intels, I would like to tell everybody that they should not be afraid to come to Nigeria, because it is complex and difficult. But if you plan properly and you know what you are doing, Nigeria is like any other country in the world. It is a fantastic market. The idea is very simple – we wanted to create ‘an island’ that will facilitate the oil and gas business, and being a free zone, it is an island. There are financial benefits. There are world standards, but you are in Nigeria. We are here and everybody is welcome to come and use our services, expertise and knowledge. Come to Nigeria.