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Damagix CEO: Nigerian companies should grow slowly, stay focused

Interview - December 19, 2012
Dahiru Mohammed, Chairman & CEO of Damagix Nigeria, the country´s leading indigenous pipeline supply company, has some advice for young companies: keep the focus on your core business and on your clients- and don´t try to expand too quickly

“My advice for Nigerian companies is that they must not be in a hurry to grow. That is a mistake that most indigenous companies make. They want to start today, and reap the benefits of it 2 years down the line,” Mr. Mohammed told World Report in an interview.

“They need to grow gradually, and stay focused. They have to be honest to their clients and their technical partners,” he said.
Damagix offers a whole range of pipeline services, from onshore, offshore and deep-water oil and gas operations. Its expertise includes pipe supply, manpower, environmental and consultancy services.
After years of representing manufacturers, Damagix is now focused on fabricating and threading its own pipes and on meeting the demand of the oil companies which it supplies. The company has already bought the equipment for a pipe mill and threading facility.
“Maybe after a couple of years, when we have sorted things out and see the need for it, we will look into expansion. Right now, our focus is on meeting client demand,” Mr. Mohammed says.

He adds that Nigerian companies, including those in the oil and gas industry face a credibility problem, because of the country´s negative image in the foreign news media. This, he said, can be countered by presenting them the facts about the country´s security conditions and by showing the professionalism and achievements of Nigerian business.

How would Nigeria fare with this year’s oil prices? How do you see the country diversifying into other industries?

Obviously, the best way for the country to weather this year’s oil prices is through diversification. The country has several other resources available (e.g., minerals, agricultural products, etc.). It is just a matter of exploiting them. Industries such as mining and agriculture should be able to take care of shortfalls that may arise from oil (if any). The country has a large amount of mineral deposits. Obviously, agriculture has a huge potential in this country. Diversification is certainly fundamental for the continuity of economic growth. 

In your opinion, what chief issue needs to be addressed when you talk about the country’s rich resources?

The most fundamental thing is to utilize the resources that you have properly. It then goes down to infrastructure. People get jobs along the way. The benefits will then trickle down to other areas of the economy. If the resources have been allocated, that portion should be properly utilized. We have to find a way to minimize wastage and losses in the course of operations. Right now, that is a challenge. In energy, for instance, when you talk about the transmission of electricity, we have to make sure that all the lines are properly connected. Sometimes, you get electricity fluctuations because some of these lines have faults. These faults are often the result of electricity mismanagement. Take transportation infrastructure, for example. Most of the traffic in Lagos is not always the result of the lack of roads. Sometimes, it goes down to compliance with the traffic rules and regulations. So you see, no matter what the resource is, appropriate utilization is the key. Once we do that, it is going to improve a lot of things in the economy.

Speaking of rules and regulations, what are your thoughts on the Petroleum Industry Bill (PIB)?

First of all, I feel that it must be passed. The question is when. The National Assembly (NA) is having a field day because the Executive arm and the oil companies are lobbying for them.

I have worked in the oil and gas industry (particularly, the upstream sector), and I have an idea of what the agreements are. The PIB should have come about 15 to 20 years ago. For a long time, they have argued over the issue. There was not enough will to take it up. There should have been a review of the memorandum of understanding (MoU) so that the Nigerian people and government would get more than they are getting. That should improve the economy.

The PIB must be passed, and I hope very soon.  

Another key legislation is the 2010 Local Content Act (LCA) which clearly defines the roles of local and international providers or suppliers. How successful has it been?

Actually, I started the campaign for local content, and it grew to such a magnitude that went beyond my team and Nigerian National Petroleum Corporation (NNPC). The government took over and it became a law. On the day when it was launched by the Minister, they invited me to come and see what I have started.

I started the campaign because I realized that there were so many Nigerian firms in the oil and gas sector, but the oil and gas companies were not patronizing them. I thought that it was not equitable. We had Nigerians who have made investments on services, and they were not being patronized. The joint operating agreement (JOA) is a basic agreement between the operators and the NNPC, which sets the operational guidelines in the industry. With the JOA, everyone shares in the operation cost and the NNPC reserves the right to be an operator. Some of the provisions in the JOA are in favor of Nigerian companies. I started discussing some issues with my colleagues and peers, pointing out the provisions that were not being utilized.

Looking forward to today, I assure you that the 2010 LCA has been very successful. Engr. Ernest Nwapa, the Executive Secretary of the Nigerian Content Development and Monitoring Board has been working endlessly on this. He is incredible.

What challenges do indigenous companies face in trying to get settled in the Nigerian oil and gas sector?

The lack of credibility as a result of the negative campaign on the country has given indigenous companies problems. For instance, when we started the campaign for local content at my own level (before it became a policy), when we wanted the oil companies to actually introduce their manufacturing equipment to Nigerian businessmen, we invited Nigerians to America. Our first outing for local content was in Houston. We told oil companies to invite their equipment manufacturers, while NNPC invited serious businessmen to attend. We had a forum for 2 days. It was our way of working around the credibility issue. We had to show them that we were serious.

After that, we have issues on finance and technology. These are all major challenges that Nigerian companies face. 

For our second outing, we took the Nigerian oil and gas companies to the Offshore Technology Conference (OTC). We invited bankers in Nigeria to talk to possible investors. We invited Dr. Shamsuddeen Usman (former Managing Director of NAL Merchant Bank), and one other speaker to talk at the forum. What Dr. Usman did amazed me. He collected the data of crimes in Lagos and New York, and compared them. Of course, the crime rate in New York was worse. He was telling the world that despite the negative publicity, Nigeria was not as bad as that.

As for the technology, with Engr. Nwapa’s coming law that requires certain percentages to be met within a specified number of days, it has improved a lot. Front-end engineering has been done 100% in this country for quite a while. Likewise, a lot of the fabrication is being done here.

In the area of finance, thanks to former Central Bank (CB) Governor, Prof. Charles Chukwuma Soludo, and the current CB Governor Hon. Mallam Sanusi Lamido Sanusi, there have been a lot of improvements. Access to capital through bank loans was difficult, but now it is different. You could get billions of dollars now. This comes as a result of constantly looking at the situation and working towards improving it.

As you know, Damagix successfully got a US$5 billion loan to lay a pipeline with the government. It is amazing. We could not have done that three to five years ago.

How did you manage to bring Damagix to where it is today? What are your plans for the future?

When I retired before my retirement age, I had to do something. The first couple of months were chaotic. I was looking at everything. It took me a while to realize that using that kind of approach would not get me anywhere. So I looked at the system again and saw that the pipes were what oil companies spent most of their money on (in terms of commodities). Oil companies need pipes and have to spend so much money to acquire them. I began to take an interest in pipes. I wanted to be able to get Damagix in a situation where it could supply pipes of all diameters—from the smallest to the largest—in quantities required by the oil companies. 

We developed this phenomenal approach where before we moved anything, we must be sure to be several steps ahead of our clients. We wanted to be the experts in pipes. We have succeeded to a point where whenever Damagix talks about pipes, everyone listens. I have a guy here in Damagix who knows so much about pipes that there are very few in the industry who can afford him. Our team here stays focused. We make sure that we are steps ahead of our clients.

One of the key issues that you touched on earlier is the idea of technology moving quickly, and having international standards readily available in Nigeria. In terms of fabricating and manufacturing, how far along have you gone to achieve this?

Because we have been part of local content development from the very beginning, we are a long way ahead in terms of this aspect. We have been looking into manufacturing products well before the law. If it were not for reasons of finance, we would have started this more than 3 years ago. We have been contemplating pipe manufacturing for four years.

Now, we are working with a team. Seventy percent of the equipment is already here and the land is available. We are looking to start physical work by the middle of next year. First, we need the pipe mill. Second, we need the threading facilities. These are required by the LCA. Under this law, you cannot import certain grades of pipes. We are going to start work on this on the early part of next year (for line pipes). Oil well casing pipes, on the other hand, are the ones that are screwed and placed inside the well. Because of the complexity of manufacturing, we have to do the threading here. We have already purchased the equipment for this. We expect it to be delivered by January. We have the land for it. We are absolutely poised to build this pipe mill and threading facility.  

Do you have any plans for expansion?

As the CEO, I am not in a hurry for Damagix to grow big, but I am in a hurry for it to meet the demand of the oil companies. It does not matter at what percentage. I like growing gradually. Right now, our focus is on manufacturing. As I have mentioned earlier, we have already bought the equipment for the pipe mill and the threading facility. Maybe after a couple of years, when we have sorted things out and see the need for it, we will look into expansion. Right now, our focus is on meeting client demand.

How did you manage to bring together such a specialized workforce so quickly?

For the last 10 years, we have been representing manufacturers. We have been working with these people, and now they are coming in as our technical partners and shareholders. We want to make sure that our confidence with each other is such that they would want to buy shares in the company and bring in their expertise. We have a program with them that has them training Nigerians in 2 years to take their place. That is part of the local content program that we are looking at.  

We understand that you have a background in geology.

I’m a geologist, but for the past 6 to 7 years of my life, I have been doing real field work. Of course, I was growing professionally, and I was asked to manage those who were coming in. I was a Manager by the time I started local content.

What advice would you give companies starting out in Nigeria, both indigenous and foreign?

My advice for Nigerian companies is that they must not be in a hurry to grow. That is a mistake that most indigenous companies make. They want to start today, and reap the benefits of it 2 years down the line. In the case of Damagix, before we rented this office, I worked in my living room for 3 years. There was a time when we had to hold meetings in offices we have borrowed from a friend. It was then that we decided that it was time to get an office.

They need to grow gradually, and stay focused. They have to be honest to their clients and their technical partners. There was a time when oil companies complained that it took a long time to get approval. As you know, the basic structure entails a partnership between the oil companies and NNPC. This means the oil companies are both operators and joint venture partners. As operators, they have to send their program to NNPC for approval. That takes time. To increase efficiencies, I suggested that we assign an officer to work with the oil companies, which keeps NNPC abreast of all the developments as they happen. By the time they request approval from the NNPC, the latter does not even have to look at the paper work because they know what is happening. This means that their papers are passed in record time. It is an interface that should help move things at a better pace. After all, both the oil companies and NNPC have a common goal. There should not be problems.

For foreign companies, the most fundamental thing that everybody should understand is that there are very good and serious-minded Nigerian companies. Each society has a few bad eggs, but those anomalies do not necessarily reflect what is true for everyone. Foreign companies should learn to scrutinize. If they are not sure, they should ask respective authorities like the embassies and such. There are systems that they could use to verify certain information. That should help them find the right partners. As you know, Nigeria has the resources and the manpower. The opportunities in the country are huge. If they do due diligence, they will find that it is easy to work with Nigerian companies.

Integrity is foremost. Here, in Damagix, we have done projects where we have lost money, all because we were protecting our clients. We did not mind. At the end of the project, we delivered our contract on time, and we established the kind of relationship that has brought us more business. Delivery to the client is the first consideration. Profits fall second.

One of the projects that I am very proud of is the one that we did with Total. It was the biggest project given to any local company in this country at the time. We proved our mettle. By the time we delivered the pipes, they were not ready to receive them. This resulted to a commendation and a bonus for that project.   

Do you think it is possible to further diversify the downstream segment of the oil and gas industry?

It is not only possible, but it is something that Nigeria must do. However, from what I have seen, the enabling environment is not very clear. For example, Damagix wants to give a loan of about US$5 billion to the government to do a pipeline project. Because of financial constraints and the need for sustainability, the government prefers for the project to be self-financing. We had to make an analysis to assess the viability of the project. Getting the courage to approach that particular thing in that particular direction is very difficult. It is the government’s change in policy that gets investors really scared. If we could address that, I am certain that we can achieve much. Investors should feel confident that their investments will continue to be protected.