Christopher Townsend – Managing Director, Adour International – France
Adour International, with offices in Houston, Aberdeen, Paris and Lagos, helps companies with industrial partnering in countries where local content legislation applies. The founder of the company talks about its niche expertise in Nigerian local content and due diligence work in the energy industry, and his plans to expand the company’s activity in Africa.
What have been some of the major developments in terms of local content requirements over recent years in Nigeria for example, and the increased challenges this implies for foreign players?
Local content legislation was enacted in 2010 in the oil and gas sector in Nigeria, so it is a fairly recent law. It continues to be a key enabler in growing local capabilities and capacity and today a significant portion of oil & gas engineering and fabrication work can be performed in-country by indigenous companies.
To be awarded contracts, companies bidding for work need to very clearly demonstrate that required levels of in-country value will be met. These levels vary depending on local availability of the product or service. The law is strictly adhered to and compliance oversight is performed by a government agency called the Nigerian Content Development and Monitoring Board (NCDMB). Only those bids that integrate sufficient levels of local content, as well as being technically and commercially competitive, are considered. The legislation is continuously evolving as more and more local companies are able to perform the work. One example is pipe threading and coating, which must now be performed in country as there are a sufficient number of local companies with those capabilities. Another example concerns steel pipe procurement. The majority of them are still imported although in time more and more will be sourced locally. One local mill already produces steel pipes for the oil and gas industry and plans for the construction of an additional three have been launched.
The Nigerian government is keen to stimulate local manufacturing of oil and gas components and develop know-how that can be transferred to other sectors of the economy that require manufactured components. It’s all part of the overall drive to diversify the economy. Foreign companies are still very much relied upon to supply technically-complex manufactured equipment and the government continues to encourage industrial partnering between local and foreign companies to ensure projects are performed using best-in-class local and international capabilities.
What exact moment in your career sparked your decision to set up Adour International?
I relocated to Nigeria at the time local content legislation was introduced in the oil and gas industry. Despite it being a great enabler for the development of local capacity, I witnessed the difficulty that local and foreign companies often had in selecting their industrial partners. There were many organisations facilitating the initial networking between competent local and foreign companies. There were none however that addressed the work required during the next phase which is the industrial partner selection process and the identification of which companies provide corporate fit working together in a partnership arrangement. I subsequently established a company that provides services to help them with the selection process required after those initial meetings have taken place.
France is often considered not “pro-business” for starting up a company. What made you think the opposite?
The choice of where to establish a business needs to integrate many factors. There are indeed countries that have lower taxation and more flexible labor laws than in France. But one should look well beyond those criteria. For instance, what is the local demand for the services? Do the services add value to existing industry associations in the host country? France’s oil & gas industry is world class and highly export-orientated. French companies bring to the table solid technical competencies and are keen to engage with companies world-wide through industrial partnerships. The French oil and gas industry association, the GEP-AFTP, does a fantastic job in promoting the technical know-how of its industry and being a corporate member of this association has provided us exposure to many companies abroad. Our first clients were French as a direct consequence of our initial proximity with the French market; however, since opening offices abroad we have been able to extend our geographic reach.
If you had two important moments to pick up on, in the company’s development, what would those be?
The establishment of the Nigerian subsidiary was a memorable moment. Then I would pick the opening of offices in other strategic locations: Aberdeen and Houston.
Let’s enter into more details in your exact business. What exactly do you mean by “Industrial Partnering”?
There are numerous industry associations, government agencies and private organisations that lead trade and investment missions. They do a fantastic job in getting companies to interact with each other. They enable great companies to meet each other. However, there is still a need for third party support to help those companies select their industrial partner. Two great companies working together may not necessarily result in a lasting, value-creating partnership. It’s all about ensuring “corporate fit” between two companies. The fit may look great when looking at tangible criteria such as the complementarity of services provided. On the other hand it may be quite incompatible after considering some of the many intangibles such as business models and development strategies.
Our business is focused on helping companies select their industrial partners in countries where local content legislation applies. We perform the required in-depth analysis and due diligence on the shortlisted foreign and local companies. We’ll take into account the many tangibles and intangibles that make up a company including its resources, commercial positioning, business strategy, portfolio diversification, revenue models and so on. After also having established how best to maximize local content on specific projects we’ll recommend which companies provide the best corporate fit.
For the time being we are focusing on Nigeria for the simple reason that there are just so many opportunities for local and foreign companies to work on and the fact that the relatively recent legislation is driving demand for our services. We will continue to grow our business in Nigeria and start to offer our services in other countries very soon.
Would you say that nowadays, without a specialized consulting company like Adour International or without having the backup of a large-sized group, it would be extremely difficult to conduct successfully business in the African nations with high local content requirements?
I would say that to be successful doing business in any country requires amongst other things a thorough and up-to-date understanding of the business environment and industry stakeholders. One also needs to take into account bidding procedures, macro-economic factors, legislation and be aware that everything evolves over time. It takes time and focus to build up an in-depth understanding of all these aspects. Selecting the right partner is a pre-requisite to conducting business successfully so it makes sense to outsource these services to a specialized company like ours.
Let me explain how local content legislation should be seen as a real opportunity for companies to achieve competitive advantage.
If you are a foreign company you will need to select a local partner and ensure that a sufficient level of work is performed in-country. Don’t forget that the value chain may include elements of engineering, manufacturing, fabrication, assembly, logistics, installation, field support, maintenance and so on. This means there are multiple opportunities where local content can be introduced by having certain elements performed locally. Companies need to look at the full scope of their product or service value chain and identify how to provide the required levels of local content. It is also very important to ensure that all in-country work is “monetized” meaning that not only should it be identified in their offers but should also be valued. It is important to remember that higher levels of local content will be the key differentiator during bid evaluation and all other things being equal is what leads to contract award.
Now let’s take the example of E&P companies and some of their major contractors. They were often established long before any local content legislation was introduced and have a number of foreign suppliers within their supply chain. One way for them to meet increasing levels of required local content is to substitute incumbent foreign suppliers with local ones. In some cases this may be possible but for certain products and services, currently unavailable in-country, it is necessary to look at what part of the product or service can be done locally. This brings us back to the need to look at the total value chain and determine what should be done abroad and what should be done locally.
In both cases there is a need for local and foreign companies to work together. Our work is fundamentally different from supplier audit when one evaluates companies on a standalone basis. We look at which companies are best suited working together so that together they can successfully win business in an environment where local content legislation is a key factor.
Can local content requirements make projects in Nigeria more expensive than elsewhere?
It depends how you measure it. If you look at the initial projects soon after the introduction of local content legislation and the use of a new local supply chain then, yes, it may well cost more than before. However, over time those costs will come down as they build up experience, optimize processes and develop economies of scale. If you can source technically equivalent products locally, significant savings can be achieved through faster delivery and reduced transportation costs. Government realizes that those initial projects may cost more and take longer to perform. However, from a long term standpoint it makes perfect sense as it helps indigenous companies develop capability and capacity which will be used on subsequent projects. Local employees will also be able to use those skills in other industries and contribute towards diversifying the economy.
Nigeria recently elected a new political party, which has fueled uncertainties in the local oil industry. The country suffers from a rather negative image in terms of security. What are your views on such matters?
Security has a cost and must be factored into the total cost of doing business in any given country. The role of the government is to provide an enabling environment and ensure that business can be conducted in a safe manner. President Muhammadu Buhari has made security one of his top priorities. I would also like to highlight the existence of numerous highly qualified and competent private risk management firms in Nigeria. They can assess the risk for any planned movement or operation and provide a tailored solution in response. Any risk can be mitigated and should not be seen as a barrier to conducting business.
There is a currently a multitude of great opportunities in the oil & gas industry and the new government is keen to ensure that local and foreign companies engage together on them.
In the upstream sector, IOCs have divested many on-shore assets to local companies in order to focus on deep offshore projects. Those domestic operators are keen to engage with technical partners to help them optimize production from these recently acquired assets. The imminent passage of the Petroleum Industry Bill (PIB) will also pave the way for additional upstream investment, especially large offshore projects.
In the downstream sector, Nigeria has four refineries and they are all operating well below nameplate capacity. The government is expected to gradually remove the existing fuel subsidies whilst at the same time increase in-country refining capability which will require extensive upgrade work on those state owned refineries. Companies with world-class refining expertise will be encouraged to propose their technology and partner with local firms to ensure timely upgrade work. There are also a number of private refinery projects, the largest one being the Dangote refinery in Lagos. Modular refineries are also being built throughout the country.
The power sector was recently privatized and has led to significant investment in existing power generation assets as well as new generation plants. The government is currently implementing the so called “gas master plan” which will require the construction of many hundreds of kilometers of new gas pipelines and associated infrastructure across the country to feed gas to these power stations.
Finally, what are your expectations for the future of the company?
Our growth in the immediate future will obviously be driven by the numerous energy projects in Nigeria. We are also delighted to be contributing to the diversification of the Nigerian economy through work on projects in other industry sectors. We will remain focused on Africa and start to replicate our work in other markets. Local content legislation continues to evolve in many countries and following its success in the oil & gas sector is starting to be applied to other sectors of their economies as well. Local content will remain a key differentiator and companies that fully integrate it in their business strategy set the foundation for lasting and profitable business.