dr. b.o. oramah financing local content vehicles in africa’s oil & gas sector: some lessons of...

Dr. B.O. Dr. B.O.

OramahOramah

Financing Local Content Vehicles in Financing Local Content Vehicles in Africa’s Oil & Gas Sector: Some Africa’s Oil & Gas Sector: Some

Lessons of ExperienceLessons of Experience

Senior Director (Planning & Development Senior Director (Planning & Development Department)Department)

African Export-Import Bank (Afreximbank)African Export-Import Bank (Afreximbank)

Cairo, EgyptCairo, Egypt

By

Paper Presented at the 11th African Oil & Gas, Trade & Finance

Conference

Nairobi, Kenya - May 23-25, 2007

NOT AN OFFICIAL UNCTAD RECORDNOT AN OFFICIAL UNCTAD RECORDNOT AN OFFICIAL UNCTAD RECORDNOT AN OFFICIAL UNCTAD RECORD

Dr. B.O. Oramah – Financing Local Content Vehicles in Africa’s Oil & Gas Sector: Some Lessons of Experience - 2

1.1. INTRODUCTIONINTRODUCTION1.11.1 PreamblePreamble

Africa’s Oil & Gas Sector (the “Sector”) still remains an enclave with limited linkages to other sectors of the economies of African Oil Producing nations.That notwithstanding, the Sector constitutes the backbone of the economies of the African Oil Producing nations.The Sector accounts for over a third of the total merchandise export revenues of the Continent.


Against this background, African Export-Import Bank (the “Bank” or “Afreximbank”) considers it as a Strategic Sector and supports activities within the Sector.

Afreximbank is therefore pleased to be invited to participate in this Conference and to share with delegates its experiences in the financing and promotion of Local Content in the Sector in Africa.


1.21.2 AFREXIMBANKAFREXIMBANK Established in 1993 as a multilateral financial

institution. Shareholders include African governments,

African private investors and non-African investors.

Authorized capital = US$750 million. Mandated to finance intra- and extra-African

trade. Headquartered in Egypt with Branch offices

in Abuja, Harare and Tunis. Cumulative approvals since 1994/95 to

2006=USD10.2 billion


Afreximbank (www.afreximbank.com) has come a long way in bringing Structured Finance to Support African entities operating in the Upstream segment of the Sector. From 1998 to 2006, the Bank’s credit approvals in favour of the Sector amounted to about USD2 billion.

Prior to the introduction of Afreximbank’s Structured Oil Field Services Financing, Corporate Finance was the Instrument of Choice in Financing Operators in the Sector.


The consequence was that Oil Field Services remained under the control of Large Multinationals with very little local participation in the Sector. Financing of African operators seeking to develop Marginal Oil Fields was also considered unattractive by lenders.

Afreximbank’s activities in the Sector seems to be reviving the interest of International banks in the financing of Local firms operating in Africa’s Oil & Gas Sector.


2. Africa’s Oil & Gas Sector2. Africa’s Oil & Gas Sector

2.1 Activities in the Oil & Gas Sector2.1 Activities in the Oil & Gas SectorActivities in the oil sector can be broadly categorized into:

a) Upstream Activities:a) Upstream Activities:Exploration; andProduction of crude.

Oil Field Services support the above activities

b) Downstream Activities:b) Downstream Activities:Refining; andDistribution and Sales.


2.2 THE UPSTREAM SECTOR2.2 THE UPSTREAM SECTOR2.2.12.2.1 Africa's StrengthsAfrica's Strengths

Africa is well endowed with oil and gas resources, and accounted for about 12.3% of global oil production and 10% of proven global oil reserves in 2005.Africa also accounted for about 8% of proven global gas reserves in 2003.Increasingly higher quantities of oil and gas reserves are being found in Africa's deep and ultra deep offshore areas, especially in west Africa.Nearness to Key Markets.Low Production Cost.


2.2.2 2.2.2 WeaknessesWeaknessesVolatile oil and gas prices;Wars/ community disturbances;Environmental problems;In many countries, unclear rules and regulations regarding award of Concessions;Over-dependence on foreign technology and skills;Political instability;Economic instability; andLack of Finance.


2.2.3 2.2.3 PrognosisPrognosisDespite the weaknesses, activity in the Sector is expected to continue to grow driven by: New technologies that have facilitated

deep offshore activities; Events in the Middle East that have

accelerated geographic diversification and a surge in interest in Africa’s Oil fields;

Current high Oil prices and good near to medium-term market prospects;


Prolific nature of most basins; Some policy support, e.g. Oil free zones

in Nigeria, Equatorial Guinea and Angola; Official support for the development of

Marginal Fields; Most activity in the near term, especially

in West Africa, will be off-shore to avoid community problems and civil strifes and due to huge discoveries already made;


Given higher cost of off-shore activity, financing requirements will increase.

Movement to off-shore will require more logistics support increasing the importance of oil field services.

The increased need for local participation in Oil & Gas activities will expand in terms of allocating some major fields as well as some major oil service contracts to indigenous entrepreneurs.


Attacks on Foreigners in the Niger Delta has led to withdrawal of some foreign Oil Service Companies, e.g. Wilbros. If this trend continues, Local Content will accelerate especially given the emergence of competent local companies.


3.3. LOCAL CONTENT: SOME ISSUESLOCAL CONTENT: SOME ISSUES3.1 3.1 Definitional IssuesDefinitional Issues3.1.1 A Nigerian Local Content Committee

defines Local Content as: “…the quantum of composite value-added to, or created in, the Nigerian economy through a Utilization of Nigerian human and material resources and services in the exploration, development, exploitation, transportation and sale of Nigerian Crude Oil and Gas resources without compromising quality, health safety and environment”.


3.1.2 Key Objective of Local Content Policy is to increase Local Value Added in Oil and Gas production and Sales, i.e. the Sum of:

Rent (R)Rent (R)Wages (W)Wages (W)Salaries (S)Salaries (S)Interest (I)Interest (I)Profits (P)Profits (P)


3.1.3 Thus:3.1.3 Thus:Local Content Promotion does not necessarily mean Indigenization of Ownership of firms operating in the SectorLocal Content Policy is successful if:

where n represents all firms in the Industry; and

where LC = Local Content; TS= Total Spend; and t = time

-n

Σ L=1

n

Σ L=1

(RL+WL+SL+IL+PL)t (RL+WL+SL+IL+PL)t-1>0

LC LCTS t TS t-1)( ) > (


Measurement Issues need to be properly dealt with in Determining Local Content (LC) Targets e.g. how are goods supplied by a local company but imported classified?

LC is better measured at firm levels rather than focusing on Spends per Project.


4.4. LOCAL CONTENT: Achievement and TargetsLOCAL CONTENT: Achievement and Targets4.1 Successful Countries include

NorwayNorway VenezuelaVenezuela MalaysiaMalaysia BrazilBrazil

4.2 In Africa, Nigeria appears to be the One Country Vigorously Pursuing this goal restricting certain activities to Local Firms e.g.

Certain SeismicsCertain Seismics Front End Engineering DesignsFront End Engineering Designs FabricationFabrication Geological and geophysical studiesGeological and geophysical studies Fixed PlatformsFixed Platforms FPSO Top-Sides construction, etc.FPSO Top-Sides construction, etc.


4.3 The ultimate objective of LC policy is to break the enclave nature of oil activities

4.4 Successful countries have used a cluster approach to achieve this through promoting Domestic Supply Chains


4.54.5 In the Oil and Gas Industry, Service Companies / suppliers account for 80% - 90% of cost of producing a barrel of oil. Billions of US$ can therefore be retained in the Continent if domestic Supply Chains Flourish.


4.64.6 Michael Porter is regarded as the founder of the Cluster Approach in Economic Policy Decision-Making. Porter defines Industrial Clusters as:

““Geographic Concentrations of Geographic Concentrations of Inter-connected Companies, Inter-connected Companies, specialized suppliers, service specialized suppliers, service providers, firms in related providers, firms in related industries and associated industries and associated institutions e.g. universities, institutions e.g. universities, standards agencies and trade standards agencies and trade associations, in particular fields associations, in particular fields that compete but also cooperate”.that compete but also cooperate”.


4.74.7 Benefits of Clustering:Benefits of Clustering: sharing of expertise

Complementarity in bidding for works increased scale economies through

specialization (e.g. through bulk purchase, joint marketing etc.)

Rapid spread of information and knowledge

Crucial support services are attracted, e.g. infrastructure, legal, financial etc.


4.8 4.8 HOW CAN CLUSTERS EMERGE?HOW CAN CLUSTERS EMERGE?

Through:Through:a) gravitation towards a large

leading sector, e.g. as in Houston and Aberdeen

b) public policy, e.g. as in Norway, Malaysia, Brazil and Venezuela. Local Industry Clusters account for 45% to 75% of the supplies and works in the O&G industries of these economies

4.94.9 Most successful Clusters have emerged through public policy.


4.104.10 In Africa, Nigeria is a good case where public policy is

attempting to create Industry Clusters and Supply

Chains in the Oil and Gas sector through its Nigerian

Content Policy.


5. 5. Financing The Oil And Gas Financing The Oil And Gas Supply ChainSupply Chain

5.15.1 What Are Oil Field Services?What Are Oil Field Services?5.1.15.1.1 Restrictively seen as Logistic Services

- Marine Services, Provision of Facilities, Maintenance Services

5.1.25.1.2 Definition expanded (as Oil Industry evolved) to include Engineering, Construction, fabrication, Drilling, and other activities.


Oil Services Market has enlarged as Oil Services Market has enlarged as a result of:a result of:

• Out-sourcing of most activities by Producers

• Increasing importance of off - Shore Activities

5.1.35.1.3 Accordingly Typical Project is executed with variety of contracts involving Services and Supplies (See Fig. 1)


FIGURE 1FIGURE 1OIL FIELD DEVELOPMENT PROJECT

SHOWING TYPICAL SERVICE CONTRACTS INVOLVED

ConstructionConstructionContractContract

ProjectProject

Spares AndSpares AndMaterialsMaterials

Supply ContractSupply Contract

O&MO&MContractContract

ServicesOwnership interestService Contracts awarded through JV Operator

Project Project Owners Owners


5.25.2 Typical Service Contracts are:Typical Service Contracts are:a) Those signed between Oil Producers (Oil

Majors / Minors) and Major oil field services companies, for example;

Schlumberger Halliburton Baker Hughes, etcetera

b) Contracts between Major Oil Producers and Minor Oil Service Companies

c) Sub contracts between major service providers and minor Oil Service Providers.


5.2.15.2.1 In Africa, most of the services shown in “Figure 1” are provided by Foreign Companies.

5.35.3But Local Content Promotion in Oil Field Services Business is becoming a priority in some African Countries, such as:• Nigeria where target is up to 45% Nigeria where target is up to 45%

Nigerian by end of 2007.Nigerian by end of 2007.• Angola where goal appears to be 10%Angola where goal appears to be 10%


5.45.4 Goal is to capture huge amounts of money paid to Service Providers and integrate the Oil Sector with the Overall Economy through creating Industry Clusters with strong local content.

5.55.5 Financing is a major constraint in promoting domestic Supply Chains in the Oil and Gas (O&G) sector because of the characteristics of indigenous Oil Service Companies (OSC) listed below:


small size of capital (USD 1 million or less), except a few in Nigeria that have grown significantly in size

firms with limited experience in oil field services

have no, or limited borrowing track record

negative net current assets in cases where debt financings have occurred

corporate structure sometimes confusing


small players with annual revenues of less than USD5 million

usually require financing far in excess of equity capital

loan required usually of medium term nature as main use of loan is to acquire equipment for contract execution


5.65.6 The Critical Issues in Financing Indigenous Companies Therefore Revolve

Around How To Deal With:a)a) Their Low capitalizationTheir Low capitalization

b)b) Limited experienceLimited experiencec)c) No borrowing track record and therefore No borrowing track record and therefore

no credible banking relationshipsno credible banking relationshipsd)d) Their Highly specialized assets with Their Highly specialized assets with

limited secondary market.limited secondary market. The above factors mean that pure corporate

Finance will be difficult Resort to local bank financing is constrained by

lack of medium term funding in many markets


6.6. Afreximbank’s Experience:Afreximbank’s Experience: The Bank had since 1998 been financing Local

Content Vehicles (LCVs), especially in Nigeria and Angola.

Preponderance of funding have gone to:a)a) Marine Services e.g. Leasing of Tug Boats, Marine Services e.g. Leasing of Tug Boats,

Barges, Anchor handling vessels etc. by Barges, Anchor handling vessels etc. by LCVs to Oil Majors.LCVs to Oil Majors.

b)b) Drilling ServicesDrilling Servicesc)c) Logistics ServicesLogistics Services

Engineer, Procure and Construct Contracts as well as Fabrication Works Financing have been limited.


7. 7. Some Case StudiesSome Case Studies7.1 Financing Rig Acquisition for

Performance of Drilling Contracts for an Oil Major.* Facility amountFacility amount US$ 70 million

* Final Maturity Final Maturity 3 years

* Contract TypeContract Type 2 Term Swamp Rig Supply and Drilling contracts based on Day Rates.

* Use of FundsUse of Funds Acquisition, Refurbishment and movement of Rigs from Overseas Fabrication Yard to Site.

* Role of Role of AfreximbankAfreximbank

Mandated Lead Arranger in partnership with a South African Bank.

* StatusStatus Fully underwritten and currently under syndication.


* SecuritSecurit

y y 1. Assignment of proceeds

of the Drilling Contracts.2. Mortgage over the Rigs.3. Assignment to the

Security Trustee of other unencumbered contracts the Company is currently executing.

* PricingPricing 1. Spread: 3.5% over 3

months Libor2. Fees


* CompanyCompanyCharacteristicCharacteristic

ss

1. Promoter had several years experience as Pusher/Drilling Superintendent with an Oil Major before retiring to set-up this company.

2. The Company was established in 1993 and has done land and Swamp Drilling works for Shell, Agip etc.

3. Paid-up capital is US$8.4 million, while Shareholder’s funds stood at $15.7 million as at Sep. 2006; Gross Revenues for year ended Sep. 2006= US$16 million and Net Revenues = US$10.4 million.

4. Company currently has 6 land and swamp rigs in its portfolio.


Security Trustee/ Security Trustee/ Collection Collection

Account BankAccount Bank

Con

tract

Perf

orm

an

ce

Oil Service Contract

Other Oil MajorsOther Oil Majors

Oil Major for Oil Major for the Contract the Contract

being Financedbeing Financed

FIGURE 2FIGURE 2Deal StructureLendersLenders

Account Account BanksBanks

Drilling Drilling ContractorContractor

DSRA & DSADSRA & DSA

Oil S

erv

ice

Con

tracts

Contract Performance

Paym

en

t of

Con

tract

Pro

ceed

s

Paym

en

t of

Con

tract

Pro

ceed

s

Loan Repayment

Account Charge

in favour of Security Trustee

Secu

rity

Tru

st

Deed

Assig

nm

en

t of

all C

on

tract

Pro

ceed

s &

Oth

er

Collate

rals

Secu

rity

Tru

st

Deed

Loan Repayment

DSRA – Debt Service Reserve Account

DSA – Debt Service Account

US

D70 m

illion

Loan


Strengths of the DealStrengths of the Deal Solid performance history of Drilling Company Diversified pool of contracts and receivables Oil service contract, long, binding and enforceable. Clear Local Content policy and policy support Strength of the contracting counter-parties i.e. Oil Majors Rig Refurbishment contract with first rate name in the U.S.


7.27.2 Financing Logistic Services ProviderFinancing Logistic Services Provider

*

Facility Facility AmountAmount

• USD 130 million

* Facility Facility TypeType

• Multi-Tranche (3 Tranches), Multi-currency

*

Final Final MaturityMaturity

• 2 years, extendible for another 2 years.

* Contact Contact TypeType

• Various logistic contracts with Oil Majors

* Use of Use of FundsFunds

• Jetty expansion, working capital and camp-site development


7.27.2 Financing Logistic Services Provider (Cont’d)Financing Logistic Services Provider (Cont’d)7.27.2 Financing Logistic Services Provider (Cont’d)Financing Logistic Services Provider (Cont’d)


Mandated Lead Arranger with a London Bank.

* Status Status Fully syndicated and operational

* SecuritySecurity 1. Legal Assignment of proceeds of Logistic contracts.

2. Charge over Collection Accounts.

3. Guarantees of the Subsidiaries of the Company.


7.27.2 Financing Logistic Services Provider (Cont’d)Financing Logistic Services Provider (Cont’d)7.27.2 Financing Logistic Services Provider (Cont’d)Financing Logistic Services Provider (Cont’d)

* Pricing 1.Fees2.Interest spread of 350 bp

over Libor for the USD Tranche

* Company Characteristics

* Mixed African and Foreign Ownership

• Company has had long operating experience in the jurisdiction. It is the leading provider of logistics services with long term contracts with Oil Majors.

• Strong Management and financials.


FIGURE 3FIGURE 3Deal Structure

Oil Service Oil Service CompanyCompany

Irre

vocab

le

instr

ucti

on

to p

ay

into

collecti

on

accou

nt:

con

firm

ed

by o

il

com

pan

ies

Oil CompaniesOil Companies

Insurance Insurance CompaniesCompanies

US$50 million working capital finance US$50 million for construction jetty & camp US$30 million equivalent in local currency, to refinance existing loans

Contracts

Legal assignment of the right to receive all proceeds under service contracts

Debt Debt Service Service AccountAccount

BankBankSyndicateSyndicate

Central Central BankBank

SPVSPV

Collection Collection AccountAccount Consents

Debt Service

All-risk Insurance

Payment


Strengths of DealStrengths of Deal• Long, binding and enforceable contracts

with Oil Majors.

• Diversified pool of receivables.

• Diversified pool of activities some with very low performance risk.

• Although company is of mixed ownership (Foreign and African), it met the Local Content Policy definition.

• Owners have long experience operating in Africa.

• Activities critical to Oil Majors so strong Oil Majors support.


*

*

Facility AmountFacility Amount

Facility TypeFacility Type

USD 17 million

Structure Asset-backed Financing Facility

* Final MaturityFinal Maturity 2 years

* Contract TypeContract Type 2 Marine Services contracts with National Oil Producing Company Subsidiary engaged in exploration and production.

* Use of FundsUse of Funds Acquisition of 2 vessels


Mandated Lead Arranger

7.3 Financing a Small Marine Services Provider7.3 Financing a Small Marine Services Provider


7.3 Financing a Small Marine Services Provider 7.3 Financing a Small Marine Services Provider (Cont’d)(Cont’d)

* SecuritySecurity 1.Mortgage over the vessels.2.Assignment of the Service Contracts.3.Account Charge.4.Personal Guarantee of the Principal

Shareholder.5.Contingent Oil Service Contract with

a leading marine service provider.*

PricingPricing 1. Fees2. Interest spread of 375 % over Libor.

* Company Company Characteristics:Characteristics:

1. Promoter has many years experience in Marine Services industry.

2. Company had worked on JV basis with a U.S. company to provide services to Oil Majors so has experience.

3. Financial Highlights as at December 31, 2006:

- Shareholders’ funds: US$745,613

- Gross Rev.: US$4,618,903- Net Rev.: US$809,244- Net Current Assets: US$425,656


Strengths of DealStrengths of Deal• Experience of promoters and the

company in providing Marine Services.• Long, Binding and Enforceable

contracts.• Contingent Oil Service Contract

mitigates performance risk.• Willingness of counterparty to

acknowledge notice of assignment.• Asset- backed Structure.• Local content policy support.• Vessel Leasing has limited

performance risk.


FIGURE 4FIGURE 4Deal Structure

LendingLendingBanksBanks

3.

Dis

bu

rsem

en

t 5. Repayment of principal and

interest

1. Oil Service Contracts

4. Performance of Service Contracts

Oil Service Oil Service ContractorContractor

Oil MajorsOil Majors

2.

Assig

nm

en

t of

Serv

ice C

on

tract

P

roceed

s

ContingenContingent Oil t Oil

Service Service CompanyCompany


8. Lessons8. Lessons(a) A variety of LCV’s can be financed if the

ingredients are right, namely: - right contracts i.e.- long, binding and enforceable.- credible contract counterparties.- willingness of counterparties to

acknowledge notice of assignment.(b) Company size need not be a constraint if

deal is properly structured.(c) Asset-backed lending mixed with

structural receivable- backed financing present good structure when the LCV is weak. Oil Service assets namely rigs, vessels etc., have of recent been appreciating in value and are in high demand.


8. Lessons (Cont’d)8. Lessons (Cont’d)(d) Emergence of NOCs as exploration and

producing companies need not be a constraint to financing activities in the future.

(e) International banks are getting wiser and entering the market

(f) Afreximbank has not suffered any loss in LCV deals. A difficult deal was fully recovered from disposal of asset financed.

(g) Introduction of Contingent Oil Service provider mitigates performance risk

(h) Getting Oil Majors to acknowledge notice of assignment still a problem but legal opinion shows it doesn’t matter as long as Notice is served as experience supports this.

(i) Build-in 30-90 day delays in repayment in your structure as big Oil Majors sometimes delay payments for works done.


9. Some Innovations9. Some Innovations• Pooling LCVs to distribute

performance risk


Credit Enhancement*Credit Enhancement*(Lloyds /AFREXIM)(Lloyds /AFREXIM)

FIGURE 5FIGURE 5 GUARANTEED AFREXIMBANK-BACKED

SECURITIZED OIL SERVICE NOTES (GASON)

LENDERS (INTERNATIONAL BANKS)LENDERS (INTERNATIONAL BANKS)

OIL SERVICE COs.OIL SERVICE COs.

OIL MAJORSOIL MAJORS(SUBSIDIARIES)(SUBSIDIARIES)

ESCROW A/CESCROW A/C

1.C

on

tra

ct

AFREXIMBANKAFREXIMBANKLender of RecordLender of Record

QUALIFIED LOCAL BANKSQUALIFIED LOCAL BANKS(BORROWERS)(BORROWERS)

2. Secu

rity /

Assig

nment

2. Acknowledgement

Recou

rse

Gu

ara

nte

e

(Per

Aval)

2.

Ris

k

Part

icip

ati

on

A

gre

em

en

t

2. L.O.C**

3.

Fu

nd

ing

On

-Len

din

g

4. O

il Fie

ld

Serv

ices

5. C.W.D***

6.

Rep

aym

en

t

* May include Country Risk and Performance Risk Guarantees

** Letter of Comfort*** Certificate of Work Done or Accepted Invoices


Key Advantages of DealKey Advantages of Deal

Lenders benefit from Afreximbank’s preferred Creditor Status.

Lenders benefit from knowledge of domestic originator banks.

Lenders benefit from a second way out comprising of a diversified pool of local banks with strong oil service financing capabilities.


Local banks are able to increase oil service lending by freeing their capital.

Contractors benefit from cheaper and matching currency funding.

Country benefits from greater indigenous participation in the sector by operators and local banks thereby creating viable Industry Clusters.

Deal was a precursor to the USD350 million Nigerian Content Support Fund.


FIGURE 6FIGURE 6

LENDING WITH PAYMENT GUARANTEE

LendingLendingBankBank

Guarantor Guarantor b)b)

(Local bank)(Local bank)

4.

Dis

bu

rsem

en

t

2. Guarantee (which may or may not be collateralized) a)

a) Securities taken include depositing of short-term treasury bills, partial cash collateral etc.

b) Guarantee may be per aval.

6. Repayment of principal and

interest

1. Service Contract

5. Performance of Service Contract

ContractorContractor Oil MajorOil Major

3.

Assig

nm

en

t of

Serv

ice

Con

tract

Pro

ceed

s


FIGURE 8FIGURE 8MITIGATING PERFORMANCE RISK:OIL SERVICE INVOICE DISCOUNTING

Afreximbank Oil Service Invoice Discounting ProcessAfreximbank Oil Service Invoice Discounting Process

Oil ServiceOil ServiceCompanyCompany

Oil MajorOil Major(Service user)(Service user)

6.

Pu

rch

ase o

fIn

voic

e(p

rep

aym

en

t)

1. Service Contract

This Instrument Assists Contractors In Bridging Liquidity Gaps

6. Purchase of Invoice (prepayment)

2. Approval

Local Local BankBank

(Guarantor)(Guarantor)AfreximbankAfreximbank

2.

Ap

pro

val

3. Performs Contract and Invoices

4. Accepts Invoice (Confirmation of Receipt of Service) and acknowledges Sale of invoice to Afreximbank (“Documents”)

5.

Docu

men

ts

5. Documents

7.

Paym

en

t


10.10. Enlarging Financial Support To Enlarging Financial Support To The Cluster:The Cluster:

10.110.1Sub-contracting can be encouraged and financed using Domestic Letters of

Credit (DLCs). This is commonly used in Export Financing in S.E. Asia to

support Indirect Exporters.


FIGURE 9FINANCING USING DLCs WITH INTERNATIONAL

FINANCIAL INSTITUTIONS SUPPORT

ContracContractortor

ContracContractortor

Sub-Sub-ContractorContractor

Sub-Sub-ContractorContractor

2. Enters Sub-Contract

8. Documents

4. Opens DLCLocalLocalBankBankLocalLocalBankBank

Local Local correspondent of correspondent of

International International Bank with foreign Bank with foreign

Line of CreditLine of Credit

Local Local correspondent of correspondent of

International International Bank with foreign Bank with foreign

Line of CreditLine of Credit

3.

Ap

plies f

or

DLC

7. Performs Sub-Contract

9. Pays against documents & loan to Sub-Contractor extinguished

8.

Docu

men

ts

5.

Ad

vis

es D

LC

6.

Assig

nm

en

t of

DLC

& F

un

din

g

OilOilMajorMajor

OilOilMajorMajor

1. Contract

3.

3. A

ssigns C

ontra

ct

Pro

ceeds

1. Issue to consider: Regulatory approval to denominate DLC in foreign currency2. Deal can be done without DLC but with contractor assigning portions of its

receivable direct to sub-contractor’s financiers.


11.11. CONCLUSIONSCONCLUSIONS11.11. CONCLUSIONSCONCLUSIONS


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dr. b.o. oramah financing local content vehicles in africa’s oil & gas sector: some lessons of...

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