Local content development has still been the main subject on the agenda of the Ministry of Energy of Kazakhstan. Importance of this subject is based on the intention to improve the domestic companies’ position in the large projects with world heritage. Makhambet DOSMUKHAMBETOV, First Vice-Minister of Energy of the Republic of Kazakhstan, reveals the current situation and plans for the development of the industry.
- Mr. Dosmukhambetov, the local oil community continues reviewing the issues arising in the course of implementation of «TCO», «KPO» and «NCOC» projects. The Kazakhstani content has been and is the core of all touched issues, and remains the main item on the agenda so far. Please, tell us how the mechanisms of awarding long-term contracts, specifically within the framework of the Future Growth Project, are formed as part of the work to increase the local content?
As you know, the Government of Kazakhstan and a number of competent authorities, specifically the Ministry of Energy, pay much attention to the development of local content in the oil and gas projects. Constant work is carried out in this area. The commonly known Aktau Declaration adopted back in 2012 provides for use of mechanisms of a long-term contract and “early tenders”. The main objective is to increase the local content by developing the Kazakhstani oil service companies, localizing operations and creating a pool of market participants meeting the Operators’ requirements. To be more accurate, within the framework of the Aktau Declaration implementation, such major operators as «KPO» and «NCOC» use the mechanism of «early tenders», and «TCO» uses long-term contracts.
I would like to give an explanation here. The mechanism of «early tenders» means that the contract is won by a Kazakhstani company that undertakes to set up manufacture of required products in the territory of our country. As a consequence, after the manufacture is set up, there is a guaranteed sales market. As for the mechanism of long-term contracts, it means conclusion of contracts for a period exceeding one year. This provides Kazakhstani manufacturers with stable orders, enabling them to plan their business for several years ahead.
Within the framework of implementation of the Future Growth Project, the Ministry has organized close cooperation with the «TCO» management and the project management. The parties have agreed that the local content will be an obligatory criterion at the time of selection of potential «TCO» suppliers. At the same time, the local content required from general contractors under contracts for construction and assembly works is set to be no less than 50%. Likewise, organization of a partnership with a Kazakhstani company is one of the main conditions for conclusion of a long-term contract with a foreign supplier under the FGP.
I would like to note that active work continues today to form joint ventures with participation of local and foreign companies. Consortiums for civil works and laying of a buried cable for 3G Sour Gas Injection between «Senimdi Kurylys» and «KazStroyService» have been already created here, work to transport cargo in the Caspian Sea is being done by the «Blue Water Shipping» consortium jointly with «Kazmortransflot» LLP as well as work on the pipeline at the section of the collection system is being done by «Bonatti» and «MontazhSpetsStroy».
I think that close cooperation between the Ministry of Energy and «TCO» will allow to leave heritage within the framework of FGP-WPMP in the form of domestic companies with international experience, trained high-skilled personnel and upgraded infrastructure.
- The Ministry of Energy of the Kazakhstan has done enormous work on regulatory legal documents in accordance with the new Code “On Subsoil and Subsoil Use”. Particularly, new rules for subsoil users and their contractors have been developed, a list of priority R&D areas has been approved, types of oilfield services have been determined for which the local content requirements will be no less than 50%. Could you tell about the work done in these areas?
The Ministry of Energy of Kazakhstan has done considerable work to preserve the local content standards and entrench them in the Code “On Subsoil and Subsoil Use” (hereinafter - the Code). The Code has retained the standards of conditional discount for Kazakhstani manufacturers. The Code has incorporated requirements for the local content in works and services in the amount of at least 50% of the total volume of purchased works and services as well as for each type from the list of priority works and services, which includes construction and assembly works, well workover, expert examination and laboratory tests, design and engineering. This measure is aimed at the maximum use of resources of Kazakhstani companies by subsoil users, and these are the works and services that are most developed in Kazakhstan. As competences in other areas are being developed, the said list may be adjusted.
Moreover, the Ministry has preserved in the Code the requirements for minimum local content in personnel, for obligatory funding of Kazakhstani personnel training and science as well as preserved the government regulation of subsoil users’ procurement process, which is also an integral part of the system for support and protection of domestic manufacturers.
In general, the Ministry has developed 47 regulatory legal acts, including those affecting the above local content standards. During their development, a number of meetings with concerned organizations and government authorities have been held. This allowed taking into account the interests of the government, business and society.
- Currently Kazakhstan transitions from establishing basic principles to approving mechanisms of LC policy regulation. And the government continues trying to achieve a systemic effect in these areas. This can be seen by the example of creating the Alash Database, which was intended to become the unified base in aid of subsoil users and GWS suppliers. Please tell us what issues are there regarding the integration and development of the Alash DB? Can we assert that this database will become a strong institutional tool in the future?
- Some time ago, the suppliers complained about protracted pre-qualification in the procurement procedures of major operators. That is why the department has created a unified Alash database developed by a Kazakhstani supplier. Considering that «TCO», «KPO» and «NCOC» have their own active databases, it is not possible to switch to use of the unified base instantly. Nevertheless, the operators support the initiative of stepping up the work aimed at forming the unified base, verifying the contractors for subsequent selection and pre-qualification, creating additional service functions for both operators and service companies.
I think that eventually this database will allow to replace the operators’ databases, will allow domestic enterprises to undergo registration for the three operators on a single window basis. At present, more than two thousand Kazakhstani supplier and three hundred foreign suppliers are registered in the Alash database. Upon recommendation of the Ministry of Energy, the database server was relocated from Dublin in Ireland to Pavlodar. And today technical work on the database software and interface is continuing, adjustments are made subject to major operators’ suggestions.
Thus, improvement of the Alash database is underway. We hope that eventually the Alash database will become an effective tool for both the subsoil users under major projects and the Kazakhstani manufacturers and suppliers of goods, works and services.
- What is the current situation and results of work on creation of associated production operations around major oil and gas projects?
For the purposes of further development of Kazakhstani content in major oil and gas projects, the operators are working to create partnerships between local and foreign companies.
As an example of JVs successfully created at the Karachaganak project, the following data can be presented: a partnership between companies as «Atyrauneftemash» and «William Hare» for manufacture of steel structures; a cooperation between «ABB» and «Oral Electric», according to which «ABB» has provided a transformer assembly process to the Kazakhstani party; a consortium of «Kazburgaz» and «Schlumberger Logelco Inc.» for servicing of oilfield pipes; a consortium of «KazGiproNefteTrans» and «Worley Parsons Kazakhstan» for design of oil and gas facilities.
There are also examples of JV creation for the North Caspian Project, among which are: «AGS Champion» LLP — a JV for manufacture of chemical products and rendering of associated services; «KazTurboRemont» LLP and «EthosEnergy» — a JV established to perform a long-term contract for maintenance of rotating equipment.
Besides, to aid growth of operations of local suppliers, in the course of development of the Kashagan deposit, contracts for the manufacture and supply of gaskets, flanges, plugs and caps have been concluded with «Novus Sealing Caspian» LLP and «Atyrauneftemash» LLP, which have established local manufacture and obtained CT-KZ certificates.
The following can be presented as the examples of JVs successfully created at Tengiz: a JV for performing of design and construction management works — «KPJV» with participation of «Worley Parsons», «Fluor» and Kazakhstani design organizations — «KING» and «KGNT»; a JV for implementing the «TCO» well drilling program between «Nabors» and «KMG Drilling&Services»; a consortium of «Blue Water Shipping» with «Kazmortransflot» LLP is engaged to transport cargo in the Caspian Sea; construction by «ISKER» and «Bonatti»; module manufacture by «DSME» and «ERSAI».
The current work on development of local content has already given positive results. While in 2013 the LC share in goods of subsoil users of the oil and gas sector amounted to 16.2% (75.5 billion tenge), in 2017 it increased to 20,40% (89.0 billion tenge). Major projects and associated production operations mentioned in this answer have played an important role in this.
- And finally, the widely known topic of the country gasification. We have often heard comments about the project’s benefits for the population. Now, let us talk of the benefits the gradual implementation of the gasification project can bring to Kazakhstani service companies.
In his Address to the people of Kazakhstan on March 5, 2018, the Head of the State instructed to implement the project of construction of the «Saryarka» main gas pipeline along the «Kyzylorda – Zhezkazgan – Karaganda – Temirtau – Astana» route for the gasification of Astana, central and north regions of Kazakhstan. According to the General Gasification Plan, the level of population gasification by 2030 shall reach 56%.
The length of the gas pipeline is 1 081 km with a total cost of 267.3 billion tenge. This gas pipeline will provide with natural gas the population of Astana, Karaganda, Temirtau, Zhezkazgan and neighboring settlements along the main gas pipeline route. Within the framework of the project, gas is planned to be supplied from the western groups of deposits in Kazakhstan by connecting to the operating «Beineu – Bozoy – Shymkent» main gas pipeline in Kyzylorda region.
The implementation of this Project will bring the following social and economic effects:
- Development of infrastructure along the main gas pipeline route and new production operations with the use of natural gas;
- Gradual provision of 171 settlements along the first stage of the «Saryarka» main gas pipeline route with natural gas;
- Creation of about 800 jobs during construction period, and 225 jobs during operation period according to the feasibility study;
- Improvement of the environmental situation in regions along the first stage of the «Saryarka» main gas pipeline route by replacing the coal.
For the purposes of support of domestic manufacturers of goods and providers of services, the Operator will use the local content in the project implementation to the maximum extent.
- What are your wishes for oil service companies of Kazakhstan?
I would like to thank the Association of oil service companies of Kazakhstan for major and productive efforts in development of domestic oil service companies, organization of cooperation with government authorities and major oil producing companies, as well as to the Kazservice magazine team for the detailed analysis and objective covering of current issues related to development of the oil and gas industry and its achievements.
I would like to wish sustainable development to the domestic oil fservice companies through the improvement of qualification and competitiveness, mastering of new technologies. This will allow them to worthily compete not only on the Kazakhstan market, but on the global market as well.