THE EXPERT PANEL MEETING ON THE TCO FUTURE GROWTH PROJECT

30-04-2019

On April 30, Nur-Sultan’s hotel Marriott hosted the 12th meeting of the expert panel that came up with an update on the work progress on Tengizchevroil’s Future Growth Project — the Wellhead Pressure Management Project (FGP-WPMP).

The project aims to enhance the Republic of Kazakhstan’s potential and reaffirm TCO’s reputation as an enterprise that makes the largest contribution to the region’s and country’s economy, building a legacy for the national future. With the project budget of 36.8 billion US dollars, the target Kazakhstan content (KC) is 11.9 billion US dollars or 32% of the total cost.

According to the data presented by Mick Kraly, FGP-WPMP Director, the current amount of expenses on the invoices from the new venture organizations exceeded 21.1 billion US dollars, while the KC indicator reached 6.3 billion US dollars. Currently, 430+ companies registered in Kazakhstan are engaged to the project. Out of the total personnel involved within the country, 91% are citizens of Kazakhstan, which means 43,980 people.

The progress on design work exceeds 90%, while the progress on procurement equals 91%. 325 consignments were shipped. The Basic substation runs construction and assembly works, including the installation of all overhead transmission lines and fiber-optic communication lines, as well as constructs a high-pressure collection system of No. 1 priority. At the Third Generation Plant (3GP), 20 pre-assembled racks were mounted on foundations, as well as three complete boilers supplied from South Korea. On the 3rd Generation Injection (3GI), 2 pre-assembled racks were mounted on foundations, and another six are held in the storage area. In 2019, 47 pre-assembled racks will be totally supplied at Tengiz.

According to Aydar Dosbayev, Project Deputy Director, Kazakhstan is currently manufacturing 62,000 tons of products for the FGP-WPMP. TCO tied up materials and equipment procurement contracts with 31 companies representing 11 regions of Kazakhstan. Among them are Chevron MunayGas Atyrau, AtyrauNefteMash LLP, Steel Yard Astana LLP, Kentau Transformer Plant JSC, Uralskagroremmash JSC, Pavlodar’s Kazenergokabel, Karaganda’s Imstalcon, Almaty’s AZMK, KazGeoSythetics and many others.

980+ contracts with 430+ Kazakhstan companies and 1,140 subcontractors were totally signed within the project which resulted in a significant increase of the KC share. Six forums were held in Kazakhstan to encourage all local contractors and suppliers to participate in the FGP-WPMP. To increase the share of local content, the KC Department was established to elaborate appropriate policies, processes and procedures. In particular, an individual KC criterion was introduced. It is taken into account along with commercial and technical review during the tender evaluation process.

As any large project, this project is not without troubles. They occur both on the stage of contractors engagement and their work delivery.

When collaborating with local suppliers, the FGP Procurement Department faces the following problem points. Suppliers lack experience of working with tender documentation which leads to poor-quality tender bids. Technical specifications and commercial terms are accepted without fully understanding the obligations and/or risks associated with them. Cash flows are poorly controlled, for example, payments are used to purchase non-critical items (planning problems). Due invoices are incorrectly processed which leads to the rejection of invoices by the project. Raising of funds has high cost, for example, bank guarantees are not always available for local companies.

Contractors and subcontractors face the following difficulties while delivering contract works. The quality of work performance and the time required for this is faulty assessed. This can lead to delays as additional time is required after checks to raise the indicators to the desired level. The weak financial status experienced by local subcontractors prevents them from waiting 30 days after invoices are submitted. As a result, anticipating payment of their invoices complicates the subcontracting management process.

The issue of human resources demobilization should be mentioned as well. Personnel demobilization is an inevitable process for any project. When it comes to large projects as FGP-WPMP, a large number of staff has to be laid off at different implementation phases. While the current number of positions is 30,000, it is planned to cut them to 22,000 by Q1 2020, to 16,000 —by Q1 2021 and to 6,000 — by Q1 2022. To timely inform akimats and the Ministry of Energy about the upcoming demobilization, TCO has established a process of relevant information collecting and monitoring. There are also measures taken to mitigate the impact on the regional social sphere. For example, Mangystau Region organized two training centers that access the qualification of demobilized local workers and the need for their retraining in vocation-related disciplines demanded at Tengiz.

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