Oil and Gas Service
BackLocal Content as a Guide
The First Deputy Minister of Energy of the Republic of Kazakhstan Makhambet Dosmukhambetov answers the question of the Petroleum Journal.
– Mr. Dosmukhambetov, in connection with the accession of Kazakhstan to the WTO, the current regime of supporting local producers of goods and services in the existing subsoil use contracts concluded before January 1, 2015, soon will be over. In fact, nearly three years left of so called "nursery regime” for domestic oilfield services. Are our companies ready to compete on equal terms with the world's giants? That is already done for this and what else needs to be done?
– Yes, it is well known that in 2015, Kazakhstan became a full 162nd member of the World Trade Organization, as well as a member of the Eurasian Economic Union, thus strengthening its position on the world stage. In accordance with the agreements reached within the framework of integration processes, Kazakhstan committed itself to limiting the role of the Government on the subsoil use market.
However, Kazakhstan has defended the right to retain the greater part of the contractual obligations on local content. In particular, in contracts for subsoil use concluded before January 1, 2015, local content obligations for goods, as well as 20% conditional discount in respect of Kazakhstani manufacturers of goods remain until January 1, 2021, or up to the end of the original period of validity of the contract, whichever comes first.
In subsoil use contracts concluded before September 1, 2011, local content obligations for services remain for the entire duration of the contract, regardless of the extension of its duration.
In subsoil use contracts concluded starting from September 1, 2011 to January 1, 2015, local content obligations for services remain until January 1, 2021, or until the end of the initial term of the contract, depending on what will happen sooner. With that, in the case of renewal of those contracts, local content obligations for services are set at no more than 50%. In addition, 20% conditional discount in respect of Kazakhstani producers of services (works) remains and is not limited by time.
The results of the agreements preserved and entrenched in the Code of the RoK “On subsoil and subsoil use”, signed by the Head of State Nursultan Nazarbayev in December of 2017. Thus, the conditional discount rule for Kazakhstani producers is preserved in the Code, the requirement for local content in the works and services in the amount of not less than 50 percent of the total volume of works and services is included, as well as not less than 50 percent of each type from a list of priority works and services, the requirements on minimum local content of personnel, the compulsory financing of Kazakhstani personnel training do remain.
In addition, in the Code, the Ministry retained the Government regulation of the procurement process of subsoil users, which is also an integral part of the support and protection system of domestic producers.
– Many companies, particularly drilling, complaining about the impossibility of healthy competition with Chinese competitors in cases when a tender is held by a company with the Chinese content.Do you see a problem here or not?
– Regarding the issues of healthy competition with Chinese companies, it may be noted that this issue is relevant, and the Ministry constantly monitoring and supervising the activities of companies engaged in subsoil use in Kazakhstan. In particular, the Ministry reviews the complaints of Kazakhstani service providers made against subsoil users, and in the event of disclosure of violations of the Rules of acquisition of goods, works and services, relevant procurements are excluded from the expenditures that are considered as the execution of the contractual obligations of subsoil users (с. 6 art. 7 of the Law of the Republic of Kazakhstan “On subsoil and subsoil use”).
Moreover, the Ministry annually awards significant punitive damages for non-performance of contractual obligations on local content. Thus, for example, in 2013 the Ministry has imposed and levied fines on CNPC-AktobeMunaiGas amounting to more than 3 billion tenge.
– How does the Alash database, designed to improve communication between the supplier and the operator, is developing?What other means the oilfield service companies have to receive the latest information about the planned tenders in the industry?
– Following the results of 2017, more than 2 thousand Kazakhstani suppliers and about 300 foreign suppliers are registered in the Alash database.
On the recommendation of the Ministry, the server of the Alash database was moved from the city of Dublin in Ireland, to the city of Pavlodar in Kazakhstan. Currently, the ongoing technical work on the software interface of the Alash is carried out, adjustments are made taking into account the proposals of the operators (TCO, KPO, NCOC).
On November 15, 2017, KAZENERGY Association held a meeting on the issue of integration and development of the Alash database, with the participation of operators, PSA LLP, Association of Oil Service Companies of Kazakhstan, National Chamber of Entrepreneurs of the Republic Kazakhstan "Atameken", and Algoritmi KZ LLP (technical database support).
As a result of the meeting, the operators have expressed their willingness to intensify the establishment of a relevant database, verification of contractors for future selection and conduct of prequalification, creating additional database service functions for both operators and service companies. Thus, work on the improvement of the Alash database continues.
Concerning the information on the planned tenders in the oil and gas industry, I would like to announce that, in accordance with c. 19, 19 art. 76 of the Law of the Republic of Kazakhstan “On subsoil and subsoil use”, subsoil users on an annual basis direct the information on the planned procurement of goods, works and services in the annual, mid-term and long-term perspective to the website of the competent authority. This information is open for local suppliers and is freely available in the Subsoil users reports reception system of the Ministry of Energy of the Republic of Kazakhstan (spon.energo.gov.kz).