Kazakhstani Content Development in Tengizchevroil LLPAnuarbek Jakiyev, Deputy General Director Tengizchevroil LLP
Tengizchevroil (TCO) continues to increase its investment in Kazakhstani Content (KC) goods and services year after year. Since 2002, when TCO spent $415 million on Kazakhstani goods and services, the company has significantly increased its KC investments. In 2014 TCO spent a record $2.4 billion on goods and services from domestic suppliers. Currently, 50 percent of our services and 5% of our goods are provided by Kazakhstani suppliers, purchasing goods represents only 16% of our overall spending for goods and services. TCO has been primarily a purchaser of services, as services continue to present the greatest opportunities. This is the area of the most impactful sustainable local content growth now and in the future.
Since 1993, TCO has invested more than $17.9 billion on the purchase of Kazakhstani goods and services. In fact, in the last three years TCO has seen a five-fold increase in its expenditures on goods. The company will continue to identify methods to increase its purchases of quality goods that meet the extremely challenging operating conditions in Tengiz.
TCO’S Programs and Initiatives on Development of Kazakhstani Manufacturers and Services Providers
TCO’s Kazakh Content Growth Strategy entails four focus areas:
- Create opportunities to attract Kazakhstani enterprises;
- Develop manufacturing capacity to produce goods and services;
- Provide expertise and skills for conducting business in accordance with international standards; and
- Make maximum use of local employees’ capacity.
These focus items are supported through appropriate TCO initiatives, programs and processes.
In late 2013, a Memorandum of Understanding (MoU) was signed between Republic of Kazakhstan (RoK) Government and TCO within the Future Growth Project (FGP). One of the key provisions of the MoU was to develop a plan for KC, which was later endorsed by the Decision Review Board identified in the MoU. According to the MoU provisions, TCO FGP initiated a business forum in April 2014, where the KC plan and work scope in the following categories were widely presented:
- Manufacture modules
- Motivate investments of international producers into Kazakhstan
- Cargo transfer services
- Logistics– including marine transportation.
Kazakhstani content development activities include tangible opportunities to attract state-of-the-art technologies and innovative solutions into Republic of Kazakhstan, development of Kazakh business potential, formation of joint ventures, increase of Kazakh Content and qualification improvement for specialists in different areas of the economy of RoK. TCO conducts dynamic actions to implement those initiatives and interacts with all stakeholders – national entities, subsoil users, Kazakh and international companies.
One platform for KC development is the Kazakh-British Forum. The forum, traditionally held with the support of Shell and United Kingdom Trade and Investment (UKTI) in partnership with National Agency on Developing Local Content of Ministry of Innovational Technologies of RoK (NADLoc), is a joint program established in 2011 to facilitate the formation of joint ventures between British and Kazakh Companies in the supply chain management of the oil and gas industry. TCO takes part in the forum and informs about its demand for goods and services (G&S) and prospective areas joint venture formations would support import replacement.
In 2011 TCO, KazMunaiGas (KMG) and Union of Machine Builders of Kazakhstan (UMBK) began efforts to develop the machine building industry of Kazakhstan through studying opportunities of existing capacities and their further development. The following categories were identified during the joint work:
- Electrical equipment
- Rotating equipment
- Vessels and tanks
- Drilling equipment.
As a result of the executed work, there were Kazakh companies identified that were able to produce required goods and provide required services in compliance with TCO specifications.
During 2014, TCO identified new Kazakhstani manufacturers and TCO management visited five regions in Kazakhstan and gained a better understanding of manufacturing capabilities of 30 local companies.
Stimulating kazakhstani content growth within long term contracting strategy and creation of joint ventures
Model of long-term contracting
TCO adopted a strategic view on creating service contracts with longer terms (more than 5 years), which is necessary for ongoing or recurring work.
A large potential for Kazakhstani content is embedded into the new model for long term contracts. TCO understands the suppliers’ need for stability to expand the possibilities of creating competitive goods and services locally. Thus, the long-term commitment of business provides opportunities for sustainable development of Kazakhstani suppliers by making appropriate investments in building infrastructure, training national employees, creating new jobs and engaging Kazakh suppliers of goods and services as subcontractors. This is the effect TCO is relying on by adopting the long term contracting strategy.
In long term contracts, TCO and contractors jointly establish Kazakhstani content metrics, which the contractors are committed to execute until the contract expiration date.TCO monitors these metrics by hosting engagement meetings with the suppliers and taking corrective actions, where necessary.
TCO supports efforts on establishing partner relations and concluding agreements between foreign and Kazakh suppliers of G&S in the oil and gas area. TCO will continue encouraging development of joint ventures via forums, workshops and introducing companies with TCO requirements.
The aim of the JVs is to attract investments, transfer knowledge and best practices, and train local personnel and business innovation, resulting in an increase in competitiveness of Kazakh companies and specialists.
Small and medium business development program
TCO’s motivation in supporting small and medium business entities, oriented in Oil & Gas industry demands, is based on a unique corporate responsibility approach - support production capabilities, become a main consumer of released products and provide opportunities for further sustainable development of entities.
Small and Medium Business Development (SMBD) Program offers interest-free loans to Kazakhstani enterprises for manufacturing goods and services that potentially might be in demand by TCO and throughout the oil and gas market. SMBD Program demonstrates TCO’s endeavor to develop small and medium-sized enterprises by providing long-term opportunities for the future.
By involving entrepreneurs in the program, TCO enhances small and medium businesses’ capacity to create new jobs and produce goods and services in Kazakhstan that are compliant with international standards. Since 1997, almost $9 million have been invested in the development of small and medium businesses, which enabled the creation of more than 1,400 new jobs.
TCO is interested in creating opportunities for the production of goods and services locally, , such as these, which will meet international standards and might potentially replace imported goods and services currently in demand by the oil and gas market.
Kazakhstani personnel development in TCO
Kazakhstani content is not just about the local procurement of goods and services; it is about successful nationalization. Today, Kazakhstani managers and supervisors represent 75 percent of the TCO managerial workforce. Ongoing training and development programs exist to support the advancement of employees to positions of increasing responsibility. Kazakhstani citizens hold 86.5 percent of TCO positions, compared to 50 percent in 1993.
TCO will continue to identify and prepare successors for TCO senior management positions. Expatriate assignments for our Kazakhstani employees are an important method by which to support employees in gaining international experience that will enable them to achieve their goals. Currently, TCO has 90 Kazakhstani employees working outside of Kazakhstan
TCO will also continue to work with industry and Government partners to increase local manufacturing capabilities, and our Kazakh Content specialists will continue their work to ensure Kazakh companies and workers gain the most benefit possible from TCO’s FGP and other investments.
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