Trends
Local Content in a New Format
Amina JalilovaFrom 2021, the local contractors with privileges will include the companies, which employ at least 50% Kazakhstani personnel. Therefore, now the Kazakh oil service companies are actively seeking for the foreign partners to create the joint ventures. In this case, the state support shall be provided to them.
On July 27 of the last year, the Protocol on Kazakhstan’s accession to the World Trade Organisation was signed in Geneva. The prior negotiations on WTO accession lasted for nearly two decades. The officials have assured that Kazakhstan managed to join the WTO at the most favorable terms. Business has the difficulties to assess this fact, since the negotiations were conducted behind the closed doors, and full information is not available for them. However, the representatives of authorities, and members of the oil and gas companies association believe that the Kazakhstani companies will be able to build a successful business in new conditions. In the current volatile situation the only option is to believe.
State support for now and for the future
As we have already wrote (see "WTO will cancel local content, Petroleum, no. 4-2015), the current regime will continue to support local producers of goods and services until January 1, 2021 under existing subsoil contracts, concluded prior to January 1, 2015. And this time, the market participants should focus on the comprehensive preparations for the new conditions.
According to Magzum Mirzagaliev, the Vice Minister of Energy of the Republic of Kazakhstan,if now 25% conditional discount is given to the contractors, having at least 75% of skilled workers-citizens of Kazakhstan, starting from 2021 it will be available for the companies where 50% of employees are from Kazakhstan. Therefore, as emphasizes the Vice Minister, the state support exists and it will last in the future. But it will undergo some changes.
Of course, it will be more difficult for Kazakh service companies to work in new conditions. However, the state authorities authorities are ready to help: during the transitional period, with the support of the large subsoil users, they are negotiating with the foreign companies to establish the joint ventures in Kazakhstan and to ensure the transfer of technologies.
"We started this work few years ago," said Magzum Mirzagaliev. -We carried an in-depth analysis of subsoil users’ procurement and we compiled a list of products, suitable for localization in view of long-term demand and taking into account the number of jobs created. This list included the electrical equipment, tubular products, fittings, flanges, valves, instrumentation and other equipment.
And there are already the first results. So, in Uralsk General Electric has established a service center for repair of gas turbines, Zhigermunaiservice and Cameron create a stop valves service center in Atyrau. The Aksai industrial park was launched and it started production of 8 items of service facilities and products. Tenaris Global Services in Aktau builds the plant for cutting the premium tubular connections. In addition, last year KazMunayGas created a joint venture for production and maintenance of instrumentation equipment with Invensys Systems and drilling JV with Nabors Drilling.
Besides, Tengizchevroil and European Bank for reconstruction and development signed an agreement under which it is intended to analyze Kazakhstan market, to select the promising local companies and then develop them to a new level, which implies the introduction of international standards, access to technology and loans.
The Vice Minister also mentioned that CNPC committed itself to the construction of a plant for production of large diameter pipes near Almaty. In addition, CNPC reached agreement on the establishment of the industrial park in Mangistau region. It is planned that KazMunayGas and CNPC will create the necessary infrastructure for the Park, after which the small and medium-sized businesses will work there. They will produce the equipment, required for the oil companies.
Another support mechanism, presented by Magzum Mirzagaliev, is so called "early tender." It stipulates the conclusion of a contract for supply of goods with period of suspense, but with the condition of production arrangement and supplies from the territory of the Republic of Kazakhstan. According to the information of the Ministry of Energy, already 15 products and services are selected with potential to localize them within the frameworks of Karachaganak expansion. It is planned to use this method for implementation of the North Caspian project.
The Ministry of Energy expects that during the transitional period, it will be possible to bring the technologies to Kazakhstan to suport the local companies that will be able to compete with global giants. The State promises to facilitate dialogue between oilfield service companies and representatives of major oil and gas businesses.
Vice Minister assured that the state support of domestic producers will not be limited to a transitional period, it will continue even after 2021.
Forty thousand people will lose their job?
However, all these measures might be inefficient in the current conditions of falling oil prices. Due to lower profitability of the field development, the oil service market in Kazakhstan has decreased for 20-25%. This means that approximately 40 000 employees in that industry could lose their jobs in 2016 due to the falling oil prices. This figure was recently announced by the Minister of Energy Vladimir Shkolnik, by adding, however, that the launch of 13 planned projects can give about 6 thousands of jobs, and the expansion project at Tengiz - about 20 thousand jobs.