KPO Company fully supports initiatives of the Government of the Republic of Qazaqstan aimed at the development of the local providers and recognizes the importance of attracting more domestic manufactures for the Karachaganak project implementation. With this end KPO has introduced mechanisms in the procurement process to facilitate the participation of domestic companies in KPO activities. At the same time, there are risks associated with the quality of locally produced goods, as well as with an increase in the cost of production both for the Company itself and for the Authority on behalf of the Republic of Qazaqstan and local manufacturers due to the limited raw material market in the Republic of Qazaqstan, the changing taxation system and requirements for certification under international standards.
Local Сontent development
Since the beginning of the Karachaganak field development, KPO has been actively working to increase the share of local content in the Karachaganak project by involving Qazaq manufactures and service providers, which implies a decrease in imports and an increase in the volume of local goods, services and works in the total volume of goods, works and services procured under the Karachaganak project.
Since 2001, KPO develops and implements a Local Content Development Programme for the Karachaganak project on a regular basis. The objectives of the Programme for the period 2022 – 2023 are consistent with state initiatives for the development of mechanical engineering, industrialization and digitization of the Republic of Qazaqstan and KPO Local Content Development policy. The Programme identifies the target areas for local content development, and also the key indicators for monitoring and assessing performance.
In 2022, KPO local content development initiatives have led to achieve the following results:
- In 2022, the Local Content share in purchases of goods, works and services in Karachaganak project reached 56.4 % (US$ 511.7 mln);
- 18.0 % of total goods procured by KPO are locally produced (US$ 42.5 mln) with 7.3 % Local Content share as specified in the SR-KZ Certificate15.
15 A certificate confirming that the product was produced or processed on the territory of Qazaqstan. This certificate is intended for circulation on the territory of Qazaqstan, for example, when participating in the procurement of subsurface users or in public procurement.
Since signing the FPSA in 1997 by the end of 2022, the cumulative Local Content share in goods, works and services had exceeded US$ 9.37 bln.
KPO gives the highest priority to Local Content share increase for goods locally made in Qazaqstan.
In 2022, 27 contracts were awarded for a total value of US$ 115 mln to produce goods in Qazaqstan for the Karachaganak project, such as valves, transformers, instruments, fastening and piping materials, etc.
‘Kazakh tendering’ contributes to the growth of competitiveness of local manufacturers and suppliers. In 2022, KPO initiated 10 so-called ‘Qazaqstani tenders’ to be held exclusively among local companies for a total value of US$ 389 mln. As a result, KPO awarded three contracts for a total amount of US$ 15.5 mln. The tender processes for the remaining contracts continue.
Graph 28. Local Content Share in total KPO purchases of goods, works and services, 2014–2021
KPO intentionally contributes to the sustainable development of manufacturers within its footprint in the West Qazaqstan Oblast (WQO). KPO regularly invites WQO enterprises, including enterprises of the machine building sector, to participate in market research and tenders for the supply of goods, works and services, as well as to various events held by the Company in order to develop and increase the competitiveness of local businesses.
Following the awarded contracts results, in 2022 KPO paid US$ 308.1 mln to the WQO enterprises for deliveries of goods, works and services, and Local Content share reached US$ 230.5 mln or 74.8 %.
Long-term initiatives
KPO works closely with the RoQ ministries, industry partners and associations on supply chains, involving the Qazaqstani goods producers.
In 2020, the International Centre for Development of Oil and Gas Machine Building (IMBC) was established as a part of Action Plan for the RoQ Oil and Gas Machine Building development for 2019–2025, the main focus of which is the procurement of goods manufactured in Qazaqstan for the machine-building industry by major oil and gas projects in Qazaqstan.
IMBC began its work in 2021. IMBC conducts its activities on behalf of the three operators – KPO, TCO and NCOC, and closely interacts with the Ministry of Industry and Infrastructure Development, the Ministry of Energy, the PSA LLP Authority and petroleum associations involved in the development of the national oil and gas machinery building.
In 2022, KPO participated in the following general meetings of the Association members:
- January – discussion of the results of IMBC activity in 2021, Work Programme and Budget, including KPI indicators in 2021;
- July – discussion of the results of IMBC activity for the first half-year period.
KPO provided IMBC with technical requirements/ specifications for product group “B” – pumps and gaskets, line pipes, industrial filters, HVAC for the analysis.
The meeting of the Association Board was held in February 2022, as a part of events carried out by the Centre. Following the meeting the RoQ Minister of Energy prepared and sent to Operators the Roadmap for Local Content development, aimed at increasing the level of procurement by Operators of three categories of goods (valves, instrument and electrical equipment). As part of Roadmap implementation, KPO jointly with the RoQ Ministry of Energy held weekly meetings from May to September 2022 to discuss the procurement issues:
- Six contracts were concluded for the total amount of US$ 93 mln;
- Four contracts are awaiting to be signed;
- One contract is under development.
In order to attract investment for development of local production in the territory of RoQ, in 2022 KPO continued working with Original Equipment manufacturers (OEM) to implement the signed roadmaps, as well as attracting new manufacturers. Since the implementation of OEM products localization initiative, KPO has signed 16 roadmaps for goods localization, awarded four contracts for US$ 10.4 mln with Original Equipment manufacturers. KPO will continue works on implementing 13 roadmaps with potential investments of more than US$ 11 mln and creation of more than 350 new jobs.
Engagement on local content issues
As part of the local content development and increase in the production activities and projects in 2022 KPO Company holds regular events to familiarize domestic and international suppliers, relevant authorities (Ministry of Energy, PSA LLP, WQO Akimat), local content development associations with current and future volumes, demands for goods, works and services (GWS) during the implementation of production activities and projects, as well as technical conditions and specifications, where in order to increase the level of local content in goods, KPO proposed and recommended International and Qazaqstan market players to engage not only in the assembly of oil and gas equipment, but also consider the possibility of local production of components / spare parts for existing equipment and new types of equipment. As a result of initiative, in 2022 KPO signed the roadmaps that include localization of oil and gas equipment components/ spare parts with the following non-OEM companies: KIOS TECHFLOW, Turanmunaiconsalting LLP, Leser, ProControl KZ LLP, KIOS Techflow LLP, Yeskertkish Kyzmet Kazakhstan LLP/ DPI SEKUR.