Local Content development

Since the beginning of the Karachaganak field development, KPO has been actively increasing the local content share in Karachaganak Project by engaging the Kazakhstani goods producers and service providers. This implies the reduction in import and increase the share of goods, services and works of local nature in the total volume of goods, works and services procured for the Karachaganak Project.

KPO on a regular basis has been developing and implementing the Local Content Development Program in the Karachaganak Project since 2001. The objectives of the Programme for 2022–2023 is in line with both state initiatives for the RoK machine building, industrialization and digitization development and KPO local content corporate policy. This Program defines the local content development objectives and tasks, as well as the key performance assessment and monitoring indicators.

In 2023, KPO local content development initiatives have led to the following results:

• The Local Content share in procurement of goods, works and services in the Karachaganak Project for 2023 was 63.24 % (equivalent to US$ 756.1 mln)
• Goods locally made in Kazakhstan were purchased in amount of US$ 49 mln, which constitutes 24.4 % of total scope of goods procured by KPO (of which 10.8 % is the Local Content share as specified in the ST-KZ Certificate¹⁴).

Graph 29.Local Content share in total KPO purchases, 2014–2023.

Since the execution of FPSA in 1997, as at the end of 2023 the cumulative share of Local Content in goods, works and services in Karachaganak had exceeded US$ 10.12 bln.

KPO is placing major emphasis on increasing Local Content share in procurement of goods produced in Kazakhstan.

In 2023, 22 contracts with a total value of over US$ 77 mln were signed for the needs of the Karachaganak Project for production of the following types of goods in Kazakhstan: electrical equipment (junction boxes, transformers, remote telemetry units), valves, transformers, PPE, filter elements, instrumentation, bulk piping materials, etc.

Holding of “Kazakhstani tenders” contribute to the growth of competitiveness of local producers and suppliers. In 2022, KPO initiated 7 “Kazakhstani tenders” exclusively among local companies for the total amount of US$ 60.5 mln. As a result, KPO awarded 1 contract to the total amount of US$ 140 thous. The work on other tenders is still in progress.

Tab. 51.“Kazakhstani tenders” initiated by KPO for 2021–2023

As part of the efforts to enhance the sustainable development of local suppliers in the region where it operates, West Kazakhstan Oblast (WKO), as of 2023 KPO paid $717.76 mln to enterprises in WKO for delivery of goods, works and services, the share of local content in which reached $492.17 mln or 68.6 %.

In addition, the Company regularly invites the WKO enterprises, including enterprises from machine building sector, to take part in market research and in tenders for delivery of goods, works and services as well as to various activities organised by the Company to develop and improve the local businesses competitiveness. The results for 2023 are as follows:

Tab. 52.Share of KPO’s local content in the supply of goods, works and services in WKO, 2023

Tab. 53.Share of KPO’s local content in the supply of goods, works and services in WKO, 2022

Long-term initiatives

KPO actively cooperates with “International Oil & Gas Machine Building Centre” (IMBC), which was established to support development of oil and gas goods production in Kazakhstan. In this respect, IMBC acts as a connecting bridge between the largest oil and gas Operators and machine-building enterprises of the Republic of Kazakhstan.

The Centre operates on behalf of the three Operators – KPO, TCO and NCOC, in close cooperation with the Ministry of Industry and Construction, the Ministry of Energy, the Authority “PSA” LLP, as well as the Kazakhstan Electric Power Association (KEA) and the Association of Kazakhstan Machinery Industry (AKMI). The primary objective of the IMB Centre is to promote sustainable development of oil and gas goods production in Kazakhstan and to increase local content in Operators’ procurement.

In the framework of the Relationship Agreement signed between three major operators and IMB Centre on 8 April 2021, the Annual Work Plan and Budget with Key Performance Indicators (KPIs) are prepared by IMB Centre on an annual basis for further approval by the Operators. General Meeting of members of the Centre is held three times a year to review execution of the approved Annual Plan and implementation of the budget for the reporting period, as well as to approve the Annual Plan and budget for the next year.

In 2023, within the framework of the approved IMB Centre Annual Plan and budget, the Centre continued the market research of the A&B commodity groups’ producers (valves, electrical devices and instrumentation, piping, pumps and seals, air conditioning systems (HVAC) and process filters), including assessment of their production capacities taking into account the Operators requirements.

In addition, in 2023 the Operators identified categories of the Commodity Group C for the future operation of the IMB Centre. Commodity Group C includes lifting mechanisms, heat exchangers, air coolers, fire-fighting equipment, insulation and chemicals.

The main activity of the IMB Centre is to analyse, forecast, propose solutions and provide technical support to the producers. Taking this into account, the capability development plans are designed by IMB Centre to increase capacity of domestic companies. The placement of so-called “trial orders” depends on how successfully these plans are executed.

In result of cooperation with IMB Centre, KPO concluded 9 contracts with local producers for a total amount over US$ 94 mln. In 2023, in order to promote investments and develop production on the RoK territory, KPO continued working with Original Equipment Manufacturers (OEM) towards implementation of the signed Road Maps. In order to increase localization capacity, KPO has started analysing the imported goods, which are not related to the OEM category. Localization of such goods is considered on the condition that there is a constant demand and the goods meet the Company’s technical requirements.

Since the introduction of the original equipment production localization initiative in 2019, KPO has signed 16 Road Maps for localization of goods and concluded 6 contracts with Original Equipment Manufacturers for the amount of US$ 21.6 mln for supply of heating system elements, personal H₂S gas detectors, valves, remote telemetry units, well control panels. KPO will continue implementation of the Road Maps which include the attraction of additional investments.

Engagement on Local Content

In order to promote development and increase the local content share, KPO holds regular sessions to share its current procurement scopes and plans for the upcoming period with local and international suppliers, state authorities (Ministry of Energy, PSA, WKO Akimat), as well as local content development associations, such as the “Association of Kazakhstan Machinery Industry”, Oil and Gas Industry Strategic Partnerships Development Council “Petrocouncil.kz”, Union of Oilfield Service Companies “KAZSERVICE”. Company shares information about its needs for goods, works and services (GWS) as part of its both current operation activities and capital projects, including technical requirements and specifications.