Since 2001, KPO develops and implements a two-year Local Content Development Programme for the Karachaganak project in order to achieve the goals set in the KPO Local Content Policy.
The objectives of the Programme for the period 2020 – 2021 are consistent with state initiatives for the development of mechanical engineering, industrialization and digitization of the Republic of Qazaqstan. The Programme has identified the target areas for local content development, and the key indicators for performance monitoring and assessing.
KPO local content development initiatives have led to achieve the following results:
- In 2020, the Local Content share in Karachaganak project reached 59.3 % (US$ 586.7 mln);
- 33 % of total goods procured by KPO are locally produced (US$ 45.5 mln) with 16.2 % 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.
Graph 28. Local Content Share in total KPO purchases of goods, works & services, 2014–2020
PO gives the highest priority to Local Content share increase for goods locally made in Qazaqstan. The stable growth of overall indicators is achieved thanks to a number of goods’ localization activities implemented since 2014.
In 2020, 20 contracts for a total value of US$ 4.3 mln were awarded to produce goods in Qazaqstan for the Karachaganak project, such as heat exchangers, mechanical components, valves, containers for storing cylinders, spare parts for pig launchers/receivers, air coolers, caustic storage tanks, compressor separator, tilted plate separator and flotation tank. ‘Qazaqstani tendering’ contributes to the growth of competitiveness of local manufacturers and suppliers. In 2020, KPO initiated 35 so-called ‘Qazaqstani tenders’ to be held exclusively among local companies for a total value of US$ 399 mln. As a result, KPO awarded 10 contracts to the local companies worth US$ 1.7 mln. The tender processes for the remaining contracts continue.
Since signing the FPSA in 1997 by the end of 2020, the cumulative Local Content share in goods, works and services in Karachaganak had exceeded US$ 8.2 bln.
KPO intentionally contributes to the sustainable development of manufacturers within its footprint in the West Qazaqstan Oblast (WQO). In the framework of the Memorandum of Understanding on cooperation for the development of mechanical engineering in oil and gas industry, KPO closely interacts with enterprises, which participate in the ‘WQO Mechanical Engineering for Oil & Gas Industry’ sub-cluster, and regularly engages them in market researching in bids for deliveries of goods, works and services.
Following the awarded contracts performance, in 2020 KPO has paid US$ 318.8 mln to the West Qazaqstani enterprises for deliveries of goods, works and services, the Local Content share on which has reached US$ 226 mln or 70.9 %.
Development of local suppliers’ potential
The ability to attract competitive local suppliers is one of the critical factors for success in the localization initiatives. In 2020, over 160 of local suppliers of goods, works and services, including representatives of small and medium entrepreneurships were involved in the KPO Local Content development activities and trainings.
In 2020, KPO launched a pilot program for developing key business competencies and diversification for representatives of small and medium entrepreneurship (hereinafter as SMEs) in the West Qazaqstan Oblast. As part of this joint initiative of KPO and the Akimat of Burlin region, specialized webinars were held for 150 representatives of 146 SMEs, whose activity was not directly related to O&G industry.
In 2020 in order to improve competitiveness of the Qazaqstani manufacturers, KPO launched another programme for certification in accordance with international ASME and API standards. Eight local manufacturers were selected to participate in the programme, of which the West Qazaqstan Machine Engineering Company and JSC Ust-Kamenogorsk Industrial Valves Plant have successfully passed through the qualification process with the expected ASME and API certification in 2021.
As a result of cooperation between KPO and Euroconsultants S.A., the company nominated by the World Bank and the RoQ Government as a major consultant for local development, 17 Qazaqstani companies have been certified to ISO 14001, 18001, 9001, and 45001.
Engagement on local content issues
In order to attract investment for development of local production in the Republic of Qazaqstan, KPO continue working with the UK Department of International Trade. This engagement is aimed at raising awareness and interest amongst international companies for establishing partnerships or creating joint ventures with Qazaqstani enterprises and promoting technology transfer.
On 13th November 2020, KPO participated in an online meeting of the British and Qazaq Working Group on energy-related issues at the Foreign Investments Council to discuss the impact of the current market volatility, the global pandemic and Qazaqstan’s participation in the World Trade Organization. Local Content requirements for the implementation of ESG priorities (environmental, social and governance issues) and sustainable development of the Karachaganak field were also part of the meeting agenda.
During 2020, KPO participated in online meetings of the Ministry of Energy, KazService and Petrocouncil associations to support local service providers in the oil and gas sector and to hold webinars for guiding applicants in KPO tender process in the light of the latest amendments made into the JOC Tender Procedures.
In 2020, KPO continued implementation of the long-term initiatives endorsed within the Memorandum of Understanding on domestic industry development, which was signed between KPO, PSA LLP and KAZENERGY Association, and the Memorandum of Understanding on localization of the goods produced by original equipment manufacturers (OEM)-signed between the RoQ Ministry of Energy, PSA LLP and KPO.
On 30th November 2020, the Agreement on Intents for the establishment of an International Centre for Development of Oil & Gas Machinery was signed between the Ministry of Industry and Infrastructure Development, the Ministry of Energy, PSA LLP, the Machinery Builders’ Union of Qazaqstan and three major petroleum Operators: KPO, TCO and NCOC. The International Centre will conduct its activities on behalf of the three operators and will closely interact with relevant ministries, the PSA LLP Authority and petroleum and engineering associations involved in the development of the national oil and gas machinery building.
In the framework of the Memorandum of Understanding on localization, in 2020 KPO continued activities on development of roadmaps with the Original Equipment manufacturers. The categories of goods and spare parts for potential localization, timing of implementation and the estimated production scope in Republic of Qazaqstan. By the end of 2020, roadmaps were signed with companies such as Baker Hughes, Honeywell, nVent, Stewart-Buchanan Gauges Ltd.