At the recent national forum held in Uralsk, they discussed how the area’s potential could be used for the maximum development of the economy. Officials from local enterprises, the regional authorities and the management of Karachaganak Petroleum Operating B.V. compared their mutual interests during the session.

The main subject of the forum was quite clear from its name: the Partnership in the Name of Prosperity (Local Content Forum). During the opening, Oblast Akim Bakhtykozha Izmukhambetova noted the dialogue with investors who develop the subsoil hydrocarbon resources is being conducted in according with President Nazarbayev’s requirements to increase Kazakhstani content in oil and gas projects.

The field has tremendous value for the oblast. Out of the total volume of industrial production, 90% comes from the mining industry (oil and gas), while only 8% is from processing enterprises. It should be taken into consideration that the diversification problem is being aggravated by the global economic crisis. As a result, we forced to take other measures to establish industrial relationships and come to solutions on problems related to getting national companies to cooperate with foreign subsoil users.

The Oblast Akim said he believes the capabilities of domestic producers in executing large oil and gas projects are not being used to its full extent. In order to change this situation, information on the needs of foreign companies during procurement of work, goods and services should be provided in advance. At the same time, this information should be placed openly on websites, so that Kazakhstani companies will have an opportunity to prepare thoroughly for tenders, especially if it involves the production of new items.

Local goods manufacturers are concerned over the practice of holding tenders outside the country, since this places Kazakhstani companies at a disadvantage over their foreign competitors. As a whole, there are great opportunities for cooperation. Uralsk enterprises have the capability to produce oil and gas equipment, including a wide range of pipelines, and special protective clothing.

Construction companies also have a great deal of experience. The labour payment procedure should be improved. At the moment, payment with contractors is conducted no early than within 30 days, while enterprises purchase materials and utilities on a pre-payment basis. As a result, enterprises are forced to take out loans at a high interest rate, which of course influences the prime cost of products.

The Oblast Akim expressed his confidence in the fact that these are the issues in which both local businesses and foreign investors are interested, and the anti-crisis plan for the stabilisation of the real sector of the economy and the solution of employment problems was adopted by the oblast. There is no doubt that mutual cooperation of foreign companies and local goods manufacturers will assist considerably in the successful implementation of the plan.

The Chairman of the Atameken National Social Entrepreneurship Corporation, Azat Peruashev began his speech with a statement that the local content forum is a perfect example of a considered approach to the solution of problems related to the threat of the financial crisis.

The new conditions for partnership with foreign companies have been dictated by the instability of the economy. As it turns out, both positive and negative experience in the cooperation between Kazakhstani manufacturers and subsoil users has shown to be beneficial. As a result, the well-known mathematical concept: two negatives multiplied produce a positive, works. The formula for success lies in a correctly derived common denominator.

The government and Atameken make decisions on a considerable number of issues to ensure state support for rural areas. The task is not only to use money allocated for retraining and employment issues to the full extent, but also to pursue preemptive tactics involving potential employers. Such an approach provides the needed level of qualifications.

The Karachaganak project is huge, which is why goods manufacturers from various regions of the country can participate, which, according to law on competition, without a doubt, will ensure higher quality goods and services. The managing director of the KazMunaiGas JSC, Bekzhan Kulbayev gave a speech at the forum on a more considerable Kazakhstani presence in investment projects. He stressed that the session is being held at the right time, because the external threats of the crisis force us to act more efficiently to search for extraordinary solutions to maintaining economic stability and providing employment.

At the same time, maintaining an attractive investment climate remains a top priority. In the current conditions, the criteria for the evaluation of the assets of foreign companies, in respect to the nationalisation of human resources are changing. The top priority is now attracting local entrepreneurs. The percentage of Kazakhstani participation in the development of the subsoil is now the main indicator of the foreign partner’s intent for cooperation aimed at the sustainable development of territory where the fields and development companies are located.

Chairman of the Board at CPK-Batys, Andar Shukputov noted that while building mutual relations between Kazakhstani and foreign partners, we should not only take into consideration the present day situation, but simultaneously look forward to the future, thereby creating conditions for the post-crisis development of the country in accordance with the presidential address to the people of Kazakhstan.

General Director of KPO, Roger Fox said he believes that they have developed strong connections with Kazakhstani suppliers. However, this is naturally not enough. Therefore, the activity of the consortium in this area continues to develop. The field developers, which include world-known oil and gas companies such as BG, Eni, Chevron and LUKoil understand perfectly the significance of developing the regional economy and in the country as a whole.

The complex situation on the global hydrocarbons market is widely known. This has naturally had an impact on KPO’s financial performance. The investment potential has decreased, while the costs for goods and services remain quite high. However, despite the difficulties, the general contractor believes it possible to expand Kazakhstani participation in the project in the future. In this regard, the general director emphasised that it is beneficial for the efficient and profitable operation of national oil and gas enterprises.

In order to withstand the crisis we should work together, but of course, in compliance with quality, labour safety and environmental standards. The established terms and “correct” pricing are also important conditions of mutually beneficial partnership. “These basic business principles are obligatory at all times,” Roger Fox said. “They are applied equally for such a tremendous and highly complex enterprise such as KPO, as well as for small and medium-sized businesses.”

“We bear responsibility for those organizations with which we develop cooperation and for the sustainable development of the entire region. This is required by our long-term partnership policy”.

According to the information provided by the consortium, today, Karachaganak is the largest operating field in the country. Around 45% of all the oil and gas produced in Kazakhstan, and nearly 16% of all liquid hydrocarbons are produced here. Such large production requires highly qualified personnel. The up-to-date expensive equipment used at Karachaganak can be entrusted only in the hands of skillful people. This is why considerable amounts of money are contributed to the training of employees and specialists and into improving technological processes. The Local Personnel Development Strategy has been developed, and is being implemented on a step-by-step basis. During the previous field development phase, more than 800 Kazakhstani companies received orders from KPO for an amount of more than US $2.5 billion. The coefficient of Kazakhstani participation in the project totals 56%, which is 13% more than the earlier planned level.  Considerable investments are contributed into the social reconstruction of the region, and today the amount exceeds US $145 million.

One of the largest projects is the construction of the Karachaganak-Uralsk pipeline. This 150-kilometre pipeline will make it possible to solve the acute problem with the supply of natural gas to several regions on the left bank of the Ural River.

The President of the Association of Entrepreneurs of the West Kazakhstan Oblast, Zinatbanu Musina gave a speech at the forum analysing the mutual relationship of KPO and local goods manufacturers, and certain proposals for their improvement. On behalf of the business community, he thanked oblast administration, the Majilis deputies, and everyone who has supported the initiatives of local goods manufacturers in their solution of their problems with participation in oil and gas projects.

The current and future situation with entrepreneurship, and therefore, the economic state of the region to a large extent depends on such contacts. Zinatbanu Musina said she believes that now there are a lot of issues that need to be resolved without delay. Taking a look at the figures, the picture is far from optimistic. For the last decade, the specific weight of the oil and gas sector in total industrial production increased 2.2 times, while the processing industry dropped by 2.3 times.

Mechanical engineering, the construction industry, light and food industries, machine-building enterprises are not operating at their full capacity. Even those companies that obtain international quality standards certificates experience difficulties with receiving orders and selling their products.

“We are far from the thought of imposing responsibility for the current state of affairs on the management of KPO,” Zinatbanu Musina said. “The reasons are much deeper, systematic measures are necessary to change the situation. And this is not only necessary for more productive cooperation with Karachaganak, but with all subsoil users operating in the WKO and other regions across the country. There is no doubt that first and foremost, we must pay attention to the level of technological level of local plants, especially small and medium-sized enterprises. Constraining factors for further development is often expressed as an insufficient amount or lack of funding. The applied management and marketing strategies are far from the desired level. However, at the same time, an increase in orders from foreign companies could act as a decisive factor for increasing the potential of local goods manufacturers. Being aware of their level of responsibility, which is increasing in terms of the global financial crisis, the business community of Priuraln’e sent a letter to the Oblast Akimat, KazMunaiGas and KPO management, asking them to create a special joint working group for the development of a regional programme to increase Kazakhstani participation in the Karachaganak project.”

“They discussed a range of issues that are so important for the region that naturally, not everyone had an opportunity to express their point of view on the problems with developing local contact between local suppliers and foreign investors. This is why before the beginning of the forum, I offered those who have been cooperating closely with the Karachaganak consortium for quite a long time to participate in a brief discussion, and this is what they said:

Chairman of the Damu Oblast Association of Entrepreneurs Serik Kairshin, “Our>cooperation with KPO began with participation in a large project when the entire Tungush village was moved>from the Sanitary Protection Zone around the field to Uralsk, paid for by the investors. We helped the village residents through retraining and finding jobs. 

“After that, a joint project for the creation of a business centre and incubator in Askai, the administrative centre of the field was implemented.  The key goal of this project was providing assistance for the development of small and medium-sized business and entrepreneurs. Our experts gave free consultations, helped draw up business plans and execute official documents”.

“Having won a tender, Damu got the opportunity to grant preferential loans to farmers in the regions near the field. As a result, the amount of cattle increased, planted areas expanded, new bakeries, cafes and shops opened. Consultations, business seminars and retraining have been held continuously ever since. This practice demonstrated it is much more beneficial to prepare consultants who in turn render services in the region and simultaneously represent the association in rural areas. We need to continue this work, but in view of competition and on a long-term basis.”

Director of Otdelstroy LLP Valentina Mikhno, “Karachaganak Petroleum Operating B.V. attracts for work on the implementation of social projects in Priuraln’e only local building and construction companies. We have already been cooperating for ten years. Of course, the benefit from such cooperation is huge for our company. KPO always has high requirements, first and foremost for the quality of work and the protection of labour. To comply with the requirements, we have made a great deal of effort. We really hope we will go on to become a very in-demand company. The difficulties associated with the crisis are becoming more and more tangible.  However, our company has not stopped working, and we have not reduced personnel. I believe that cooperation between Kazakhstani partners and investors would be much more effective if the results of tenders are summarised more quickly. It is also necessary to update the database of local enterprises more regularly. Life always changes. Some companies grow and improve their technology and equipment, while others fail to cope with challenges. We would like to wish KPO successful work, because the development of the field means a lot for the economy of the region and the country”.

Burlin Akim Bulat Shakimov, “I have been working in the region for the second year now. And for the second year, with the support and assistance of the Oblast Akim Bakhtykozha Izmukhambetova and KazMunaiGas, KPO allocated $US 10 million for social projects in the Burlin region, where the field is located. With these funds, we are building a school and Kindergarten, repairing roads; we have also purchased equipment for the regional hospital”.

“This year, we want to spend another tranche on the reconstruction of the heating and water supply systems. The main difficulty lies in the fact that financing procedures at KPO take a long time. For instance, the decision to allocate money for the district last year was made in January, but we heard the result only in September. Several large city construction companies, where 1,000 people work at each enterprise, are located in Aksai. Of course we would like them to operate to the maximum extent possible. In general, our relationship with the field administration is built based on business.”

Head of the Oblast Employment and Social Programmes Administration, Tabylgali Saparov, “We constantly attract foreign companies operating within our oblast for deciding issues related to employment and the nationalisation of human resources. We jointly discussed problematic subjects, and as a rule, we come to mutually beneficial solutions. We continue to monitor professions in demand, and offer choices for the retraining and re-qualification of personnel”.

“For instance, when there was a need for considerable amount of experts in argon welding, we found a group of Kazakhstani people for retraining who then completed training courses paid for by their employers and who now are working in this area successfully”.

“Before a prestigious and well-paid job at the field was given to village residents in Aksai and Uralsk, we decided to considerably expand cooperation and began to recruit residents of other districts of the oblast. We believe that this changed the opinion of a large number of our residents regarding the role and place of foreign companies in the economy of the oblast. The time has come to prove the social responsibility of businesses, including subsoil users with real and definite action”.

Director of the West Kazakhstani Centre for History and Archeology, Murat Sdykov, “One of the main areas of our activity is studying the cultural heritage of Priuraln’e. For several years, KPO has been concluding agreements for conducting preventative scientific research on the problems that could emerge in the event of the expansion of production and the laying of pipelines”.

“For instance, we have conducted a study on one hundred and fifty kilometres of the Karachaganak-Uralsk gas pipeline route. We are now finishing a study on the Karachaganak industrial zone. By the way, during the Soviet times, when we offered the previous operators to conduct such research, they refused completely.”

“Now, the industrial zone is no longer a secret for us. We know the quantity of archeological monuments located in its territory. With KPO’s financial support, several books were published on the cultural and historical heritage of the area. We are now preparing a new joint project. I’m glad that in this respect, we have come to a mutual understanding with investors, and they have satisfied our requests”.

The information on increasing Kazakhstani content in the development of Karachaganak and the review of the upcoming procurement plan were provided to entrepreneurs at the forum. The main event during the dialogue was the signing of a memorandum of understanding between the WKO Akimat, KazMunaiGas JSC, Soyuz Atameken, the West Kazakhstan Oblast Association of Entrepreneurs, and Karachaganak Petroleum Operating B.V.     

Also at the event, a range of contracts and memorandums were concluded with enterprises of Priural’e. At the forum it was announced that a new era in the relations between the subsoil users and Kazakhstani companies has begun. A considerable role in bringing the interests of the different parties together was given to a joint working group. However, the main factor for obtaining beneficial and highly paid orders from foreign companies has always been and remains the competitiveness of local suppliers of goods and services.

The enhancement of competitiveness in particular will be the main goal of today and the immediate future.