Local Content Development Programme

During 2018, KPO continued the implementation of the long-term initiatives approved under the company’s biennial Local Content Development Programme, such as Aktau Declaration [1] and the Memorandum of Understanding (MoU) on the National Industry development [2] have laid the foundation for the localisation of goods, works and services.

In 2018, KPO conducted 29 so-called ’Kazakhstani tenders’ exclusively among local companies worth US$ 108 mln, which resulted in awarding 14 contracts to the local companies worth US$ 29 mln as of 2018 year-end. Such option as ’Kazakhstani tender’ aims to boost local capability development and encourage competitiveness in the local market. KPO had carried on with the strategy of partnerships and/or minimum Local Content level as imperative requirements, which were applied to six major works and service tenders within the Operations’ demand for an estimated value of US$ 330 mln.

KPO progressed further with communicating valuable information about the existing opportunities within the Karachaganak Project to the wide audience of vendors, authorities and non-governmental associations. This had predictably boosted an interest on the part of the national business community for the Karachaganak Project in general and localization opportunities in particular — a theme that featured in numerous forums and workshops, such as:

  • KEP-1 Local Content Forum, held in Nur-Sultan on 7th September 2018, introduced international and local business communities with the KEP-1 Projects scope, anticipated demand in goods, works and services and supply engagement opportunities and requirements. The Forum attracted more than 160 local and international Engineering, Procurement and Construction (EPC) services companies and local manufacturers, interested in establishing joint ventures.
  • A Joint Forum for localization of production chemicals, initiated by the parties to the Aktau Declaration, was hosted by KPO in Almaty on 19th November 2018 with support of the Ministry of Energy and the PSA Authority. The Forum brought together delegates from over 50 local and international companies specialized in chemical production and associated services. The objective of the forum was to stimulate growth of the domestic chemical products’ market due to high and stable demand in O&G projects by providing a platform for the exchange of information from demand and search for effective chemical solutions to the emerging opportunities for the development of chemical production sector in the Republic of Kazakhstan.

[1] Aktau Declaration signed in 2012 by major oil and gas operators KPO, NCOC, TCO and NC KazMunaiGas JSC on coordinated joint actions for local content development

[2] Memorandum of Understanding on the National Industry Development signed between KPO, PSA LLP and KAZENERGY Association

Case Study № 1

Implementation of Early Tenders and Trial Orders under the Memorandum of Understanding (MoU) on national industry development (continued from 2015)

The launch of the initiative for development of production and service clusters was reported in the previous KPO Sustainability Reports for 2015 −2017. The scope of the Memorandum of Understanding included identification of goods, works and services at early stages of KPO projects for creation of clusters and initiation of Early Tenders and/or placement of Trial Orders to provide additional time for production of local goods, works and services.

The 2018 performance highlights under the Memorandum of Understanding were:

  • ETs for the procurement of consumables — gaskets, flanges, fastening materials, process filters started in 2018, with mandatory condition of partial manufacturing of goods (frequently demanded items) in the RoK. KPO conducted a series of pre-tender clarification meetings with tenderers to communicate the Invitation to Tender requirements and principles of Early Tenders. Early Tender contracts for gaskets, flanges and fastening materials are planned to be awarded in early 2019.
  • TO for the procurement of locally manufactured ball valves was placed as part of an effort to test the quality of the goods proposed for supply to Karachaganak project based on the scope of the Expansion Project. In December 2018, KPO technical specialists witnessed the locally manufactured ball valves being pressure tested.
  • TO for procurement of locally produced motor oil has been performed to test the quality of subject goods. Following the successful field test results, the user department initiated a long-term procurement tender of locally produced motor oils.
  • 16’’ drill bit localized earlier via the Trial Order mechanism, resulted in a long-term contract with ZhigerMunaiService (ZMS), after the samples had twice demonstrated Karachaganak drilling speed records in 2018 thus reducing an average drilling time. The achieved success is the precedent for KPO to consider localization of the 12″ drill bits.
  • Since signing of the Memorandum of Understanding on National Industry Development, KPO has successfully localized seven types of goods and one type of service through Early Tender and Trial Order mechanisms.

Case Study № 2

New business opportunities

Original Equipment operated at the field represents the category of long-term demand in terms of maintenance including spares and licensed service provision and is therefore considered a potential subject of a study for localization opportunity. Draft long list of imported goods of constant demand including supplies by original equipment manufacturers and non- original equipment manufacturers was reviewed in correlation to data from other O&G operators in RoK for synergy purposes and resulted in a short-list of 8 OEMs.

The following are KPO’s 2018 year-end achievements with regard to original equipment manufacturers and other priority goods:

  • Honeywell announced plans to establish a fully equipped training centre in the Kazakh-British Technical University premises for the automation faculty students.
  • RT Alliance, encouraged by constant demand from KPO, is implementing a project for the construction of a liquid nitrogen production plant with a capacity of 4500 tonnes/year in Aksai. The company already created 10 new work places and is expected to fully localize the liquid nitrogen production to cover the Karachaganak Project needs.
  • In November 2018, the FAD Group, resident of Aksai Industrial Park, opened a new production workshop based in Aksai Industrial Park for a specific alloy material product, where machining and finishing will be done in Aksai. Category of goods to be fabricated include flanges, fittings, components and forged pipes in alloy F22M, high yield carbon F65 and special material grades with the «Made in Kazakhstan» stamp. The workshop will include an ASME training centre for local welders. FAD created 28 new local jobs to support the workshop activity.

Case Study № 3

Local manufacturing capability development

KPO has been taking vigorous efforts to involve local companies into more complex scopes through facilitating cooperation between international and Kazakhstani companies with a view to create new jobs and assist in technologies’ transfer, as well as creation of new production capabilities.

Over the last couple of years, KPO has made drastic changes in the nature of procurement of goods from simple products to more complex, high-technology goods and equipment made in Kazakhstan.

In Q3 2018, local manufacturers — Byelkamit and Atyrauneftemash jointly completed the fabrication of two units of three-phase cladded separators. This is the first local experience in fabrication of such thick wall (71 mm) pressure vessels in Kazakhstan. Both separators were successfully delivered and installed at the Karachaganak Processing Complex (KPC) as part of the KPC Upgrade of Oil Treatment System project.

KPO made early efforts to secure local content in the execution of Plateau Extension Projects by identifying the opportunities for local manufacturers, where the following contracts for supply of locally manufactured goods were placed in 2018:

  • Structural steel;
  • Isolation joints;
  • Heat Exchangers;
  • Remote Telemetry Units;
  • Pig launcher.