How PSA helps domestic business, especially during the emergency

Director, Department of Procurement Methodology and Local Content Development

«PSA» director of department of procurement methodology and local content development Dastan Abishev, in an interview with, spoke about the work being done to support the business and oilfield services. Especially during the state of emergency associated with coronavirus.

Tell us please in detail about the work aimed at acceleration and simplification of purchase procedures at Kashagan and Karachaganak deposit fields in the state of emergency”. What kind of attitude do oil and gas operators have towards this? Did they experience opposition?

– Within frames of simplification of purchase of goods, works and services from local suppliers and support thereof during State of Emergency the authorized body has developed, agreed and implemented Special procedures for the period of the State of Emergency declared in the Republic of Kazakhstan. These procedures include the following:

  • Award of new contracts to local suppliers on the basis of purchase from one source without any additional substantiation. This means mitigation of technical requirements for local suppliers without infringement to technical compliance and safety requirements;
  • Procedures for submission and estimation of tender proposals have been simplified through submission of documentation in electronic form with the purpose of reducing tenders submission deadlines;

Measures proposed by us as to acceleration and simplification of purchases for the period of State of Emergency were encountered by operators with understanding. Afterwards the authorized body along with operators has developed within the shortest period of time the special provisions to tender procedures of operators.

– “Implementation of changes among other things stipulates possibility of providing tender proposals in electronic format”. These are the news expected by the whole market: electronic purchases in oil and gas branch! How will this system operate in particular?

– Implementation of electronic purchases is the key task aimed at increase of purchase transparency, development of competition environment and ensuring of access to purchases by a wide range of suppliers.

Currently a technical task for electronic purchases system is developed, possibilities of integration with existing IT-infrastructure of customers are studied. At this early stage we can provide overall planned characteristics of the system – functionality of this system for the supplier will include creation of an account for registration in the system, receipt of purchase plans, submission of electronic documents for participation in purchases, access to information about results of purchases held. With this purpose an operator of large projects will develop a new platform complying with requirements to speed up processing of large volumes of information and cyber-safety.

– PSA has once become an initiator of realization of “early” tender mechanism, which stipulates signing of agreement on supply of products with a deferred period but with a condition for arrangement of production on the Republic of Kazakhstan territory. Which are the results of this work over the last 3 years? How many early tenders have been signed? For which amounts and what kind of goods did they start to produce in Kazakhstan?

– It is absolutely true that this initiative of the authorized body for implementation of early tender and trial orders placement mechanism in Karachaganak and North-Caspian projects was supported by operators and it is currently successfully applied in practice.

If we speak of specific examples over the last 3 years through early tender and placement of trial orders mechanism in Karachaganak project the contracts were awarded to domestic producers of goods for production and supply of such Kazakhstan goods as ball taps (valves), transformers, 16” drilling bits, flanges, sealing gaskets, fixing elements, filtering elements, motor oils, cable trays, lighting fixtures, fencing in accordance with international standards, personal protective equipment (PPE) and chemical products (grouting cement, barite, caustic soda) as well as for provision of services pertaining to repair and rewinding of electric motors in explosion-proof housing.

Contracts in the amount around 22 millions of US dollars were signed over the indicated period through early tenders/trial orders mechanism.

Contracts in the amount of 52.8 millions of US dollars were awarded in North-Caspian project over the last 3 years within frames of early tender mechanism realization; 2 contracts were additionally awarded in 2020 in the amount of 10 millions of US dollars.

Among goods and services we can mention such ones as personal protective equipment, polypropylene inserts/bags for railway wagons, ring joint gaskets, spiral-wound and paronite gaskets as well as technical maintenance of valves.

– Purposes of local content development in OEM shall be clearly and realistically determined. Concerning three operators do you have a clear vision, how Kazakhstan local content will develop in digits and dates? If you do please share your vision.

– Work with PSA operators (KPO, NCOC) was determined as a priority of operation of authorized body for the nearest period of time in relation to gradual local content development in production of original oil and gas equipment manufacturers (OEM) on the Republic of Kazakhstan territory as well as execution of the Action plan for development of oil and gas machine engineering of the Republic of Kazakhstan for 2019-2025.

“Local content development in manufacture of original equipment” round table was held within frames of local content development in OEM goods (on September 20, 2019), within frames of which round table the operators signed Memoranda on increase of local production share on the Republic of Kazakhstan territory when purchasing of goods from original equipment manufacturers. The most promising OEM-manufacturers were selected jointly with operators, negotiations were held and road maps were developed with establishing of target indicative parameters for the level of local content development in OEM products. Thus the following OEM-manufacturers were determined for local content development in the nearest future: John Crane, Emerson, GE Power, Flowserve, Petrovalves Kios, ABB, Honeywell, Baker Hughes.

It is necessary to note that OEM-manufacturers release high technology equipment, in which Kazakhstan local content is not present at the moment. Therefore local content development in components or assembly processes is the first step in deployment of sophisticated equipment in the future.

Along with that the success of the work to be done will directly depend on observation of a row of conditions set forth by OEM-companies including government support regarding exemption from taxes and customs duties. Taking into consideration that settlement of such issues is not the responsibility of the authorized body we started to involve at the current stage representatives of central and local executive authorities. As of today different support mechanisms are considered such as special economic zones (SEZ) for local content development in goods production around large projects, investment contract and etc.

– Tell about adopted new KPO and NCOC tender procedures, what kind of specific new proposals were made? What will it give to domestic goods manufacturers? What kind of impact will it make on local market and on our economy as a whole?

– In the beginning of April 2020 the changes were approved in the tender procedures of PSA projects concerning local content development and support of domestic manufacturers of goods.

Making of changes into tender procedures was initiated by the authorized body within frames of execution of the Action plan for development of oil and gas machine engineering for 2019-2025. Basic goals of this initiatives are further local content development through involvement of larger quantity of domestic manufacturers of goods and suppliers into purchases to be held by project operators.

Offer package prepared by the authorized body for making of changes and addenda into tender procedures was transferred to project operator and parental companies in the middle of 2019. Proposals pertained to change in methodology of purchases to be held. Afterwards an extensive work was performed and series of prolonged negotiations were held within a whole year with project operator and shareholders with the purpose of approving proposed changes and addenda.

Thus applicable tender procedures included the terms: conditional reduction of price, contract in exchange for investment, prolongation of valid contract under the condition of local content development. The procedure for placement of purchase program on operator’s web-site was clarified. Compulsory criteria were established for local content in tender proposals; conditions for holding of tenders exclusively among local suppliers and partnerships with participation of local companies were included.

We convinced that implemented initiatives of the authorized body will make a significant contribution into further development of local content and will have an extensive multiplication effect on Kazakhstan economy. This in its turn will allow our production sector to pull themselves together and to extend their opportunities because as you know the lion’s share of goods, works and services purchase falls to three large projects. This is the very critical moment for our market when a good opportunity and potential have arisen for development of our local production first of all.