How to improve local production and attract foreign investors

National Chamber of Entrepreneurs Atameken and Kazenergy Association are actively working on developing local production and increasing the share of local content in the procurement of goods, works and services byKazakhstani oil and gas operators. Strategic Partnership Development Council (Petrocouncil), with the assistance of the U.S. Embassy in Kazakhstan, has recently organized a trip of Kazakhstani entrepreneurs’ delegation to the U.S. city of Houston, where they attended OTC 2019 – the 50th International Offshore Technology Conference.

As the official representative of NCE Atameken for cooperation with oil and gas operators, Assylbek Dzhakiyev, told in an interview to, the trip proved to be very fruitful for Kazakhstani companies, as they had a chance to meet and hold talks with potential investors capable of opening new productions by creating joint ventures. In addition, a meeting was held with managers of Chevron Corporation, during which the possibility of small and medium-sized businesses to participatein Tengizchevroiltenders was discussed.

By land and sea 

– OTC, or Offshore Technology Conference, is an annual exhibition and conference on technologies, which is a significant event in the oil and gas industry of the world. The forum annually attracts hundreds of representatives of the oil and gas industry that meet to exchange experiences, share new technologies, discuss the future of the industry. What results has the Kazakhstan’s delegation achieved while visiting such an important event?

– Yes, you are right, this is a very important and ultimately very useful event in the oil and gas industry. Kazakhstani entrepreneurs, I think, have received a lot of useful information.

This year, the exhibition-conference was attended by about 16,000 companies from around the world, including ten Kazakhstani companies who visited the forum thanks to NCE Atameken and Kazenergy Association.

Taking into account the further development of the North Caspian Project, including the implementation of the project on exploration of the Kalamkas-Sea field, our trip was of particular relevance. We have met with many companies operating in various sectors of the oilfield services industry, which can be involved as partners to create joint ventures with Kazakhstani companies.

In addition, we have held a number of important business meetings. For example, the Tengizchevroil (TCO) company organized a meeting for us with the key managers of the Chevron Corporation, supervising, in particular, the IT industry, logistics and construction. We have also discussed with them the possibility of participation of our small and medium-sized businesses in Chevron projects and orders. Specialists of the corporation told us about the promising areas of our cooperation, how to meet their requirements and pass the pre-qualification system.

It should be noted that apart us, representatives of the Australian Chamber of Commerce, as well as Chevron employees who work in Australia were invited to the meeting. Interestingly, issues of local content are also very relevant in this country. Managers of Australian companies shared their experience in protecting the interests of local producers.

Unlike us, the Australian oilfield services market is very developed, as it has quite a long experience of cooperation with international companies, so it is easier for them to provide the necessary amount of services to operators, replacing foreign suppliers. But, as we have noticed, their local companies do not relax and are constantly expanding the range of their capabilities. Therefore, we were very lucky to meet them. We agreed to organize a meeting with them to exchange experience. We have much to learn from them.

We have also visited the office of the Bechtel Corporation in the U.S. – the largest American construction company, which, as you know, has been working on the Tengiz project in Kazakhstan for many years. The representatives of the company explained in detail how Kazakhstani companies, especially representatives of small and medium-sized businesses, could establish cooperation with them.

We have held meetings with American IT companies in New York. By the way, I would like to thank the staff of the Consulate General of the Republic of Kazakhstan in New York for their help in organizing the meeting.

It was also a very fruitful and timely meeting, given how important today is the process of digitalization of the oil and gas industry in Kazakhstan.

We have held talks with American companies, and I can say that we have many solutions that will allow Kazakhstani companies to join the ranks of permanent IT servicessuppliers for oil and gas operators.

– In general, what is the current volume of the IT services market in the oil and gas industry, and what is the share of local suppliers?

– According to our data, Kazakhstanioil and gas operatorsannually spend about USD 180 million on the purchase of IT services. It is clear that the bulk of these services are purchased from abroad. That is, the operators have an established supply system from well-known world companies, in particular, in terms of security, etc. Most multinational companies, for example, cooperate with the same large companies and use their services equally in all their divisions. However, we say that operators could entrust the development of digital twins, cloud technologies, logistics, surveillance system, etc. to Kazakhstani suppliers.

So Kazakhstani contractors could provide all of these information and intellectual services. And I would like to note that operators have an understanding of the process and they make reciprocal steps. Not so long ago, North Caspian Operating Company (NCOC) held a forum in Almaty for IT industry representatives. TCO as well is holding a similar conference this week in Nur-Sultan.

For its part, the Council is ready to support and assist each of the parties. For example, we can help operators by selecting potential suppliers that meet their requirements. As for Kazakhstani suppliers, we can help them recruit local staff andtrain them. By the way, we are planning to open an IT Hub here in Atyrau on the basis of APEC PetroTechnic together with Atyrau State University named after Kh. Dosmukhamedov and Atyrau University of Oil and Gas. We will prepare our own, local qualified specialists.

Share of goods

– Kazakhstan has repeatedly raised the issue of the low share of local content in the oil and gas operators’ procurement of goods. What is the Council doing on its part to address this issue?

– Yes, today it is a very topical issue. In 2018, for example, the total volume of operators’ procurement of goods, works and services amounted to about USD 12 billion, of these, the share of goods produced in Kazakhstan amounted to 5%. So yes, we have room to grow. I can inform you that now we are engaged in legal issues of creating a private industrial zone “Atyrau oilfield service technopark” in Atyrau. The task is to enable companies producing Kazakhstani products for the oil and gas industry to be located there.

We are now compiling a database of Kazakhstani and foreign companies that could create a joint production. There are already data on American and Italian companies. We also hope to receive an extensive list of companies from France, the Netherlands, etc.

I would like to remind you that the projects in Tengiz, Kashagan and Karachaganak are managed by operators on the basis of the Production Sharing Agreement (PSA). According to this document, all goods that operators bring from abroad for personal use are not subject to customs duties and taxes. Yes, it is very profitable for operators, but not profitable for those who intend to localize production here in Kazakhstan. Even if we attract foreign investors to create a joint venture and the production of local goods, it will not be able to compete in price with the goods that operators import from abroad.

Therefore, private oilfield service industrial zones, where producers are expected to be exempt from taxes and customs duties, could be of great help in this case.

In April of this year, the President of the Republic of Kazakhstan signed the Law on Special Economic and Industrial Zones, which defines the legal basis for the creation, operation and closing down of special economic and industrial zones in the country.

The law divided these zones into industrial zones of national and regional importance, as well as small and private industrial zones.

If the issue of providing tax and customs privileges for participants of these private industrial zones is resolved, it will be a big step in the increase and development of Kazakhstan’s production.

And it should be noted that now the operators themselves express interest in the localization of production and thereby in the increase in the share of Kazakhstani content. In that same Houston, we have met with representatives of many of the world’s oilfield services companies, most of whom know Kazakhstan firsthand. Many of them are ready to create joint ventures with Kazakhstani companies to establish production within our country. Therefore, the situation with the Kazakhstani content is changing and positive changes are happening more and more often.

– Thank you for the interview.