In Kazakhstan, local producers need to be provided with tax incentives when creating special industrial zones to localize the production of goods around large projects.
In addition, the ministries of finance, national economy, and trade and integration need to consider the possibility of exempting Kazakh producers from paying customs duties and VAT on imported goods for the needs of large operators, which will stimulate the creation of industries in Kazakhstan.
This opinion was expressed by the Minister of Energy of the Republic of Kazakhstan Kanat Bozumbayev during his speech at a meeting on the development of oil and gas engineering, which took place on July 17 in Atyrau.
According to the minister, in general, over the past five years (2014-2018), the volume of local content in the oil and gas industry has increased. In particular, for goods, the share of local content increased by 60%, or from 74 billion to 120 billion tenge. That is how much money the subsoil users spent on the purchase of goods produced in Kazakhstan. The amount of purchase of Kazakh services by operators increased from 771 billion to 835 billion tenge, or by 10%, and works - from 834 billion tenge to 1.5 trillion, or 80%.
There is a slight increase in the purchase of goods, works and services and in three major projects - Tengiz, Kashagan and Karachaganak. However, if taken separately by years, the share of local content in the purchase of goods is very low. In 2018, TCO, NCOC and KPO imported goods worth about 245 billion tenge, while local goods were purchased for only 19 billion tenge, which is about 7% of the total volume of goods purchased.
On the other oil and gas projects in Kazakhstan, the share of local content in goods is 38%. At the same time, the volume of purchases of goods at the three above-mentioned large projects is 50% of the total purchase of the oil and gas sector of the republic.
Kanat Bozumbayev believes that the main growth potential of Kazakhstani goods, including in engineering, is concentrated on these three projects.
He said that in the republic, on behalf of the Prime Minister, a working group was created to develop oil and gas engineering with the participation of representatives of oil and gas operators and Kazakh producers.
The list of subsoil users was analyzed and a list of 26 types of goods was compiled. An action plan has been developed for the development of oil and gas engineering for 2019-2025 in the amount of 58 billion tenge. 18 domestic enterprises were identified, interested in the production of goods in accordance with the quality and technical requirements of the operators. Until the end of 2019, operators must conclude 2-3 contracts with manufacturers from the generated list.
“We see one of the reserves of partial import substitution in the localization of the production of original equipment. According to the analysis, the forecast for the purchase of such equipment by three operators for a 10-year period is $1.7 billion,” the minister said."
According to him, the shareholders of large oil and gas projects should negotiate with foreign suppliers and put forward demands for the localization of part of their production in Kazakhstan. Production should be opened by foreign companies independently or jointly with Kazakh partners. The local company will take on jobs of increasing complexity, from warehousing, repairs and maintenance, and simple assembly operations to finished product manufacturing.
According to Mr. Bozumbaev, to date, NCOC has already signed 20 memorandums on the localization of goods, and it is planned to sign another 50 memorandums. KPO has selected 8 manufacturers who constantly supply goods, 4 of which have signed memorandums to open production in Kazakhstan. TCO is working on localization with 19 manufacturers, 9 of which have agreements with plans to increase the share of local content.
“I believe that project operators with the participation of KMG and the authorized body PSA LLP during 2019-2020 need to negotiate with all manufacturers and conclude agreements on the localization of production,” the minister says."
In his opinion, it is necessary to consider the possibility of exempting local producers from paying customs duties and VAT on imported goods for the needs of large operators, which will stimulate the creation of industries. It is also advisable to provide tax incentives to manufacturers when creating special industrial zones to localize the production of goods around large projects.
Meanwhile, one of the effective ways to develop domestic engineering would be the creation of private industrial zones.
“The fact is that large operators do not pay customs duties when importing goods for their needs. Accordingly, it is unprofitable for Kazakh or foreign companies interested in localizing goods in Kazakhstan to launch production. Their products simply become uncompetitive with the goods of a foreign supplier. Therefore, there is a proposal to equalize the positions of manufacturers by creating a register of private industrial zones (PIZs), whose participants will enjoy tax preferences,” said Asylbek Dzhakiyev , official representative of NCE Atameken for interaction with oil and gas operators and the development of oilfield services, in an interview with petrocouncil.kz .
According to him, the private industrial zone should be located in the Atyrau region, where such major oil and gas operators as Tengizchevroil LLP and North Caspian Operating Company are concentrated.
He noted that the Council for the Development of Strategic Partnerships in the Oil and Gas Industry (Petrocouncil), established under NCE Atameken and the Kazenergy Association, is actively working with foreign associations, manufacturing companies that are interested in localizing production in Kazakhstan.
As part of the development of private industrial zones in Atyrau, it is necessary to resume work on the Aktau Declaration.
Procurement plans for oil and gas operators should be transparent and published in advance. Petrocouncil, with the support of PSA LLP, has published a procurement plan for Total E&P Dunga GmbH, the operator of the Dunga field.
“Petrocouncil has reached an agreement with all general contractors of major oil and gas projects that they will also publish their procurement plans. NCOC has committed to announce in advance plans for the purchase of goods. Now we are negotiating with the leadership of TCO,” Mr. Dzhakiyev emphasized.
He notes that the implementation of the NCOC project for the development of the Kalamkas-Sea field is now expected, which, according to some reports, is estimated at $6 billion. And there is information that it is planned to give the bulk of the purchase of goods, works and services to foreign companies. It is necessary now to plan and engage in the localization of production, involving the Kazakh business community and associations in this matter as much as possible.