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TCO: our minimum local content duties exceed entire volume of modules ever made in Kazakhstan

February 18 2013, 12:46

By Laura SULEIMENOVA

Tengizchevroil's future growth project [FGP] was the main topic of discussion at the forum of oil and gas companies in Astana, February 14.

Within the next five years, $20 billion will be spent on its completion.

Quite clear, Kazakh and foreign firms - potential goods and services suppliers - paid utmost interest in joining this large-scale activity.

$20bn is a huge sum for Kazakhstan and it gives a great opportunity for development of the country's west and other regions as well, said one of the speakers at the conference.

Over the course of the project, TCO will need a large number of services: from steel structures and installation of modules to cleaning premises in rotational villages during construction phase and afterwards.

Apparently, the greater part of the announced $20bn will go abroad - to produce modules.

In light of global economic crisis, this is good cash for idle plants in Europe.

Kazakhstan, after the recent pressures it exerted on TCO, including long lasting negotiations around FGP, will likely reap some harvest - Kazakh companies will win something through creation of new joint ventures for every type of work.

Our designers in Britain

The project has been approved by every stakeholder, including KazMunayGas national company. We are now in the final phase of alignment in the oil and gas ministry. We are ready to submit the process diagram on further development of Tengiz field to Central Development Commission once we agree it with the environmental ministry. Hopefully, it will be approved within the next few weeks, said TCO reps. 

As for Kazakh content, according to TCO, a few JVs between Kazakh and foreign firms will be created during the project - for drilling, construction and maintenance of the equipment delivered.

Another joint venture - general contractor for production of modules - will also be created. 

Modules will be manufactured outside of Kazakhstan.

About 20,000 temporary jobs will be set up during construction of the plant. Operation phase will provide 600 permanent jobs, of which 400 have already been created - designers are working now. 45 Kazakh specialists have been seconded to work on the project abroad, also in Britain. It is a plan to increase their number up to 100. 

To a large extent, the speeches TCO reps addressed at the forum mainly consisted of generalities.

Guests of the event could receive most of more specific information about the project by putting clarifying questions to TCO people either through e-mail or in written form.

Other Kazakh companies that failed to attend the forum, could watch the conference online and ask questions in media centers organized in 14 regional branches of Atameken Union.

The largest minimum

Once process diagram is approved, Tengizchevroil intends to drill 200 wells over the contract period set to expire in 2033.

Service vendors were told that due to complexity of drilling at Tengiz [high hydrogen sulfide content] TCO will prefer JVs with foreign participation. 

Currently, a tender on module production is in process, both in and outside of Kazakhstan. The contract will be inked by the middle of the year. Contracts on primary works, like erecting a rotational village and a larger one on logistics services to transport modules and equipment to Tengiz will be signed too.

Length of the route to deliver modules depends on location of a port. If the port of Atyrau is chosen, the new road will stretch 200km. If they select Prorva, the road will be much shorter. Whichever is chosen, we will sign a set of contracts after technical aspects are agreed. In these, local content will be specified, TCO reps assured.

As they explained, TCO signed memorandums with participants of the modular construction tender, where the company undertakes liabilities to fulfill minimum requirements on Kazakh content. 

"These minimum requirements exceed the entire volume of modules ever assembled in the country."

In the language of fines

In his report, the accountable secretary of MOG Kanatbek Safinov said that the share of local content in TCO's general procurement volume makes just 5%.

"It is the same at Karachaganak and Kashagan projects. Bids are often carried out by a special schedule, sometimes they are closed for our manufacturers."

As he said, Kazakh suppliers complain about groundless denials to accept applications submitted, and they are not allowed to attend opening of envelopes.

"Perhaps, we need to proceed to digital procurement format, so that manufacturers no longer complain and see the real rules" Safinov believes.

To recall, starting 2010 Kazakhstan has the right to impose penalties for failure to fulfill contractual liabilities on local content. 

MOG is using this right since 2011.

"In 2011, we have issued penalties overall amounting 180mln tenge. We imposed 350mln in 2012" Safinov said.


 

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