Local content in the GCC: What you need to know

Determined to maximise the gains of foreign direct investment, many resource-rich countries in the Middle East are increasingly introducing local content requirements into their legal framework through legislation, regulations, guidelines, industry contracts and bidding practices.

The intention is to encourage foreign companies to participate more actively in 
the local economy, train and hire workers, and build local supplier networks for goods and services. In response, companies must rethink their approach to local content if they are to achieve lower costs, access further development programmes and maintain and improve their relationships with host governments.

As national oil companies look to fuel the economic development of their countries, we look at the local content plans of ADNOC, Saudi Aramco and Kuwait Petroleum Corporation.

ADNOC

As part of its role in the development of prosperity in the UAE, the Abu Dhabi National Oil Company (ADNOC) launched and adopted the In-Country Value (ICV) programme in February 2018.

A procurement-led initiative, it aims to foster local content by encouraging local supplier selection, localisation of critical functionalities in the oil and gas industry and development of UAE nationals – especially SMEs.

All suppliers will be asked to provide an ICV certificate when participating in tenders, however, while the ICV certification is not mandatory, failing to have one will result in a 0% rating. This does not preclude suppliers from participating in a tender, but will have an impact on their final evaluation score.

Suppliers of goods are issued certificates based on local value-add activities such as local manufacture, investment and employment levels. Suppliers of services are issued certificates based on levels of investment, in-country value of goods procured, subcontractors engaged and employment levels.

Requirements for ICV certification are defined and calculated according to certain formulas accounting for Emiratisation targets and local value-add. All suppliers are encouraged to undertake an ICV evaluation and certification process to obtain the ICV certification from the ADNOC appointed certifying bodies.

Full details of ICV process, evaluation and accredited certifying bodies are available on the ADNOC website: www.adnoc.ae/en/incountry-value

Companies must rethink their approach to local content if they are to achieve lower costs, access further development programmes and maintain and improve their relationships with host governments

Saudi Aramco

In December 2015, the world’s largest oil company – Saudi Aramco – launched the In Kingdom Total Value Add (IKTVA) programme. IKTVA supports the Kingdom’s Vision 2030 programme, which aims to localise 70% of procurement and services by 2021. IKTVA promotes local production and aims to increase employment for Saudi nationals, boost local supply chain sourcing and increase the country’s exports. Its objective is to encourage foreign companies to consider long-term business ventures in Saudi Arabia, share expertise and consider the Kingdom as a manufacturing and servicing hub. It should also be seen as a stepping-stone into the wider GCC and MENA region in the future. A steady flow of foreign companies are already shifting their base of operations to Saudi Arabia.

IKTVA provides a level playing field for suppliers through consistency, transparency in application and process. The most effective business approach for companies is to include their IKTVA content in their corporate business plan. Looking ahead, IKTVA is an essential requirement for both local and international businesses to work with Saudi Aramco. There is financial support and investment available through the Saudi government and Saudi Aramco to incentivise companies on this journey. UK Export Finance (UKEF) is also a key tool offered by the British government to support work with Saudi Aramco. The British Trade Office in the Eastern Province is ready to assist UK companies who wish to pursue opportunities in Saudi Arabia, together with the British Embassy Riyadh and the Consulate General in Jeddah. Full details of how to participate in the IKTVA can be found: www.iktva.sa

Kuwait Petroleum Corporation

Kuwait Petroleum Corporation (KPC) adopted a holistic approach in its local content 2030 strategy and this approach is being further developed as part of KPC’s new 2040 corporate strategy. In line with government plans, KPC aims to:

• Leverage refining and petrochemical businesses to deliver downstream manufacturing opportunities to the private sector
• Increase local private sector share in KPC spending and achieve a minimum of 30% for local suppliers and contractors contributions in capital projects spending
• Enhance private sector participation in KPC through existing and future activities/investments
  Any new supplier who wishes to get prequalified or participate in tenders must register on the eSourcing portals: Kuwait Oil Company for upstream operations: https://ebusiness.kockw.com/Registration/RegistrationDetails ?regType=APPLY Kuwait National Petroleum Company for downstream operations: https://esourcing.knpc.com/esop/kuw-kpc-host/public/web/login.html
  
  UKEF is engaged with KPC with opportunities for UK SMEs. Shell and BP are the only international oil companies operating in Kuwait, having won the latest enhanced technical service agreements, while Petrofac and Wood are also active as engineering, procurement and construction and project management consultancy contractors, respectively. Worley Parson, Flour and Technip do much of their Kuwait-based work from the UK. 

Looking to do business?

The Department for International Trade (DIT) works closely with different government bodies and corporate entities to ensure that UK companies are able to establish their presence, invest and conduct business smoothly.

Ensuring success will involve tailoring the local content programme to your company’s and the country’s specific needs and capabilities, close collaboration between the partners from the outset, an understanding of each other’s priorities and goals, and the willingness to remain flexible as to how to meet them.

UAE
Contact: Imad Arafat, Trade and Investment Adviser – Oil & Gas
Location: DIT British Embassy, Abu Dhabi
Email: imad.arafat@fco.gov.uk

Saudi Arabia
Contact: Khalid Darazi, Senior Trade and Investment Adviser – Oil and Gas, Energy, Petrochemicals
Location: DIT British Trade Office, Al Khobar
Email: khalid.darazi@fco.gov.uk

Kuwait
Contact: Alan Menezes, Senior Trade Adviser
– Oil and Gas, Renewables
Location: DIT British Embassy, Kuwait
Email: Alan.Menezes@fco.gov.uk