This year has already seen various milestones in the history of Kazakhstan’s energy sector. One is the prospect of the first ever Production Enhancement Contract to be agreed in respect of mature oil fields in Kazakhstan. I’m delighted that this involves a UK firm, Petrofac, as the partner of choice for the Kazakh Government. Another milestone is the announcement a few weeks ago of first oil from the Kashagan field. Many congratulations to the North Caspian Operating Company – that’s a great achievement and the result of innovation, commitment to partnership, and a determination to apply the best in international standards to Kazakhstan in order to secure success.
Innovation, partnership, the best in international standards – these are all factors which describe the UK oil and gas services sector. There are over 100 small and medium size UK firms currently present in Kazakhstan and playing a key part in the supply chain here in this country. Many of those UK firms provide their services in direct partnership with Kazakh companies.
Last month I had the pleasure of accompanying the Chairman of Kazakhstan’s National Agency for the Development of Local Content, together with over 20 Kazakh firms, to attend this year’s “Offshore Europe” exhibition in Aberdeen.
I wanted him and his colleagues to see for themselves two things.
Firstly, the way in which Aberdeen has gone, in thirty years, from a small fishing town to become a vibrant and dynamic world centre for expertise in oil and gas services. It’s been a truly amazing transformation. We are keen to see that sort of success story replicated here, in Kazakhstan, in terms of building a “Caspian Hub” of expertise, where local content and international experience come together, and the result is an international centre for excellence and all the benefits that can bring – both for that area of Kazakhstan, and for the wider Caspian region as a whole.
The second thing which I wanted the Chairman of the National Agency for the Development of Local Content to see in Aberdeen was the scope for establishing business partnerships between UK and Kazakh companies. Over 70 UK firms attended a seminar held by the British Government jointly with Shell in order to promote sustainable partnerships and to encourage the transfer of knowledge in the supply chain field. As partners, UK companies bring a wealth of expertise gained from our North Sea experience. In the Caspian, for example, their experience in high pressure reservoir management and in sulphur management have already been invaluable.
Shell isn’t the only major UK investor in Kazakhstan to be encouraging local content development. BG Group, joint operator of the Karachaganak field, launched a similar initiative two years ago. One result is that KPO now makes key details of forward contracting plans – including long term plans – available to potential suppliers who can plan accordingly. Another result is the “First Point Kazakhstan” joint industry supplier database, which reflects international best practice in order to encourage Kazakh participation in the supply chain. So far over 1,500 local suppliers in Western Kazakhstan alone have been registered for capability assessment. All of this is focussed in particular on helping small and medium sized enterprises – the backbone of any market-based economy and of course the key economic priority in Kazakhstan’s 2050 strategy for national development.
As Prime Minister David Cameron said when he visited Atyrau earlier this year, “local content should be in our DNA”. That’s why the UK Government is committed to supporting the development of Kazakh capability, and the Kazakh Government’s vision, for this sector.
One of the roles of governments should be to provide a positive business environment where companies can cooperate and prosper together. That’s why it’s so important that those responsible for shaping the business environment are willing to listen to, and respond to, concerns raised by businesses.
An example is the issue of engineering and construction licences. We strongly support the intention behind recent Kazakhstani legislation aimed at ensuring engineering and construction work is done to the best international safety standards. However, an unintended consequence of that legislation is that it deters joint ventures from bidding for contracts. Those joint ventures are of course designed precisely to achieve the sort of partnership and transfer of knowledge which the Kazakhstan Government wants. But, if they apply for engineering or construction licenses, joint ventures between foreign firms and local firms are unable to draw upon the wealth of experience of their parent companies. In this way, valuable opportunities for transfer of knowledge will be lost to the Kazakh partner.
I therefore welcome the initiative which Deputy Prime Minister Sagintayev has taken to ensure that the relevant Kazakh Ministries come up with a rapid solution to this problem, and I look forward to progress in this area. What has struck me in my time here since arriving in January is how Kazakhstan is always looking forward. The UK wants to be the partner of choice in that journey.