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To catch the contract by the tail
Today the domestic companies are tremblingly waiting for Kazakhstan’s accession to the WTO, which will be followed by cancellation of acts protecting domestic companies. After that everybody will follow the principle «first come – first serve».
According to JSC «National agency for development of local content NADLOC» from whole scope of 8 trillion of orders 5 trillion are made by domestic companies. However long-term contracts aren’t guaranteed for everyone. The main reason is that domestic companies cannot provide wide range of products.
To solve this issue it is planned by completion of a huge work with national producers aimed at increasing the range of products offered. It is also considered to create new governmentally supported manufactures with development institutes if necessary.
However, according to business sector itself, local content program does not satisfy the expectations on other reasons as well. «KazMunaiGaz management admits that local content in fact was 2%, rather than dozens of percents previously declared. For instance, while building a gas pipe line Beyneu-Bozoy-Shymkent Kazakhstan invested 50% of the money and contractors was Chinese company CPP and “KazStroyService” with Indian management. However, in building process of gas pipe line through Chinese territory Kazakhstan hadn’t taken any part at all. Why cannot we involve local companies even on Kazakhstan territory?» - asks Serikbay Bisekeev, the President of Arman LLC. According to Mr.Bisekeev people are unemployed in regions, but general contractors of gas pipe line hire foreign contractors and use cheap solutions with unacceptable quality.
«I propose to use the term “ownership costs”, professionals will understand me. Shortly, it is the capital costs, fuel, spare parts, salary fund and service works for the entire period of operation of the installation. In this case Kazakhstan will receive high-quality solutions and will save budget» - says Serikbay Bisekeev.
In his turn, according to the interview of G.M. of the Union of Kazakhstan’s service companies Daurzhan Augambay to «&» in case of lack of long-term contracts with domestic companies there is a situation of instability and uncertainty. «Imagine situation where contract has been signed for one year and local company took out a loan to buy necessary equipment or raw materials. And terms of the signed contract and loan taken are equal in periods» - says Mr. Augambay.
Extending his point, he also gives another argument: company carries out works with high quality, but in the end of contract it should again prepare all necessary documents preparation to take part in the project next year. Herewith company has no confidence that it will sign contract for next year, meanwhile company has bought all necessary expensive equipment and arranged employees to be involved.
«You cannot write off social factors, because due to shortage in contracts the company sometimes forced to cut staff. It negatively affects social situation in regions as well. You will agree that this is a very nervous and uncomfortable situation, which demotivates local companies. Our members who are drilling companies that works in Aktobe and Aktau, have already faced this problem, that’s why we consider that this is the most significant issue» - says Mr. Augambay.
On the other side, long-term contracts allow companies to find more favorable conditions of loan. Currently financial institutes can provide such products as contract financing. «Of course, there are a lot of unsolved problems, but situation is improving. For instance, Tengizchevroil has taken a long-term contract strategy for the development of local content and this example should be followed by other mineral developers», - the speaker thinks.
As Mr. Augambay says major mineral developers conduct specially regulated contests, which are closed for local producers. But the position of the state is that there exists an understanding that local companies are not ready to work with offshore high-risk projects without relevant international certifications, technology, skilled personnel and equipment. In return, government is working hard to ensure that they are as much transparent as possible in other areas of procurement that does not require high technology and specific equipment.
Author: Yekaterina Korabayeva, @KatriN_kEA
Link to the source article is here
