Localisation is not just about filling seats with local people, but providing local value throughout, & beyond, the oil & gas supply chain says Dr Thorsten Ploss, Middle east and North Africa Oil & Gas Leader at EY
Localisation is no longer about employing locals into oil & gas NOC, IOC or service companies, or about imposing quotas for the number of local people to be hired into defined positions within those companies.
The new view on localisation, now re-branded as in-country value, is about empowering every aspect of the oil & gas supply chain, from the in-country machine shop supplying the nuts and bolts, through to training the correct employees for the upstream sector and ensuring that an upstream operator gives back to the community.
This giving back is often done by funding local SMEs and enabling local companies to reach the international standards required by IOCs and NOCs.
Proper funding of local SME enterprises who supply to the oil & gas sector is currently one of the biggest obstacles to creating an end-to-end local content supply chain, Shell told Oil & Gas Middle East at the EY and Oil & Gas Middle East Executive Roundtable.
“It is difficult for these local businesses to really compete with global companies and meet expectations of the international oil & gas industry, so, for example in Nigeria what we did was collaborate with the local banks, about five six of them and established a $4 billion fund.
With a Shell contract, local businesses could access loans at lower interest rates than the going market rates,” explained Simbi Kesiye Wabote; global local content manager for international oil company, Shell.
Shell was able to negotiate a better deal on interest rates for the small and medium enterprises because if an SME had a contract with Shell it eliminated a lot of risk in terms of repayment for the banks.
“They know that once the job is done, Shell will pay which reduces the risk profile for such facilities is going to pay and Shell will not pay if the job is not done, so they feel security,” says Wabote.
Exxon, Total Chevron and Nigerian LNG recently replicated this model in-country. Within the Middle East region the Shell Foundation works closely with a South African-based organisation called GroFin.
In 2011 in the MENA region the Shell Foundation made $25m available for GroFin to support businesses. In Oman and Iraq Shell has developed the Nomou Fund, which services the missing middle because in certain cases the banks do financing for $2m and $5m funding, or $30,000 to $50,000, but anything in-between might not be attractive for them, according to Shell.
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“My mantra in terms of local content has always been sustainability. You don’t do skills training for doing skills training’s sake, because it can turn out to be a reputational issue if we train people and then they turn around and say ‘where is the job?’ And you don’t have a job for them because you haven’t done proper market place analysis. You first look for the job, then train people for the long term to fit in,” said Wabote.
“I think funding is one of the key pillars of localisation. I think Petroleum Development Oman [PDO] is looking critically at looking at how to solve some of the funding challenges in that SME space.”
Oilfield services company Schlumberger takes a slightly different approach to enabling SMEs and helping them grow, both physically and in terms of the knowledge and skills they develop. According to Hossam El Dalil, MEA procurement and sourcing manager at Schlumberger, the company is extremely committed to using local suppliers.
“We are more flexible and we are willing to take risks so we can go the extra step with the local suppliers to develop their quality. I remember going to suppliers that make, basic steel fabrications and we asked them to make acid tanks, and they said no they couldn’t. We then provided them with technical support and helped them make the tanks,” said El Dalil.
Because Schlumberger as a service company works directly with the small suppliers, and local oil & gas supply chain, El Dalil explained that the company is far better positioned to aid local businesses better than anyone else higher up in the oil & gas industry value chain.
“We have helped small machine shops that started by making nuts and bolts and ended up fabricating oil & gas offshore equipment. We see this in every location that Schlumberger is in,” said El Dalil.
National oil company, Petroleum Development Oman (PDO) in Oman has also developed very good practices in terms of developing the supply chain for oil & gas locally. PDO supports local Oman companies by buying the right kind of equipment for them to provide international standard services, and giving them seed money upfront so that they can provide services that meet the quality needed by international operators. In fact, Schlumberger is considering using oil & gas products made in Oman for its operations in Yemen.
PDO has developed what many experts in the ICV domain describe as best approach to ICV/localisation, in terms of effective partnership between the Government, the operators, the service companies and contractors and setting realistic ICV requirements. According to PDO, so far, the results are very encouraging.
“PDO and its contractors created more than 5,700 jobs and training opportunities for Omanis in 2013, meaning more than 10,000 have been generated since 2011. Also, the Company has awarded contracts worth more than $3.1 billion to locally registered companies,” said Mohammed Al-Ghareebi, in-country value manager for PDO.
PDO broadened its support of local businesses by providing technical assistance, ring-fencing the supply of locally manufactured goods and establishing local repair facilities and engineering services.
