Since its emergence in 2011, the concept of in-country value (ICV) has proven to be one of Oman’s most influential exports, taking hold in energy industries across the GCC. The strategy launched by the Ministry of Oil and Gas (MOG) in 2013 has led to a significant number of training opportunities and sizeable economic returns. With international petroleum companies receiving favourable treatment for choosing local providers when it comes to sourcing goods and services, the programme has been responsible for boosting human resources and helping to sustain a large and diverse tertiary sector.
Background
While the first modern applications of local content requirements began in the 1970s, the ICV Blueprint Strategy serves as the most relevant current initiative. Launched by the MOG in December 2013, the strategy followed a 2011 ICV programme from government-led Petroleum Development Oman (PDO), and has since become a common feature in energy sectors in the region.
As part of the strategy, the MOG defined ICV as “the total spend retained in country that benefits business development, contributes to human capability development and stimulates productivity in Oman’s economy”. Comprising a detailed set of policies and guidelines, the strategy sought to catalyse industry changes that would enable the total spend retained in country to increase from 18% to 32% by 2020. ICV differentiates itself from Omanisation and other localisation initiatives by its broader definition and origins in the oil and gas industry. As defined in the 2013 strategy, ICV denominated seven elements: investment in fixed assets; Omanisation; local sourcing of subcontracted services; training of Omanis; local sourcing of goods; the development of national suppliers; and the development of national training, education, and research and development.
Led by PDO and a core group of 12 oil and gas companies, the implementation of the ICV strategy saw the launch of training programmes for low-, medium- and high-skilled workers, as well as incubators to develop local contractors in the oil and gas sector. Training programmes enabled Omanis to become certified in vocational fields such as welding, while accredited courses were made available to highly skilled employees, including engineers and white-collar positions. At present, all major operators in Oman have ICV strategies, and integrating such commitments into contracts is a key feature of the market. Operators that include high ICV commitments in proposals are likely to be viewed more favourably in tenders, while those that fail to include such commitments will be rejected. According to Sami Baqi Al Lawati, technical director at PDO, the company’s ICV programme has had a significant impact that is growing each year, creating 17,000 jobs in the industry in 2018 and 21,000 in 2019. “We retain about 44% of all our spend in the country through orders placed with local firms,” he told OBG. “If you look at the turnover with local and super-local community contractors last year, it reached almost $400m. Overall, we awarded work contacts worth some $3.7bn to nationally registered firms. The whole purpose is to add value to the country rather than just being an oil and gas business.”
Global Operators
Outside of individual projects, international operators often consider proactive ICV policies as part of maintaining a long-standing relationship with the sultanate. US operator Occidental Petroleum, for example, launched an initiative in 2013 to support a select number of small and medium-sized enterprises (SMEs) in developing their capacity and capabilities. The company has since launched three additional phases of the programme, with Desert Sand Oil and Gas, Oman Drilling Systems, Marjan Petroleum and United Petroleum Industries chosen as beneficiaries during its most recent phase in 2019. Moreover, companies with a strong ICV footprint play a key role in providing services to operators in the local energy sector. “Integrated services companies have the technical skills and know-how to operate efficiently,” Fouad Eid, vice-president of Middle East and Africa at US oil pump firm Apergy, told OBG. “Smaller, more specialised companies, however, are also experienced in certain niche services that might not be profitable on a stand-alone basis for integrated services companies to take on, such as coil tubing, drilling, pipe coating, wellhead maintenance and artificial lift.”
Developments
A focus on ICV was written into a five-year operations and maintenance contract signed by BP Oman with Veolia Middle East in March 2019. The contract was a renewal of a previous fiveyear contract, and will see Veolia deliver a reverse-osmosis raw water treatment plant in the Khazzan gas field with a capacity of 4000 cu metres of processed water and 2000 cu metres of drinking water per day. Part of the contract entails an 80% increase in the Omanisation rate of its 120-person workforce within the contract’s first six months and the implementation of a “tailor-made ICV procurement programme that will prioritise Omani goods and suppliers”.
In July 2019 it was announced that PDO had selected private development company DAI to carry out the first phase of a study to establish a comprehensive ICV strategy for Oman that goes beyond its traditional domain of oil and gas. At the public announcement, Abdul Amir Al Ajmi, PDO’s director for external affairs and value creation, said that the company was “determined to apply what we have learned in the energy sector to the Omani economy more broadly”. The first phase of the study will see DAI’s Sustainable Business Group assess ICV opportunities in the health care and utilities sectors, and come up with a strategy for each.
On the sidelines of the September 2019 World Heavy Oil Congress and Exhibition in Muscat, it was announced that PDO, Oman Shell, Oman LNG, the Oman Oil Company (OOC), and Oman Refineries and Petroleum Industries Company (ORPIC) – the latter two forming OQ in December 2019 – had signed a memorandum of understanding to increase Omanisation in their turnaround services. Signatory firms committed to developing a self-sustaining business model for the turnaround activities of oil and gas installations, with the ultimate goal of significantly increasing Omanisation rates. Also in September 2019 PDO announced that it had signed eight contracts with Omani companies worth OR23.5m ($61m) to provide maintenance, manpower and transport services. Three of the firms are manufacturing startups established in line with the 2013 ICV Blueprint Strategy. The agreements are for the production of flanges to connect pipes, as well as valves, pumps, fasteners and other equipment for piping systems.
One successful instance of ICV strategy was in the construction of the OQ’s Liwa Plastics Industries Complex (LPIC), completed by multinational construction firm McDermott. According to Wim A Berendsen, project director for the first engineering, procurement and construction phase of the LPIC, $900m was allocated to ICV in 2016-20. Achievements during the first phase included a 37% staff Omanisation rate, a 30% Omanisation rate among subcontractors and the engagement of over 600 SMEs. The ICV push has resulted in major international oil firms increasing Omani oil companies’ participation in projects, with chemicals now being mixed and blended locally, for example.
Looking forward, the Duqm Refinery and Petrochemical Industries Company (DRPIC) has pledged to place ICV at the heart of its project at Duqm. ICV targets include ensuring that 10% of the project value is reserved for purchases and services from SMEs, 20% of goods and subcontracting services are sourced locally, and companies contracted by DRPIC must have at least a 10% Omanisation rate at all functional levels. The company has also pledged to provide training opportunities for 600 graduates and award some 100 scholarships for specialised degrees.
Ta’ziz
On a governmental level, in April 2019 the Omani Authority for Partnership for Development (OAPFD) launched Ta’ziz, an electronic system that allows local companies to register within specific industries and areas of specialisation in order to make themselves available as potential partners with international companies. With a broad focus on various sectors across the economy, the Ta’ziz system is designed to accommodate both ICV and the Partnership for Development (PFD), a complementary programme that creates offset obligations for international companies in Oman.
Typical PFD programmes include joint research and development commitments, education and training partnerships, and technology transfer. Some of the most significant initiatives launched by the OAPFD include the National Resilience Programme, the SME Fund and the Oman Marine Biotechnology Centre.
