Industry leaders like US giants Chevron and ExxonMobil, Russia’s LUKoil and China’s CNPC carry out massive oil production operations in Kazakhstan, investing billions of dollars and employing up to 17,000 people across the country. The aggregate budget of the three largest oil and gas projects in Kazakhstan – Kashagan, Karachaganak and Tengiz – is $45 billion.
“Three major projects – Kashagan, Tengiz and Karachaganak – account for 75 percent of all oil and gas service contracts in Kazakhstan. This number is set to grow following the growth of production at these three fields. All of this brings big economic opportunities, so it is important for Kazakh service companies to have equal conditions to participate in these projects,” the chairman of the Union of Oil Service Companies of Kazakhstan, Rashid Zhaksylykov, told a press conference in Astana.
Zhaksylykov’s statement about Kazakh service companies wanting to have an equal playing field to compete with their far larger rivals is part of a growing sentiment in the vast Central Asian nation after nearly 25 years on the sidelines. Kazakh companies are determined to be competitive with international companies when it comes to bidding on lucrative contracts and they hope this will send a message to buyers that Kazakh companies can be seen as equal partners with their foreign competitors.
“The average annual turnover of oil services in the extraction sector is $7 billion, of which 55 percent is carried out in Kazakhstan, but the share of Kazakh business, however, makes up less than 20 percent of that number,” said the director general of the Union of Oil Service Companies of Kazakhstan, Nurlan Zhumagulov.
Zhumagulov said the main reason why Kazakh service companies are left out of the profitable oil service contracts is that most are put up for bid in closed tenders.
“The contracts for Kashagan, Tengiz, and Karachaganak are put up for bid at closed tenders, allowing only invited companies to take part…these three projects account for 1.5 trillion tenges (€3.7 billion),” Zhumagulov said.
The majority of contracts from the operators of Kashagan, Tengiz, and Karachaganak are awarded to foreign companies, including some of the world’s top service companies. About 20 of those foreign companies are currently present in Kazakhstan – with 10 additional companies soon to arrive – and profiting handsomely from their operations.
A general shortage of working capital available to Kazakh services companies also prevents them from keeping up with their foreign competitors.
“TCO is currently tendering several building contracts with a budget of no less than one billion US dollars. The well-known international companies can access low-interest credits. With their credit rating and brand, they can receive cheap credits from foreign financial organisations. It is very difficult for Kazakh companies to receive credits even from domestic banks. Even if they got credits, the interest rate would be enormous – 15 or 20 percent, which makes it very difficult for them to compete,” Zhumagulov said.
Until recently, Chinese producers play a major role in keeping Kazakh companies out of the local energy market with two-year payment terms for services provided. Local companies could afford to wait 24 months to be paid. According to Zhumagulov, all major contracts are awarded to companies with Chinese capital and the tender documents are drawn up in such a way that the Kazakh companies don’t even try to bid.
The Kazakh Ministry of Energy has only recently stepped in to support local businesses by fixing the payment was fixed at two months.