At the Government meeting, chaired by Prime Minister Askar Mamin, the issues of the development of local content were considered. Reports were made by the Minister of Industry and Infrastructure Development Beibut Atamkulov, Energy – Magzum Mirzagaliyev, Chairman of the Board of JSC “Samruk-Kazyna” Almasadam Satkaliyev.
“In order to implement the strategy of self-sufficiency of the national economy, the Ministry is taking systemic measures to support domestic producers, as well as developing support mechanisms in accordance with international obligations. The existing horizontal support measures are aimed at providing sales markets and concluding long-term orders,” B. Atamkulov said.
The Ministry of Finance of the Republic of Kazakhstan monitors purchases of all subjects of the regulated market in order to take timely corrective measures. Since 2020, a positive vector of growth in the share of local content has been recorded, the indicator was 1.3%. “The total volume of regulated purchases for the first 9 months of this year amounted to 12.9 trillion tenge, the share of local content increased by 6.4% and amounted to 58.3%. The largest growth in the context of subjects is noted in public procurement – 6.2%, purchases of national companies – 0.8% and subsoil users – 12.8%,” the head of the Ministry of Industry and Infrastructure Development informed.
According to the instruction of the Head of State, at the beginning of the year, data on the declared indicators of local content in public procurement during the implementation of infrastructure projects was verified. As a result, the fact of overestimation of indicators was stated in 14 regions. The Head of State instructed to conduct inspections annually until 2025. In connection with the accession to the World Trade Organization, measures to support Kazakhstani producers have been phased out since 2015. Since January 1, 2021, the requirements for local content in goods and no more than 50% in works and services have been excluded in the field of subsoil use. Appropriate changes have been made on the use of the local content tool. Taking into account international obligations, 5 new mechanisms have been developed aimed at protecting the interests of domestic producers.
First. The draft law “On Industrial Policy” provides for the concept and development policy of “intra-country value”. This concept complies with the WTO rules and is recognized in the international arena. For example, large subsoil users will adopt their own programs for the development of domestic value and a plan for the transition to the purchase of domestically produced goods.
Second. In order to ensure the sale of finished products and saturation of the domestic market with new goods with the participation of subsoil users and national companies, offset contracts and offset contracts will be used. At the same time, offtake contracts will be aimed at localization and creation of new production facilities, and offset contracts will be aimed at technology transfer and investment attraction. In turn, long-term contracts will ensure the sale of products of existing production facilities.
The third. A joint roadmap with major oil operators has been approved, which provides for: – adaptation of national standards; – inclusion of support mechanisms for Kazakhstani producers in the tender procedures of large operators; – increase in local content until 2025; – measures to localize 5 oil and gas equipment production facilities. The work of the International Center for the Development of Oil and Gas Engineering has begun, which has already started localization and technology transfer together with major operators. The analysis of more than 1,200 imported commodity items was carried out. 3 product groups have been selected for localization. By the end of the year, the Center plans to form recommendations on investment projects and localization of production, as well as identification of existing barriers for domestic producers.
Fourth. In order to preserve and increase the indicators of local content in the procurement of subsoil users, the Code “On Subsoil and Subsoil Use” approved the norm for concluding Agreements on stimulating entrepreneurship with subsoil users. In the agreements, the average share of local content in goods is 30%, in works and services 80% and 85%, respectively. As of November this year, 234 agreements have been concluded. These measures, according to preliminary forecasts, will increase the share of local content in the procurement of subsoil users to 55%.
Fifth. In order to increase the share of local content in public procurement, target indicators for manufacturing industries have been established. In particular, the average share of local content for 2021 is determined at the level of: – 77.3% – in building materials; – 68.5% – in furniture; – 65.5% – in light industry; – 53.7% – in the pulp and paper industry; – 36.2% – in chemistry; – 32.3% – in pharmaceuticals; – 19.5% – in mechanical engineering. One of the mechanisms for achieving the stated indicators is withdrawal from the national regime. This mechanism operates on 4 items of goods for which public procurement is carried out exclusively from domestic manufacturers. The issue of establishing exemptions from the national regime of products of the light, furniture industry and mechanical engineering is also being worked out. In order to expand the range of domestic products, it is planned to launch new projects. In 2022, it is planned to put into operation the project for the production of flat glass “Orda Glass LTD” in the Kyzylorda region with a capacity of 197.1 thousand tons per year. As a result of the implementation of this project, it is expected to cover 98% of the domestic market demand for sheet glass. Until 2023, three new enterprises for the production of ceramic tiles with the participation of foreign investors will be put into operation. This will cover up to 90% of domestic market consumption. By 2025, it is planned to put into operation 2 more new enterprises for the production of soda ash. The commissioning of these projects will fully meet the needs of the domestic market. Minister of Energy Magzum Mirzagaliyev reported on the work to support local content in the oil and gas sector. So, at present, the Ministry of Energy pays great attention to the development of local content in the procurement of goods, works and services of subsoil users.
“By the end of 2020, the total volume of purchases of goods, works and services of subsurface users of hydrocarbon raw materials and uranium production amounted to about 5.4 trillion tenge,” Mirzagaliyev said. At the same time, the share of local content in these purchases was 46%, including: – 19.7% in goods; – 51.3% in works; – 50.3% in services. The procurement plan of subsoil users for 2021 is 6.8 trillion tenge, the projected share of local content is 46.5% or 3.1 trillion tenge, including: – for goods, the share of local content will be 19.5%; – for works, the share of local content will be 51.3%; – for services, the share of local content will be 52.3%. About 77% of the volume of purchases of goods, works and services falls on three major operators – Tengizchevroil LLP, Karachaganak Petroleum Operating B.V. and North Caspian Operating N.V., 13% – on the group of companies of JSC NWF Samruk-Kazyna and 10% – on other subsoil users.
According to the results of the system work carried out today, the following goods are fully provided by domestic producers, these are: – construction and installation materials (sandwich panels, metal structures, reinforced concrete and reinforcing rods); – pipeline materials (pipes and fittings, flanges, valves, special pipeline supports); – mechanical equipment (vessels, heat exchangers, etc.); – electrical materials (transformers, electrical panels, lighting); – telecommunications materials (telecommunication cables, video surveillance system, etc.). – fuels and lubricants (including engine oils). Thus, we can state the positive dynamics of the development of domestic commodity production. The main problem of the low share of participation of domestic producers in large projects is the existing conditions of discrimination between foreign and domestic suppliers.
Thus, customs preferences granted to large operators allow the purchase of foreign goods without actually paying value-added tax, while when selling goods by domestic producers, a tax of 12% is paid. One of the proposed ways to solve the current circumstances in order to increase the level of competitiveness is to amend the Tax Code of the Republic of Kazakhstan regarding the exemption of domestic turnover from VAT of domestic producers in the supply of goods for large projects. This measure will allow to equalize the conditions between foreign and domestic companies.
“The Ministry is taking a number of measures and initiatives to develop local content. One of the main measures to support local content is the conclusion of agreements on stimulating entrepreneurship in the Republic of Kazakhstan,” Mirzagaliyev said. The Ministry, together with the National Chamber of Entrepreneurs “Atameken”, initiated the conclusion of agreements with subsoil users “On stimulating entrepreneurship”, which are conducted on a voluntary basis. To date, out of 282 contracts for hydrocarbons and uranium, 164 agreements have been signed, of which: – 147 agreements with 84 subsurface users in the field of hydrocarbons; – 17 agreements with 13 subsurface users in the field of uranium mining. These measures of the agreements allowed to increase the share of local content in goods from 19.5% to 31%, in works from 66.8% to 78.6% and in services from 69.4% to 88.8%. The next initiative for the development of local content is the International Center for the Development of Oil and Gas Engineering, established this year. The main purpose of his work is to localize the production of goods for the oil and gas industry of the Republic of Kazakhstan, in particular, by opening new production facilities, as well as expanding the capabilities of existing domestic producers. Currently, on the recommendation of the operators, the Center has focused on the analysis and localization of three product groups: – shut-off valves (valves); electrical equipment; – KIPiA.