Encouraging Omani participation and domestic productivity in the oil and gas sector

While non-oil economic activity has accounted for a steadily increasing percentage of Oman’s GDP in recent years, the oil and gas industry remains a vital component of the sultanate’s economy. Despite the fact that the country’s hydrocarbons reserves are smaller and generally harder to access than in many other nations in the GCC region, the industry is widely regarded as the backbone of Oman’s economy. According to a March 2014 report published by Deutsche Bank, oil and gas revenues account for 90% of government revenues, 52% of GDP and 67% of merchandise exports.

In 2012 the government established a new programme aimed at leveraging the industry’s economic heft in the service of boosting domestic input into the oil and gas sector. Formally known as the oil and gas in-country value (ICV) programme, the strategy was developed and is being implemented by the Ministry of Oil and Gas (MoG) in conjunction with a wide variety of private and public sector entities. The programme is widely expected to boost both productivity among domestically owned companies and employment of Omanis. “This is all about retaining more of the industry’s expenditure in-country so it can benefit business development, contribute to human capability building and stimulate productivity in the Omani economy,” Mohammed bin Hamad Al Rumhy, the minister of oil and gas, said in a speech in Muscat in June 2014. “There is a variety of work that Omani businesses or those with bases here can deliver in the oil and gas industry, from small to large contracts and projects, and we are now firmly embarked on the process of making it easier and fairer for them to compete.”

Current Situation 

In many respects the ICV initiative is a consolidation of a number of other programmes that have been ongoing in Oman for years. Broadly, the plan’s main aims include boosting the number of Omanis employed in the oil and gas industry (which is also a primary goal of the sultanate’s longstanding Omanisation programme) and encouraging oil and gas firms to source work and materials from local contractors, suppliers and agents. According to a blueprint for ICV development in Oman released in late 2013 by Accenture, a multinational management consulting and services firm, in recent years an estimated 80% of the direct expenditure of local oil and gas companies has gone to local suppliers. Under the ICV strategy, the government aims to boost this figure further and ensure that it remains high as new oil and gas opportunities come online through 2020.

Boosting oil and gas sector employment among locals is a key objective of the ICV strategy. As of the end of April 2013, out of a total primary and secondary workforce of around 55,000, some 22,000 Omanis worked in the oil and gas industry, according to Accenture. The average level of Omanisation across all oil and gas companies, meanwhile, was 63% in 2012, which is relatively high as compared to many other industries. As of late 2013 just over 5600 Omanis were employed directly by oil and gas companies, accounting for around 62% of a total direct workforce of around 9000 employees in total, according to Accenture’s report. Omanis accounted for some 59% of the broader secondary workforce, which is made up of construction firms and various other contractors and service providers. An estimated 82% of work in the oil and gas industry in Oman is carried out by these secondary firms, according to the report. With the number of total jobs in the sector expected to jump by more than 30% to 72,704 by 2020, there is considerable potential for growth in Omani employment in the sector.

The ICV Strategy

Under the ICV development blueprint the government is aiming to create 50,000 new Omani jobs and generate $64bn in domestic oil and gas productivity through 2020. The strategy is organised into 53 individual projects, which are expected to be launched in waves and in conjunction with various private sector entities. Private sector participation in the ICV project is being coordinated in large part under the aegis of the Oman Society for Petroleum Services (OPAL), a non-profit industry organisation with more than 375 member companies. Oman’s ICV programme has been in development since 2012, when OPAL and MoG organised a series of conferences on the subject. One early result of these meetings was a working definition of ICV, as “the total spend retained in-country that can benefit business development, contribute to human capability development and stimulate productivity in the Omani economy. In short, products made and services provided by skilled Omanis.”

Consisting of 15 individual projects, Wave 1 of the ICV strategy kicked off at a conference in December 2013. The initiatives in the first batch were presented and are being led by a handful of leading oil and gas majors. The state-owned firm Petroleum Development Oman (PDO), which is the single-largest company not just in the oil and gas sector but in the country as a whole, put forward nine new opportunities for local companies, including projects involving the manufacturing of casing equipment, the processing of brackish water for drilling activities, the manufacturing of cable accessories and the promotion of switchboard manufacturing. PDO partnered up with a variety of other oil and gas firms to introduce other projects.

In conjunction with the US-based oil major Occidental Petroleum (Oxy), for example, PDO put forward opportunities related to valve manufacturing; and in conjunction with the British major BP, the company announced an opportunity for a local firm to participate in the development of drilling rigs.

Other projects announced at the December 2013 ICV conference involve opportunities related to the development of pipeline coating facilities; purchasing commodity chemicals; large- and small-diameter pipe manufacturing; the manufacturing of scaffolding for energy installations; tank maintenance; and the creation and development of new small and medium-sized enterprises (SMEs) in the areas of inspection services and health and safety. In addition to PDO, Oxy and BP, firms involved in awarding and developing these projects included Oman Oil Refineries and Petroleum Industries Company (ORPIC), the Oman Gas Company and Oman Liquefied Natural Gas. As of the end of the second quarter of 2014 most of the projects announced under Wave 1 of the ICV programme were in the pre-tendering stage, with PDO and the other organising firms working to shore up specifications and requirements in an effort to ensure a competitive tendering process.

The Second Wave

In June 2014 MoG and OPAL unveiled six new ICV business opportunities for local companies. PDO has taken the lead on four of these initiatives, including one involving setting up regional maintenance hubs around oil and gas concession areas; one involving the manufacture of shale shaker screens; one involving the manufacture of security fencing; and another aimed at developing technology to assist in pipeline inspection and cleaning. ORPIC has taken the lead on the remaining two initiatives introduced in June 2014, which involve promoting SME involvement in engineering and developing an engineering services hub in the sultanate. “Estimates suggest that around 2000 new jobs could be generated from these six opportunities alone,” Raoul Restucci, the managing director of PDO, said in a speech in Muscat in June 2014. “But the commercial and employment potential from what we are implementing is huge.”

Ongoing Projects 

According to MoG, Wave 3 of the ICV programme was expected to be launched before the end of 2014. Broadly, the initiatives introduced under the plan thus far have been related to supply-chain development, and, according to MoG and OPAL, this is where the majority of the upcoming opportunities will be situated as well. The ICV Committee, which is comprised of representatives from MoG and OPAL, including most of the oil and gas majors and state-owned firms operating in the country, is working to jumpstart economic activity across a wide variety of Omani firms and other entities. SMEs are a key area of focus, in line with the government’s overarching SME development programme. Additionally, the committee has also worked to streamline both foreign direct investment and joint venture opportunities in the oil and gas sector.

Broadly, the 53 individual initiatives currently in development – including the 21 announced in Waves 1 and 2 – are expected to focus more on enhancing the quality and range of service and product provision in the domestic oil and gas industry with the long-term goal of establishing new downstream industries.

Under the rubric of ICV, most of the sultanate’s largest oil and gas companies have already incorporated various elements of the programme into their tendering process. “Required skills for each tender will be listed and supported by a robust Omanisation plan and targets,” Raoul Restucci, PDO’s managing director, told local media in 2013. “These will be actively monitored year-on-year until a contract’s expiry, focusing on Omanising skilled and supervisory positions.” Given the widespread support for ICV from PDO and other leading local players, not to mention the government’s broader push to boost Omanisation levels and local content, many of the sultanate’s small and medium-sized oil and gas companies are looking forward to a bright future.