Saudi Arabia, long reliant on western oil services and equipment to support its oil production, took an ambitious step to begin to onshore much of those services with a new program called the In-Kingdom Total Value Add (IKTVA).
The program aims to give contracts typically assigned to western firms to locally-based firms, a decision that could pay off for Saudi Arabia on several fronts. In addition to creating jobs for Saudis and strengthening the Kingdom’s Nitaqat (or “Saudization”) program, the program would pull $10bn per annum away from foreign accounts.
Amin H. Nasser, President and Chief Executive Officer of the Saudi Arabian Oil Company (Saudi Aramco).
“[T]he majority of our materials are manufactured elsewhere, and the majority of our services are provided from other countries,”Amin H. Nasser, President & CEO, Saudi Aramco said in a speech posted to Saudi Aramco’s website. “Consequently, our local content levels remain modest at just 35%. For something that is so strategically important, that is not good enough for our company, for your companies, or for the country where the business is.”
Nasser called the IKTVA a “long overdue step-change in our commitment to local content levels. We are setting three critical objectives to guide our localization program.”
“IKTVA will make local content a formal requirement for doing business with Saudi Aramco. If successful, the localization program will also create a large Saudi-based oil service industry – one that will compete abroad with Western service firms in time,” Joseph Triepke of OilPro.com writes. “Saudi Aramco is currently heavily reliant on Western oilfield firms for equipment and services. Companies like Halliburton, Schlumberger, National Oilwell Varco, Nabors Industries, and others provide goods and services to the National Oil Company (NOC).”
The IKTVA “puts local content at the heart of our procurement process, and will be a requirement of doing business with Saudi Aramco going forward,” Nasser added. “This does not mean we are abandoning our long-standing commitment to cost, quality, and schedule, or our commitment to safety and the environment. In fact, in the present challenging market environment, these principles are even more important to sustaining our global leadership in energy.
“But we realize that favorable local conditions are necessary to make local content a reality.”
