PDO will do all it can from its strategic position as the major oil and gas producer in the Sultanate to foster SME development and support the nation’s entrepreneurs, Abla Riyami, PDO’s In-Country Value Director tells Oommen John P.
What are PDO’s initiatives to help SMEs in Oman?
PDO is fully supportive of the desire to see a flourishing sector for small and medium-sized enterprises in Oman, to diversify the economy and create job and training opportunities. We realise that in addition to being good for the business, the importance of the SME contribution to the country’s economy is vital.
We have been developing SMEs since the late 1990s. We called them Local Community Contractors (LCCs) and we fostered them because we wanted to spread commercial opportunities into our concession area and to support the communities in the areas of our operations. Since 2000, we also developed more SMEs in specific technical service areas; a number of these companies have become very successful, competitive and sustainable nationally, and are growing regionally – and some are even becoming international players. We have reserved scope in our main contracts for LCCs and we offer guidance and support wherever we can. There are now more than 200 LCCs active in areas such as maintenance, logistics, electronics, civil engineering, manpower supply, equipment hiring and well services, with more than 3,000 Omanis working for them.
PDO has a lot to be proud of in what it has done to date on SME development. The challenge now is moving forward and ensuring we meet the requirements of the recent Royal Decree which mandates us to allocate a minimum of 10 per cent of our contracting and procurement spend to SMEs.
More building blocks are being put in place. Last year, we signed a Memorandum of Understanding with Riyada – the Public Authority for Small and Medium Enterprises Development (PASMED) to offer assistance to Omani entrepreneurs. The agreement is aimed at strengthening co-operation and collaboration between the two sides on training, business advice and knowledge exchange to help SMEs operate more successfully. Under the terms of the deal, PDO business specialists will advise entrepreneurs and SME owners who are members of Riyada and who might be in need of guidance.
This year, we have started two types of workshops giving Omani SMEs a better understanding of how to do business with the Company. Both are aimed at encouraging local vendors to bid for contracts by explaining PDO’s technical contractual requirements, tendering and contracting processes, business ethics and health, safety and environment requirements. These are run in both coastal and concession areas.
One of the workshops is geared for SMEs which have not yet bid for PDO work. These last for half a day, such as the one run recently aimed at increasing the level of awareness of important aspects of doing business with the oil and gas sector, like the vendor registration process, contracting and procurement procedures and HSE standards. The other type is run for SMEs that have bid for PDO work but have not won. The material is geared up to share the “main common failures” with the view of not just increasing transparency but also highlighting areas where we need to close the gaps.
How is PDO enabling the youth to develop SMEs?
PDO is very aware of the importance of SMEs to economic development and also the need to stimulate innovation and entrepreneurship in the Omani youth. We are in final stages of developing our Vendor Development Programme and SME development, including youth development support, is included in this. It needs to be mentioned here that PDO is not working alone on this: there is collaboration with all operators and the Ministry of Oil and Gas is driving things forward.
Furthermore, in PDO we are in the process of establishing a Technology and Research and Development Lead position within our ICV team who will help to work with other institutions in areas of innovation, technology and research. Also, we are working on having a link on our PDO ICV webpage, where innovators/SMEs can post their outline proposals and our Technology and R and D Lead will do an initial assessment and correspond with those submitting ideas. If the proposal is found to be of interest technically and commercially, then a potential trial could be discussed.
We think we can offer particular support to the SME Development Fund in their youth awareness work, where their experts visit universities to explain the need for SME development and outline the gap that exists in our economy, compared to other GCC countries and beyond. There is a massive opportunity for Oman’s young entrepreneurs and we are most fortunate that we have a Government that is fully behind SME development and is prepared to support in many ways beyond access to finance.
How much was spent on developing SMEs in 2014 and what are the proposed initiatives in 2015?
The Company awarded contracts worth more than $4.9bn to nationally registered firms of all sizes last year and there has been a strong push to award contracts to Omani SMEs, such as the Oman Gasket Factory in Nizwa, to supply gaskets for PDO operations, and Local Line LLC in Al Mabailah South, which supplies pipeline connectors and flanges.
In total, work worth $235mn was carried out by 171 LCCs and our four Super Local Community Contractors, larger scale operations generating new employment avenues and entrepreneurship opportunities for thousands more Omanis, at both employment and shareholder level. However, our monitoring and reporting system was only established late last year , so our SME spend data has not all been captured for 2014, although we will have a more accurate assessment for 2016 and beyond.
We recognise that where no Omani industrial capability exists is an area of ICV opportunity. We will selectively start building that capability, as we have done in the past. So, among our initiatives for 2015, is to play a key role in operationalising the cross Oil and Gas Vendor Development Programme. This is driven by the Ministry of Oil and Gas ICV Committee and has been developed with representatives of the up, mid and downstream oil and gas sector in the Sultanate.
PDO has developed the Oil and Gas ICV Monitoring and Reporting System and we will continue to support our colleagues in other operators to get this operational within their own companies. We are also actively promoting the Joint Supplier registration System (JSRS), again across the sector, and we are encouraging all our existing and new suppliers, including SMEs, to register in the JSRS, as this will increase their chances of doing business with us.
Presently, there are only around 1,000 SMEs registered in the JSRS. This is way too low, so we all have a responsibility and duty to ensure that more sign up and that we support the SME sector in Oman, to start building a national and regionally competitive and sustainable SME sector which will be of an industrial nature and increasingly, more services and knowledge-based. This will help create a future economy that will provide interesting, challenging and high value added career opportunities for our youth. This in turn will ensure Oman’s competitiveness and attractiveness for Foreign Direct Investment in the near future.
PDO wishes to work hand-in-hand with local SMEs to identify opportunities in our sector and raise their capability levels so that they are able to exploit those opportunities. So, for example, in January we signed a year-long agreement to develop and use four Omani businesses for electrical work across its operations.
The intention is for the firms to build up their capacity and capability by working with PDO’s main contractors on low and high voltage projects under the direct supervision of the Company. These will include the construction and installation of overhead power lines, associated work in electricity sub-stations, and the installation of oil and gas equipment, such as small motors and circuit breakers.
PDO has also developed a set of programmes, processes, and tools to facilitate support for SMEs. For instance, in terms of Contracting and Procurement, a provision for a 10 per cent price premium for Made in Oman products, and allocate a scope of works for SMEs, if technically and commercially attractive. Moreover, main contractors are obliged to increase ICV in the following areas as a minimum: Optimise local sourcing of goods and services from Omani companies, and Transfer technology to Omani companies.
Additionally, PDO has developed a new tool called the “Technology Providers Hub,” which is a platform for externalising PDO challenges and sharing them with the world. Through this system, PDO receives proposals for advanced technologies, new ideas, improved tools and optimised processes from many companies. It is also accessible to SMEs, enabling them to possibly add value by working in collaboration with large companies on projects. This offers them opportunities to increase their knowledge and experience, and build their technical and administrative know-how. In addition, PDO provides SMEs access to its technical expertise for advice and technical discussions.
How can SMEs in Oman grow more competitive and dynamic?
Firstly, local SMEs need to get the basics right and be able to execute work safely, professionally, honestly and at commercially competitive rates. Ensuring that their employees feel they have a stake in the success of the business, through things such as competitive salaries, decent training and good career prospects, is also key.
To successfully bid for contracts from bigger companies, such as PDO, SMEs also need to establish sound corporate governance and quality assurance frameworks.
In a fast-moving, globalised world they need to show innovation, flexibility and agility, be prepared to diversify, keep abreast of new technology to develop their business and comply with international standards.
SMEs also have to be prepared to ‘help themselves’, get out there to learn from other companies and countries and find out what opportunities exist through organisations like the SME Development Fund to support their professional development.
Oil and gas is a very technical industry and we face many technical challenges. But it is also an industry that is always looking for continuous improvement to increase our productivity and efficiency and to lower our overall cost per barrel. So, we encourage SMEs to look at innovative technical solutions and propose these to companies like PDO.
What do you think are the future prospects for the SME sector in Oman?
The opportunities are immense. If we look at more developed countries, SMEs are recognised as the “engine” of economic development and typically represent approximately 70 per cent of all companies in the market. In Oman, that figure is 14 per cent. If we then extrapolate that “gap” across the expected infrastructure development and oil and gas expenditure in Oman from now until 2020, it suggests that there is a shortfall of $11bn of business opportunities that could be addressed by our SME sector.
A flourishing SME community in Oman will diversify the economy and so PDO will do all it can from its strategic position as the major oil and gas producer in the Sultanate to foster SME development and support the nation’s entrepreneurs. Yes, the oil and gas industry is highly specialised. However, it also provides indirect as well as direct business opportunities for SMEs to participate in the value chain – and they can add value in many ways. For example, some of the opportunities they could explore include: the provision of office supplies, catering services, communication, information and technology services, construction, transportation, fabrication and welding services. Moreover, SMEs can add value by bringing new technologies and innovative solutions to address key challenges in the industry, as well as introduce efficiencies in operational activities.
Additionally, beyond the oil and gas industry, major developments across the Sultanate represent a great potential for SMEs, such as the railway project, airport and port development, construction, tourism and fisheries to name a few.