When Saudi Aramco decided to replace the US’ Foster Wheeler with Australia’s WorleyParsons on its general engineering services plus (GES-plus) contracting scheme in November, the message was extremely clear: the kingdom is taking localisation very seriously.
The state-owned oil major has not stated publicly why Foster Wheeler was replaced, but market sources have indicated that delays on the part of the US firm in the registration process were behind the move. The GES-plus model has taken several years to develop and has been designed by Aramco to enable as many local engineers to participate in the kingdom’s hydrocarbons megaprojects as possible.
Under the scheme, five international engineering consultancies have signed partnership agreements with local firms, which will see the majority of engineering and project management work stay in-kingdom. They are the US’s Jacobs Engineering, Mustang Engineering, KBR, Canada’s SNC Lavalin and WorleyParsons.
Skill transfer from international companies to Saudi Arabia
Aramco hopes the programme will facilitate the transfer of skills and knowledge from foreign engineering and design companies to locals, thus aiding skilled job creation in the country’s most important sector.
The replacement of Foster Wheeler came as a surprise to engineers working on Saudi oil and gas projects, although the firm had been slow to comply with the requirements of the scheme.
“We were shocked to hear Aramco’s decision to allow WorleyParsons in [to GES-plus],” says an engineering source based in the region. “But Foster Wheeler was given more than 18 months to achieve full registration and they did not do it. They must be kicking themselves now.”
The registration process involves forming a joint venture with a local firm, and becoming fully certified with various local trade bodies including the Council of Engineers. As yet, Aramco has not indicated it will raise the number of signatories from five, but Foster Wheeler will be hoping that will be reassessed in 2013.
The GES-plus plan was devised by Aramco due to the large number of contractors and consultancies working on its projects. At the time, about 30 companies were working on front-end engineering and design (feed) or performing project management consultancy (PMC) work.
Most of this was carried out in what is known colloquially in the oil and gas industry as ‘hit and run’ contracting. This meant that despite the contract being won in the Eastern Province of the kingdom, the majority of the work was carried out overseas.
This method has some positive aspects. Well established offices abroad are staffed by extremely knowledgeable engineers with vast experience on some of the world’s largest process plant projects. This usually results in lower costs and requires fewer man hours to complete the work.
However, while the cost savings can be substantial in the short term, it also means that local engineers do not get the opportunity to work on these projects. This has now been deemed unacceptable by Riyadh and Aramco.
From the perspective of the five GES-plus signatories, they have had to make a substantial investment in Saudi Arabia in terms of manpower. In the past, each company would have had a total of up to 100 people in their respective offices. After forming partnerships with local engineering consultancies, that figure is now well over 500.
Having so much in-kingdom engineering talent is a progressive step. Talented foreign engineers will work alongside locals and domestic standards will rise. Eventually the aim is that most of the offices will be staffed largely by locals trained to high international standards.
The rewards on offer for such a commitment can be substantial for GES-plus members. A $6bn greenfield oil refinery or petrochemicals complex would usually involve 1 million man hours of engineering work and a similar figure for PMC. A brownfield scheme of $3bn would offer a similar amount.
Inevitably, the initial rollout of the programme has created challenges for all the stakeholders. Making the jump to GES-plus has taken time as Aramco has been involved in one of its largest building programmes. This has meant the feed and PMC contracts for some major projects have had to be tendered to an open field and not exclusively to the GES-plus signatories.
Another concern is the cyclical nature of the oil and gas industry. Each GES-plus member expects about 1 million man hours a year from Aramco. Market sources question whether Aramco can actually guarantee 5 million man hours of work to spend between the five GES-plus members. Other issues include the elongated registration process and the subsequent sourcing of local engineers.
One of the solutions is to recruit young graduates and train them from scratch. This has yielded some success, especially as all the signatories are internationally recognised firms. “We had to face the fact that most engineering graduates would ideally like to work for Aramco or Sabic [Saudi Basic Industries Corporation],” says an official from a GES-plus signatory. “But we could offer them the chance to work on projects across the world when they are fully trained. This attracted many Saudis.”
The early success of GES-plus and the commitment shown to the scheme by consultancies means Aramco is now looking to roll out a similar programme for engineering, procurement and construction (EPC) contractors.
Aramco has now instructed international contractors looking to bid on its projects that it expects them to have in-kingdom EPC (IK-EPC) status by 2013. The firms can qualify by meeting Aramco’s criteria on the number of Saudis they employ in professional positions and how much training is provided to local graduates.
Joint ventures in Saudi Arabia
Another option is forming a joint venture with a local contractor to ensure local talent works on large-scale Aramco deals. IK-EPC, like GES-plus, is not cheap and it could lead to many of the smaller, less successful EPC contractors deciding not to participate in Aramco projects.
“This would involve a major investment and unlike GES-plus, Aramco is allowing more than five contractors to become preferred bidders by being IK-EPC compliant,” says a major EPC contractor source in the kingdom. “Aramco wants low, aggressive pricing as well as massive commitments to local workers. It might soon find out that it can’t have it all.” That said, many of the most successful EPC contractors working on Aramco schemes are already fully IK-EPC compliant, proving that localisation and being competitive can be achieved.
Similar programmes to promote localisation are also being considered by other firms in the kingdom. Sabic and Saudi Arabian Mining Company (Maaden) have aggressive expansion plans to help Riyadh’s diversification ambitions. MEED reported in April that Maaden and Sabic have held talks with GES-plus members regarding a roll-out of the initiative to include any projects that share synergies with Aramco projects. This could mean that while firms outside the GES-plus would be allowed to bid, they would still be expected to have a substantial localisation programme in place.
Riyadh is clearly pushing all its major firms to ensure local human resources are fully utilised. In the past, a token gesture of a few Saudis in non-technical positions was tolerated on the grounds of a lack of available personnel.
Today, it is clear that this is no longer acceptable and despite the challenges that companies will face, international firms will have to employ and train local people to do the work or they will lose out on business. “The belief is that international firms do not want to make the effort with locals and would prefer the old ‘hit and run’ method,” says the GES-plus official. “But, all good firms need locals at the heart of their operations and we are no different.”
General Engineering Services plus (GES-plus)
Saudi Aramco’s GES-plus contract has been predominantly developed over the past four years as a localisation initiative. Other positive benefits of the GES-plus include trimming down the number of engineering consultancies Aramco deals with and ensuring relatively homogenous rates for work.
The scheme aims to ensure local engineers are given invaluable experience on front-end engineering and design and project management consultancy contracts on Aramco’s major projects. Transferring skills and knowledge from foreign engineering and design companies to locals is an essential part of the GES-plus initiative.
Seven contractors were initially shortlisted by Aramco for the scheme. These were the US’ Jacobs Engineering, Mustang Engineering, KBR and Foster Wheeler, as well as Canada’s SNC Lavalin, Australia’s WorleyParsons and France’s Technip. All seven had to pledge to carry out design work locally and form consortiums with local engineering consultancies to ensure Saudi nationals would be involved in the technical design work. If selected, they would then go through an intense registration programme.
Five were initially selected in early 2012: Jacobs Engineering; KBR; Mustang Engineering; Foster Wheeler; and SNC Lavalin. In November, Foster Wheeler was replaced by WorleyParsons.
The initial plan is to guarantee each signatory a million man hours a year. Some market sources doubt this can be achieved every year, but with significant work planned for the next seven years, it is probably attainable in the medium-term. Each contract is for a duration of five years with a possible two-year extension.
- WorleyParsons (Australia)
Signed: November 2012
Local partners: Abdulaziz Kamel & Partners Company and Alrabiah Consulting & Engineering Services
- Jacobs Engineering (US)
Signed: April 2011
Local Partner: Zamel & Turbag Consulting Engineers
- Mustang Engineering (US)
Signed: March 2011
Local partners: Faisal Jamel al-Hejailan Engineering Company (Mustang Hejailan), Dar al-Riyadh Engineering Consultants (DAR) and Petro-Infrastructure Engineering Consultants Company (PI Consult)
- KBR (US)
Signed: April 2011
Local partner: Abdulhadi & al-Moaibed Consulting Engineering
- SNC Lavalin (Canada)
Signed: May 2011
Local partner: Zuhair Fayez Partnership
Each GES plus member expects about 1 million man hours a year from Aramco