Since Abu Dhabi National Oil Company (Adnoc) first implemented its In-Country Value (ICV) programme in 2018, it has undergone some significant changes. Having received its first round of revisions in November 2018 (ICV 2.0), the third version of the formula (ICV 3.0) took effect in June this year.

Over the past 12 months, the ICV programme has moved across various sectors, from oil and gas to construction, energy and logistics. 

At the end of 2019, Abu Dhabi Ports and Aldar Properties announced that they would follow the ICV programme. 

The Abu Dhabi Department of Economic Development, which had previously soft-launched its localisation scheme (Abu Dhabi Value), followed suit in early 2020. 

Then in September 2020, Emirates Nuclear Energy Corporation and Mubadala also joined the programme. 

Understanding the rules

The programme’s implementation depends on the awarding body, which means ICV has a different meaning and set of rules for its protagonists.

Adnoc, for example, generally uses a combined ICV formula to rank bidders by the best combined ICV score.

This combined ICV score is produced through a weighted average of the scores indicated by the ICV Certificate and the ICV Improvement Plan, with a weighting that emphasises the improvement plan.

While the ICV Certificate is based on the audited financials (past), the Improvement Plan states how the bidder’s score should improve in the future. 

It is important to note that Adnoc merely grants the best ICV bidder a right of first refusal to match the best commercial offer. Strictly speaking, the best price still wins the bid.

The Abu Dhabi Department of Economic Development has integrated the ICV formula in its Abu Dhabi Local Content Programme (ADLC).

Within the ADLC, the ICV Certificate accounts for 40 per cent  of the financial evaluation. Unlike Adnoc, the department does not require bidders to submit an ICV Improvement Plan.

The programme’s success largely depends on the measurarbility of its impact on the UAE's economy and job creation for UAE nationals
Constantin Frank-Fahle, Germela Law 

Megaprojects as a localisation facilitator

Adnoc has indicated that its megaprojects may be awarded by using target ICV scores. Therefore, the general rule that the ICV Certificate is optional for tenders is somewhat revoked. 

In this respect, Adnoc is following a similar path as its Saudi Arabian counterpart, Saudi Aramco. 

Under Saudi Aramco’s corresponding programme, In-Kingdom Total Value Add (IKTVA), submitting an IKTVA certificate is necessary to take part in tenders. 

Where target ICV scores are applied by Adnoc, depending on the target score, engineering, procurement and construction contractors will face pressure to find ways to significantly optimise their ICV score over the project duration. 

It is expected that contractors will pass on such localisation pressure to their supply chains by contracting back-to-back, thereby essentially passing on ICV Improvement Plan-related obligations to their supplier network.

Covid-19 as a facilitator of localisation measures

The ongoing Covid-19 pandemic has meanwhile furthered an increased awareness of the necessity to localise critical parts of the supply chain. 

This idea does not only extend to the oil and gas industry. It also includes, for example, food production and medical equipment (ie, personal protective equipment). 

Since procurement will largely depend on public funds (eg, indoor farming, production of medical equipment), it is antipated that ICV will be used to facilitate such investments.

Unifying the formula and certification process under Adnoc’s leadership was undoubtedly a significant step towards increasing the ease of doing business in the UAE, as multiple certifications are no longer required. 

Having said this, investors will need to understand how the programme is implemented through the respective awarding body. As mentioned above, the difference between respective ICV programmes lies in the details. 

Linking the ICV formula to other initiatives, such as the Electrial Tarif Incentive Programme in Abu Dhabi, under which localised companies will profit from cheaper electricity tariffs, will further contribute to the programme’s signifance. 

The next logical step for the legislators is to move the programme into federal procurement and the other emirates, particularly Dubai and Sharjah.

About the author

Constantin Frank-Fahle is a multi-jurisdictional dispute negotiator in the GCC. He is the managing partner of Germela Law (Abu Dhabi) and advises clients on legal and tax-related corporate structuring, including localisation strategies. Constantin is also a lecturer in international business law at the International School of Management in Cologne, Germany.