NOTE: Some content may not display correctly, including tables and figures. See PDF for full details.
Energy Department, Prime Minister’s Office Negara Brunei Darussalam
Directive 2 on Local Business Development Framework for the Oil & Gas Industry
April, 2012
Published by Energy Department, Prime Minister’s Office, Negara Brunei Darussalam.
First Published in April, 2012.
Copyright © 2012 Energy Department, Prime Minister’s Office, Negara Brunei Darussalam.
All rights reserved. No part of this document may be reproduced, translated, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, or otherwise, without any prior written permission of the Energy Department, Prime Minister’s Office, Negara Brunei Darussalam.
Acknowledgement: All photos used in this publication are compliment of, copyrighted by and credited to Brunei Shell Petroleum Sdn Bhd.
Printed and bound by the Government Printing Department, Prime Minister’s Office, Brunei Darussalam.
Directive 2 on Local Business Development Framework for the Oil & Gas Industry |
Guidelines |
TABLE OF CONTENTS
1 Introduction
1.1 Description
1.2 Purpose
1.3 Scope
- Objectives of Directive 2
- General Guidelines
- Specific Guidelines
APPENDICES
- Appendix 1a - DIRECTIVE 1 ON LBD IN OIL & GAS INDUSTRY Appendix 1b - DIRECTIVE 2 ON LBD FRAMEWORK FOR THE OIL & GAS INDUSTRY
- Appendix 2 – Reporting Templates Appendix 2a - LBD Business Plan
Appendix 2b - Local Content Opportunity Framing Report
Appendix 2c - LBD Performance Report
Appendix 2d - Deviations to the Framework (& Issues)
- Appendix 3 Terminology
GUIDELINES for Directive 2 on Local Business Development Framework for the Oil & Gas Industry
1. Introduction
1.1. Description
This document specifies the guidelines which are to be utilised in the implementation of the Directive 2 on Local Business Development Framework or LBD Framework for the Oil & Gas Industry as issued by the Energy Department, Prime Minister’s Office (EDPMO) on 1st February 2012. (Appendix 1b)
1.2. Purpose
To ensure all Operators, Contractors and Sub-Contractors in the Oil & Gas industry in Brunei Darussalam apply a consistent approach in the implementation of the Directive.
1.3. Scope
This document applies to all contracting activities (procurement of materials and contracting of services) undertaken by Operators, Contractors and Sub- Contractors in the Oil & Gas industry in Brunei Darussalam.
2. Objectives
The three main objectives of the Directive 2 on Local Business Development (LBD) Framework for the Oil & Gas Industry are:
To increase the country’s economy through use of local goods and services
To create employment opportunities for locals and ensure employment of locals.
To develop truly Bruneian businesses that are able to compete regionally
3. General Guidelines
The LBD Framework Directive is to be applied to all new contracts and purchase orders. Existing contracts and supply agreements shall be aligned with the Directive upon its next contract extension. The LBD requirements are to be included as part of the contract terms and conditions with the obligatory tracking and reporting of progress at regular intervals.
4. Specific Guidelines
4.1. Reference to Directive 2, item 1(i).
The prioritisation on the use of local goods and services – this is implemented via the Local Business Development (LBD) Framework which includes targets for employment of locals and amount of local content.
4.2. Reference to Directive 2, item 1(ii).
The implementation and progress of the LBD Management System covering objectives, long term strategies, annual plan of action, Key Performance Indicators (KPIs) & targets and local training & development plan are to be captured in the LBD Business Plan report (Appendix 2a).
4.3. Reference to Directive 2, item 1(iii).
Local Content Opportunity Framing report needs to be prepared for major projects / contracts / agreements e.g. significant projects or contracts to be undertaken by Operators, or significant investments
e.g. purchase of assets, construction of new facilities, etc. to be made by Contractor or Sub-Contractors. The report needs to indicate what the potential impact of the project / contract / agreement on LBD including the identification of opportunities for increasing local content and local employment.
4.4. Reference to Directive 2, item 1(iv).
EDPMO may decide to set specific directions to further increase local content and local employment in a specific market segment or for a major activity e.g. a particular service to be executed only in Brunei Darussalam.
4.5. Reference to Directive 2, item 1(v).
Local financial institutions and local investors refer to those institutions or investors based in Negara Brunei Darussalam. These will include foreign institutions with a local branch or subsidiary in Brunei Darussalam such as Standard Chartered Bank Brunei or HSBC Brunei.
Operators, Contractors and Sub-Contractors can consider any available financial incentives from the different government ministries to (financially) support their efforts in employing locals e.g. corporate tax credits, Department of Economic Planning and Development (JPKE) schemes, etc.
4.6. Reference to Directive 2, item 1(vi).
The LBD Performance report is to include, as a minimum, the number of local employment and the amount of local content.
Appropriate sanctions will be put into place to ensure Operators, Contractors, Sub-Contractors and suppliers deliver reports on time. In practice this is likely to be implemented through provisions in contracts, agreements and purchase orders.
4.7. Reference to Directive 2, item 1(vii).
Measures to provide an enabling environment for the employment of locals is to be consistent throughout the relevant industry e.g. career development, minimum wages for a specific category of skills like welders, scaffolders, etc.
There may be instances where employment of foreign workers may be commercially advantageous (example unskilled low-tech labourers) to the Contractor. The proposal to employ the locals may therefore affect Contractor’s probability to win the contract. Thus, the Contractors are reluctant to propose locals, thereby reducing the opportunities for locals.
In such cases, minimum wages for selected categories of personnel or minimum requirements of local staff may be set. This will ensure that all Contractors are bidding on the same basis. It is advised that minimum wages are fixed after benchmarking with other users (internal & external) to ensure that wages proposed are close to prevailing market rates but good enough to attract local workers. The potential commercial impact of this mechanism will have to be an integral part of the commercial decision.
To further optimise local employment, specific categories or contracts may include the rollover of existing Contractor’s personnel which serves multiple objectives. Firstly, the successful tenderer gets trained and experienced manpower suitable for immediate deployment and secondly, it ensures that the present level of locals is not reduced and provides continuity to the Operator’s, Contractor’s or Sub-Contractor’s operations. It also provides continued employment opportunity and security to the personnel.
4.8. Reference to Directive 2, item 1(ix)
4.8.1. The LBD Allocation of Contracts (Framework) determines for each Quadrant (Basic, Development, Core and Highly Specialised) the following:
Eligible Contractors to participate in the bids under the work categories defined in the Quadrants e.g. open to Bumiputra companies only (Basic Quadrant) or Local companies only (Development Quadrant).
Targets for Local Employment, Locals in Management positions, amount of Local Content and the utilization of local Sub-Contractors. These are targets to be progressed and achieved at the end of the primary contract period. The targets are to be included as part of any contracts or agreements put in place by the Operators or Contractors.
All companies are required to be registered under the Companies Act (Cap 39) with the exception of those companies participating in the Basic Quadrant where minimum requirement is to be registered under the Business Names Act (Cap 92).
4.8.2. Quadrant axes defines the level of technology and capability required (complexity, expertise, investment etc.) to execute the activities and the Total Approved Contract Value (ACV) is the total amount spent for a specific contract. A threshold of B$10 million Total ACV is set to guide the split of the Quadrants.
4.8.3. In the execution of the Framework, the Operators and Contractors shall adhere to the following:
- Provide the opportunity for the smaller local companies to grow and develop:
Bumiputra companies registered or active in other quadrants are excluded from The “Basic” Quadrant.
For specific market segments within the Development Quadrant, the bid list shall be restricted to the small Local companies. These exceptions are to be addressed by category or contracting strategies for each Operator’s or Contractor’s commercial approving body e.g. tender board or commercial board.
- Deviations of targets from LBD framework can be agreed per contracting strategies. Specific categories can have exceptions for low skilled workforce e.g. grass cutting under Basic Quadrant. Any deviation will have to be fully reviewed first and the measures required to achieve the levels of local employment in the quadrant identified and a reasoned decision made not to take those measures.
- In line with the LBD Directive 1 on Local Business Development in the Oil & Gas Industry issued on 7th April 2011 by the EDPMO (Appendix 1a):
A Contractor (incl. affiliate companies) can only hold a maximum of 10% of the total annualized Contract Value of the Operators’ total 3rd party annual spending.
The spending limit a Contractor (including affiliate companies) can hold per market segment e.g. Construction and Maintenance, Marine, etc. is less than fifty percent (< 50 %) to allow a minimum of 3 players competing in a particular market segment. Exceptions will be addressed by category or contracting strategies for the Operators or Contractors commercial approving bodies’ approval.
4.8.4. In the development of key categories/contract strategies, due regard must be given to achieving a balance between a duration which gives an economic or commercial benefit to both the client and the Contractor, and the need for regular market testing by tendering. The contract duration should be of reasonable period so as to provide opportunity or incentive for the local companies to invest in better facilities or owning the required assets e.g. 5 to 10 years for capital intensive contracts, etc.
There is a preference to tender contracts to support a competitive environment, however, contract extensions or early termination may be proposed as incentive for meeting or dis-incentive for not meeting contractual KPIs including LBD targets.
4.8.5. In the bid to further encourage locally owned and managed local companies, including owning key assets, the concept of agents or “fax and mark up” companies are strongly discouraged. It needs to be demonstrated the added value of such agents to the Operators’, Contractors’ and Sub-Contractors’ businesses and to the local economy. For the supply of goods and equipment, the preference is to deal directly with the Original Equipment Manufacturers (OEMs).
4.9. Reference to Directive 2, item 2.
4.9.1. The reporting requirements and frequency as per this Directive are:
- LBD Business Plan (Appendix 2a)
The report is to include assurances or progress on the implementation of an LBD Management system in the Operators, Contractors and Sub- Contractors’ process and procedures. This report is due annually at the start of the financial year.
- Local Content Opportunity Framing report (Appendix 2b)
The report is applicable to any new projects to be undertaken by the Operator. This report is to be submitted prior to any final investment decisions.
- LBD Performance Report (Appendix 2c)
This report will cover the performance to date of the Operators, Contractors and sub-contractors
on the Local Employment, Local Content, etc. This report shall be submitted three times per year, i.e. 30th April, 31st August and 1st December of each year.
- Deviations to the Framework (Appendix 2d)
This report to include any deviations proposed or have been taken, any difficulties or issues faced by the Operators, Contractors and Sub- Contractors in fulfilling the requirements of the Directive. This report is due annually at the end of the financial year.
4.9.2. Submissions of reports
The LBD Business Plan, Local Content Opportunity Framing and Deviations to the Framework reports are to be submitted to:
Energy Services Business Development
Energy Department Prime Minister’s Office 5th Floor, Bahirah Building Jalan Menteri Besar
Bandar Seri Begawan, BB3910 Brunei Darussalam
The LBD Performance Report shall be submitted via an online form available on the Energy Department, Prime Minister’s Office website at www.EnergyLBD.gov.bn