A new era for Yemen’s oil industry [Archives:2006/973/Business & Economy]

Raidan Al-Saqqaf
[email protected]
Last week his Excellency the Minister of Oil and National Resources Mr. Khalid Bahah held a gathering with several representatives of Oil exploration and Production companies as well as subcontractors operating in Yemen. During the gathering his Excellency has indicated the new working priorities of his ministry as well as a number of remarks on various issues on the industry. This report summarizes his Excellency's briefing.

A New Oil Culture

The main focus of the Ministry of Oil is to share ideas and management solutions so the Oil companies and the Ministry can increase their mutual interests, through an open discussion with oil companies to encourage the companies to work in increased levels of transparency and professionalism, admitting the difficulty of working in a third world country such as Yemen and the challenges associated with that. The Ministry of Oil aspires to have oil companies working together to progress the oil and petroleum sector in Yemen to a new stage and have a fair mutual interest with all the companies working in oil exploration and production along with subcontractors.

Subcontracting companies

Although subcontracting companies play an instrumental and important role in the industry, some subcontractors have become a burden rather than a support to the industry. During its 20 years of experience in oil and gas Yemen has provided a good opportunity for subcontractors to emerge and grow, however, many subcontractors, especially local ones, lack the vision for future growth in spite of the success of their operations. Therefore, they have to think and rethink professionally where they want to go because in the new era a change is eminent and they will not be able to work in the same old traditional mentality and use of their influence and power, we, in the Ministry of Oil, have witnessed cases where a subcontractor couldn't win a bid and therefore used their influence to turn the results, but those days are finished.

Subcontractors need to expand their services and upgrade their operational systems in order to complete more efficiently, the current trend where subcontractors are fighting for a bigger share of the existing small pool of operations is a big challenge, and the message from the ministry is very clear – if they want to continue growing their business they have to enlarge their pool of activities and no longer think someone in the Ministry of Oil will support them to get this bid or that contract.

Exploration companies

We have 26 blocks with 15 exploration companies working in Yemen and another 14 blocks still at the bidding stage. This interest indicates activity in the oil sector will be growing considerably, and if we, the management and leadership of the Ministry of Oil, don't grow with this activity and update our system then it will frustrate our government and leadership. We want to make sure that we meet the expectations of our leadership and those investors who come Yemen with an interest in our oil sector, investors such as Total which has considerable experience in developing countries and has the spirit to expand in challenging environments

Ethics

Oil companies operating in Yemen have to work ethically especially with regards to the widespread corruption, they have to help the ministry by avoiding deals with the disease of corruption and to follow their own code of conduct.

It is true that corruption is a shortcut to get what you want, however if any company has a long term interest in Yemen or wants to continue operating in Yemen then it better avoid corruption, and face the challenges knowing that all oil companies have the support and backup of the Ministry of Oil, otherwise companies found to be taking part in corruption will be blacklisted and risk losing their licence. The ministry has a special interest in detecting cases of corruption especially within its employees and associates, and it requests the help of oil companies to inform of any individual cases of corruption they detect.

Yemenisation

Quality of Yemenisation in the oil sector is first priority and this priority is no longer negotiable. Local manpower has reached a stage where they provide the support to run the operations of oil companies. Today's manpower has advanced greatly compared to 20 years ago when Yemen was still a virgin market for oil companies. Thus far, oil companies are not completely supportive with regards to the ministry's Yemenisation policy; it is a shame to see expatriates in junior managerial and operational positions. In fact it is an insult to Yemen to continue seeing these positions filled with non-nationals, in the interest of the whole industry, as Yemen enjoys a competitive and cost-effective workforce.

Brain Offices

Brain offices or 'kitchens' of several companies have been established or moved to outside Yemen for a number of reasons, However, the Ministry of Oil no longer accepts this reality because it creates a considerable opportunity loss as Yemen can benefit from experienced and knowledgeable people working in Yemen especially after the oil runs out one day. Therefore the ministry will be working with oil companies on moving these brain offices into Yemen on an agreed time schedule. This point has become even more important because of the experience with Hunt and Safer, his Excellency's recent visit to Safer oil company indicated that one of their big challenges is there isn't enough information to run the oil field because the operation was run from Dallas, and now the ministry keeps on requesting information from them to get the history of the oil field. This is jeopardizing the oil operation and also the Yemen LNG project.

The Environment

Safety and the environment is usually the last priority in third world countries, however this is changing with the growth of peoples' understanding about maintaining the environment, and therefore it has become a priority after the requests and complaints of local people in governorates. The ministry can no longer ignore this issue, and must ensure international oil companies enforce their international environmental code of conduct regardless of where they operate; pointing out the many oil companies need to upgrade their environmental systems and standards. Additionally, the Ministry of Oil is going to upgrade its contracts in order to agree with contracted oil companies on the environmental standards of operation, indicating that the environmental monitoring unit within the Ministry itself will be reformed and upgraded as well.

Leakage of Refined products

Yemen is subsidizing refined products by over 100 percent for the objective of reducing the cost on citizens. However, oil companies and contractors must obtain their refined oil products directly from the national oil company, and avoid buying that from the consumer market. The ministry is under a lot of pressure to hunt down those who illegally buy their refined products from the market, especially on the part of subcontractors, therefore the Ministry of Oil would like to formulate a mechanism where oil exploration and production companies can oblige their subcontractors to buy their refined oil products from the national oil company.

Fair and Transparent Bidding

The Ministry of Oil has developed a very fair system for bidding, in which they deal with all companies very professionally, openly and fairly, knowing that the blocks will be awarded to the highest bidders and therefore the only way to get the blocks is to raise your offers.

Brokers

There were several incidents where new companies think thought they need brokers or partners with influence in the market, the ministry of oil does not accept that sort of brokerage and does not deal with brokers. Therefore it is advised that oil companies deal directly with the ministry and avoid becoming victims or be exploited by brokers. The Ministry would deal directly and professionally with all companies, assuring complete guidance and assistance with regards to operating in Yemen.

VIP file

Every company has a VIP file, people who may prove helpful in various agencies and organizations, therefore having any application or employment opportunity treated favourably. It is true that pressure from VIPs is exerted in order to treat their applications favourably, however, his Excellency is asking to formulate a process through which all applications are treated fairly and people are ranked upon merit; don't accept any pressures and go with the system.

Interships

We have a problem with the huge number of university graduates who have no place they can be trained; we need every company to consider a number of people to be trained in their countries, through employment and internships, as a social contribution to this country by giving them the chance to be trained, and in turn can prove useful for the company.
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