Go global: Petronas’ vendor development programme

Malaysia

The acting CEO of local oilfield services company Bumi Wangsa, Syed Salikhin Alsagoff, speaks to TOGY about state-run Petronas’ vendor development programme (VDP). Bumi Wangsa participated in the VDP for the manufacture of wellhead control panels in 2007.

Most oil and gas entrepreneurs in Malaysia want to have the opportunity to grow and become international players in the hydrocarbons market, which is mainly dominated by large, international companies. While a company may start local and small, as it expands and develops it will begin looking beyond the domestic market.

If the business model is good, a company will hope to be able to replicate it abroad, but this is not easy. In the beginning, even Petronas had a hard time venturing outside the Asia-Pacific region, but it eventually pushed through. Now it is established in some of the most challenging upstream markets, such as Sudan and Iraq.

Local small and medium-sized enterprises are a vital part of Malaysia’s industry, however, they often lack the resources to grow their business, expand abroad and meet international oil and gas standards. To tackle this problem, Petronas introduced the VDP in 1994. The VDP is designed to help local companies become competitive and encourage the development of locally manufactured technologies.

As of 2015, about 79 companies have been selected as vendors. The VDP has opened up new areas for the development of domestic oil and gas technology and manufacturing by local companies, sectors that have been traditionally dominated by international hydrocarbons companies.

MITIGATE RISKS: Some operators have never had a shop or manufacturing capabilities in Malaysia because the risk involved with the investment was too large without an incentive of the VDP’s magnitude.

It is was because of the VDP that Bumi Wangsa decided to open an office with manufacturing capabilities in Malaysia. Dozens of local companies have taken part in the programme over the past two decades. The VDP has helped these operators secure jobs with international oil companies, resulting in domestic growth.

VALUE-ADDED TECHNOLOGY: Petronas has been fully supportive of companies getting VDP status when they provide evidence of their ability to add value to the domestic services and manufacturing market.

The state-run company then ensures that vendors’ products are used in the local oil and gas market, giving companies the opportunity to test new technologies. This ability to investigate new material is important for Malaysia, especially if the country is to emerge as the key centre for oil and gas activities in the region.

Petronas also provides guidance to companies participating in the VDP. These types of programmes are especially important for developing the expertise of local companies in technological areas such as enhanced oil recovery and deepwater exploration and production.

GOING GLOBAL: The length of the application process for the VDP varies. For example, when Bumi Wangsa got its VDP in 2007, we received our first job within a month. Other companies have not been so lucky.

Local engineering consulting company Proeight, a manufacturer of mechanical seals, had to wait two years before it saw its first order come around. Not many clients thought that a local entity could make good wellhead seals. They trusted the expertise and brand name of foreign companies more. However, thanks to the VDP and two years of extensive research and development, Proeight has now gone global, opening their first office abroad in Latin America in 2014.

LOCAL OPPORTUNITIES: The VDP is just one among many signs that Malaysia has all the necessary infrastructure available to achieve its goal of becoming an oil and gas centre in the Asia-Pacific region. However, the Malaysian government is not marketing these facilities as well as it could.

The industry as a whole is not aware of the existence of the vast yards, ports and manufacturing infrastructure that have already been constructed in the country.

Local companies have plenty of opportunities at their disposal. Grants worth around $200 million for research and development, technology and innovation are available. These are available for all local services companies, but only a few of them have applied. I hope this will change once information becomes more widely available.

Malaysia needs to continue adding more value to the energy production chain. At the moment some supplies are not even available in Malaysia. We need to start manufacturing as many products as possible in the domestic market in order to supply our domestic sector, and this is what makes schemes such as the VDP so valuable to the local market.

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