Guidelines from Abu Dhabi National Oil Company to its suppliers for submitting ICV application
Introduction to ADNOC’s ICV program in Dubai, Abu Dhabi, Sharjah, UAE
ADNOC introduced ICV programs in November 2017 to increase the net worth of UAE economy through emphasizing more on Emiratis’ employment, use of local goods, services as well as supply chain and through diversifying the local sources from where a significant portion of UAE’s total GDP generates.
Requirements of ADNOC for its suppliers
The company demands that its suppliers will add in-country value for the improvement of local economy and publish this information in their annual reports. The suppliers are instructed to include the number of goods or services they manufactured or procured, the amount of total investment they made on local resources, their contribution to employment of local Emiratis and expatriate, their involvement with sub-contractors, and overall- their total expenditure made within the UAE for business purpose.
After calculating ICV in Dubai, UAE, each supplier must verify the calculation process and information applied as input from one of the independent certifying bodies elected by ADNOC for reviewing the applications of suppliers and providing them with ICV certification.
Without an ICV certificate in Dubai, UAE, suppliers cannot participate in the tenders of ADNOC. Even if they have opportunity to attend in ADNOC’s group tender, their ICV score will be assumed to be “0” which will result in lower scores than those with ICV certification and reduce their chance of being accepted for any of ADNOC’s business proposal.
The information about ICV certification must be collected from the last audited annual report of the suppliers. The certificate should be revised within 2 months of publishment of new audited financial statements. The validity of the certificate will remain for the next audited annual report publishment (generally after 1 year) or 18 months after receiving the certification- which period is lower.
Renewing the ICV certificate in Abu Dhabi, UAE is the sole responsibility of the suppliers. It is mentionable that, for a particular fiscal period, a supplier will first appoint one of the instructed certifying bodies and inform it to ADNOC. Without the permission of ADNOC and any reasonable cause, the supplier cannot change their certifying bodies in the same year.
General guidelines for the suppliers
Followings are the instructions specified by ADNOC that the suppliers willing to be part of the ICV program must abide by while preparing ICV application.
- Cost or revenue figures included in ICV in Dubai, UAE must be converted into USA dollars and these figures must have linkage with the suppliers’ audited financial statements or any other source documents.
- Double counting of any item must be avoided in the calculation of In-Country Value.
- All of the costs associated with supplying goods and services during the financial year (not just the costs related to ADNOC) will be included in ICV.
- As all of the figures included in the calculation of In-Country Value will be verified by certified bodies of ADNOC, supporting documents against each of these figures must be kept available.
- ADNOC has provided detail guidelines on how to calculate ICV value. the calculation process as well as assumptions applied in the submission by the suppliers must be according to the provided guidelines.
- For the submission, there are some templates where suppliers will fill their information including both numeric figures and details. They should fill only the shaded area of the templates.
- Intentional error or negligence of suppliers in the submission will result in punishments decided by ADNOC that may also include cancellation of the suppliers’ submissions permanently.
- In the cost figures, government tax and fees such as VAT that has not been recovered yet, corporate tax, custom duties, VISA fees etc. should be included. But here any penalties imposed by the government need not be mentioned.
- Suppliers who are holding companies of ADNOC should determine ICV score from the ICV score of their subsidiaries and joint venture companies should follow the ICV score of their partner companies. In both of the cases, their ICV score will be measured by their respective ownership percentage in the subsidiaries or partner companies.
The calculation formula for In-Country Value in Dubai, Abu Dhabi, Sharjah, UAE
- For suppliers who are product manufacturers, the relevant costs for ICV are- their production cost, the value of their investment and their contribution in employing local human resources and expatriates.
- Suppliers with service providers should consider product procurement and sub-contractor cost, their net worth of investment, contribution for Emiratis and expatriates in ICV valuation.
- Suppliers who are both manufacturers and service providers need two separate ICV certificates for these two separate business activities.
- Against cost components of service providers, they have to put “yes” if they perform the functions otherwise, their answer will be “no”. Also, specific weight will be imposed on each component as per the suggestion of ADNOC.
- ADNOC will provide an excel template for the supplier submission and the cost figures need to be recorded in the instructed fields of the template.
Guidelines regarding ICV templates in Dubai, Abu Dhabi, Sharjah, UAE
In Section A, suppliers have to provide details information of their company including company name, their legal structure, license number, full address, contact details etc.
In Section B, the suppliers have to mention the financial year for the ICV submission and whether they will serve as manufacturers or service providers. In the latter case, they have to answer through “yes” or “no” for each of the components such as- good procurement, the value of investment etc.
Section C includes suppliers’ CSR related contribution that is limited within the UAE. Though CSR will not be considered and verified by the certifying bodies under the ICV program, this information is kept by ADNOC for recognizing these valuable suppliers.
Authorized Representative of Supplier and Certifying Body will sign the ICV submission which will indicate compliance of all instructions by the suppliers. The submission will be attached with a detail report on the findings of the certifying body and ICV certificates of the suppliers.
In this section, three columns of a table with the titles – description of goods, cost within UAE and cost beyond UAE will be filled up. The first section will include all of the products that the suppliers produced in the last financial year. If they produce multiple products that go under the same category, they can sum up the products in that category.
The total manufacturing costs will be divided into two groups as said before. But manpower and asset-related costs will not be considered here.
ICV value under manufacturing = [Weight × (Manufacturing cost within UAE ÷ Total Production Cost)]
Here, as per the instruction of ADNOC, 50% weight has been allocated.
Like the manufacturing section, in this section, suppliers need to mention the products that were procured throughout the last financial year along with their vendors’ names. In the cost figure, they will mention the total purchase costs of the goods.
They need to mention the percentage of ICV of their vendors that will be supported by vendors’ respective ICV certificates. In case of invalid or no certificate, the value of ICV will be assumed as “0”.
ICV for this section = [{(Expenditure for product -1) x (ICV% of Supplier 1) + (Expenditure for product -2) x (ICV% of Supplier 2) + …………………. + (Expenditure for product -n) x (ICV% of Supplier n)} ÷ {Total expenditure on goods} × Weight]
Here the allocated weight is 30%.
The sub-contractors from whom service providers made purchase throughout the last financial year will be listed along with their respective purchase cost, subcontractors’ ICV values and certificates. In case of no or invalid certificates, ICV value will be zero.
ICV on Sub contractor = [{(Expenditure on sub-contractor -1) x (ICV% of sub-contractor 1) + (Expenditure on sub-contractor -2) x (ICV% of sub-contractor 2) + …………………. + (Expenditure on sub-contractor -n) x (ICV% of sub-contractor n)} ÷ {Total expenditure on sub-contractor} × Weight]
Here the allocated weight is 20%.
In this section, suppliers will record net book value for lands, buildings, manufacturing equipment, vehicles, ICT related devices, drilling rings and other relevant non-current assets under two category- within UAE and beyond UAE. With a weight of 15%, the ICV calculation formula will be as follows.
{Net Book Value of Assets in UAE} ÷ {Net Book Value of Global Assets} × Weight
[{Net Book Value of Assets in UAE} ÷ {Net Book Value of Global Assets} × Weight]
Here ICV will be calculated under two separate categories “Emiratis” and “Expatriates”. The cost figures will include basic salary and all of the allowances the staff enjoyed throughout the year including external training expenses.
ICV of Emiratis= [{Total basic salaries + Benefits + Total external training costs} ÷ {Total Manpower Cost}] × Weight (25%)]
ICV of Expatriates= {Basic salaries + Benefits + Training costs} × 0.6 ÷ {Total Manpower Cost}] × 0.10
Suppliers’ final checking
As the accuracy of the information is important, suppliers along with their finance and other relevant teams should crosscheck the information filled in the template with the last audited financial statements.
For any query, they can contact the “Group Company Focal” point. For further clarification, they can reach icv@adnoc.ae.
Suppliers’ submission
If ADNOC Group Company calls for tender, suppliers will approach there with their ICV submission. The ICV template needs to be authorized by the top-level executives, finance and operational teams of the supplier companies along with their post stamp. It should also be verified by one certifying body empanelled by ADNOC.
For enquiries, call +971 5679 52590 / E-mail: info@aviaanaccounting.com
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