These questions should give you an overview of the IKTVA program.
What is IKTVA program?
The In Kingdom Total Value Add (IKTVA) program is designed to drive domestic value creation and maximize long-term economic growth and diversification to support a rapidly changing economic environment.
What is the objective of the IKTVA program?
IKTVA recognizes prioritization of domestic value creation. It is designed to drive increased investment, economic diversification, job creation, and workforce development within the Kingdom. By 2021, at Saudi Aramco we aim to achieve 70% localization of all spending, creating a business environment that will provide 500,000 new jobs, and enable 30% export of Saudi energy sector products.
What does IKTVA mean to existing and potential new suppliers?
As well as enabling a sustainable Saudi energy sector, IKTVA provides a level playing field for suppliers through consistency and transparency in application and process. Uniform evaluations for both service and material suppliers will be consistent across the company, creating supplier-focused partnerships, and investment stability and assurance achieved through annual assessments.
How does the IKTVA program work?
The program will first establish an IKTVA baseline score for each supplier measured against key metrics for local value creation. With the supplier, we will then jointly develop an action plan to increase the IKTVA score. Thirdly, we will measure performance and track progress to ensure the relationship results in continued local value creation.
Who will benefit from IKTVA?
The benefits of a strong and sustainable economy are widespread and long-term – quality jobs for a growing Saudi population, innovation and diversification of industry, and improved global competitiveness through increased exports.
In addition to the direct benefits of our investment in their goods and services, suppliers will gain access to a growing, higher skilled Saudi workforce and will be recognized as prioritizing value creation which can lead to increased opportunity for expansion into markets across the Kingdom, the GCC region, and the world.
What are the parameters to measure IKTVA? And how is it calculated?
A. Localized goods and services
B. Salaries paid to Saudis
C. Training and development of Saudis
D. Supplier development spending
r. Research & Development
E. Company revenue (spend from Saudi Aramco only)
How was the consultation process conducted for IKTVA?
We understand that achieving our objective of 70% localization of all spending by 2021 requires collaboration, commitment and trust. An extensive consultation program was conducted which included representatives of the major supplier sectors to develop and refine IKTVA.
Additionally, a successful pilot phase engaged more than 100 companies across sectors in Kingdom and internationally to ensure we created a level playing field for all our existing and future suppliers.
When is this program taking effect?
The IKTVA program was launched on an event on December 1, 2015
Do you need to comply with IKTVA to do business with Saudi Aramco?
A bedrock of our strategy at Saudi Aramco is to drive domestic value creation in every aspect of our business. IKTVA reorients the dynamics of our business partnerships with more than 1000 existing suppliers to this effect, and we will work collaboratively with all suppliers that chose to participate, to develop action plans and ensure our relationships are mutually beneficial and focused on domestic value creation.
How would IKTVA affect your existing business with Saudi Aramco?
The dynamic has necessarily changed with a value proposition focused on the future. We have historically awarded contracts on the basis of technical compliance and lowest cost. Moving forward, participation in IKTVA will be one of the components used to evaluate any supplier proposal.
Who is IKTVA applicable to? (E.g. suppliers, manufacturers, service providers)
All suppliers who we are engaged with – suppliers, manufacturers and service providers – will be encouraged to participate in the IKTVA program.
Does IKTVA apply to both local and international businesses?
IKTVA will be a component in the evaluation for all awarded contracts and agreements – local and international. It does not discriminate in any way between in-Kingdom and out-of-Kingdom suppliers.
How can IKTVA benefit your business?
IKTVA recognizes prioritization of value creation. Increasing the IKTVA score has the potential to increase business with us at Saudi Aramco, others in Saudi Arabia, and the GCC region. It drives toward developing a local cost-effective workforce, making goods and services more competitive locally, regionally and globally.
This program has the potential to help companies develop new products, services and technologies through partnerships in and outside of the Kingdom. All of which will lead to greater business performance and a more diversified economy.
IKTVA Survey Submission
The following frequently asked question shall help you in understanding and completing the IKTVA survey.
Q: What if some cost items can fit into multiple categories in the IKTVA survey. Should we include them in all of the applicable categories?
A: No. Except for R&D expenses, which are intended to show the company’s total investment in R&D related activities in the Kingdom, relevant costs should be assigned to a single category. As a general rule, neither costs nor revenues should be double counted.
Q: What if one of my suppliers is unable to provide me with an IKTVA ratio?
A: Saudi Aramco has developed some guidance regarding types of suppliers and estimated IKTVA ratios. Please use this guidance which is available on our website under Download > iktva Package.
Q: Why isn’t depreciation expense included as a cost in the calculation?
A: Since depreciation methodologies and timeframes are subject to significant differences based on specific company accounting policies, we chose to exclude it from the IKTVA ratio in the 2013 to 2015 version of the survey. However, we have made allowances for depreciation for assets acquired IK in the 2014 to 2016 version of the survey. Please see the 2016 Survey Guide for more information.
Q: Can I include the cost of Expats living in the Kingdom?
A: With a few exceptions, Expat payroll costs are to be excluded. Benefits may be included within the Goods and Services section if sourced in-Kingdom. For example, if the company provides housing subsidies, in-Kingdom private education for dependents, and a vehicle, these types of costs can be included. The only situations where it would be appropriate to include Expat wages would be if the Expat is directly involved in providing training for Saudi Nationals or Supplier Development programs.
Q: How should we classify the wages of interns or SPSP candidates?
A: You may either include the wages for interns, SPSPs, etc., as Training & Qualification costs or Saudi National payroll costs. Our preference is to have these included as part of the training costs.
Q: What qualifies as Supplier Development?
A: Many companies have claimed very little, if any, Supplier Development costs. These types of costs would include supplier certification programs; training programs; safety, health and environmental support; and supplier outreach costs related to improving the skills and capabilities of companies based in the Kingdom.
Q: What if my normal auditing firm is not listed as one of the approved auditors to perform the IKTVA review?
A: Currently only those firms listed on the approved auditor list can be used to perform the IKTVA review. They have undergone extensive training on IKTVA and have worked with Saudi Aramco’s IKTVA team to ensure quality of their work.
Q: What kind of backup or supporting documents do I need to create?
A: Since the results will be reviewed by an independent auditor, documents and analysis similar to those that you would provide to your financial statement auditors for a year-end audit would be appropriate.
Q: In calculating the revenue for IKTVA, can we include both revenue from goods/services sold directly to Saudi Aramco, and indirectly to Saudi Aramco as a subcontractor through another supplier, as revenue generated from Saudi Aramco?
A: If you utilize an in-Kingdom agent to sell to us, you should classify those revenues as Saudi Aramco. In addition, if you recognize the Saudi Aramco related invoice amounts as revenue, you can include the agent commission in Goods & Services.
The same is true if you are a subcontractor on a Saudi Aramco EPC project. Even though your subcontract is with the prime contractor, you should recognize those revenues as Saudi Aramco.
If you sell to one of our out of Kingdom subsidiaries (AOC, ASC, etc.) and the ship-to address or services are provided in-Kingdom, these amounts also should be included as Saudi Aramco revenue.
Q: Can we include financing charges and interest?
A: If the financing has been secured from in-Kingdom sources, then financing charges and interest may be included in the cost of Goods and Services.
Q: How often will we be required to submit our IKTVA reports to Saudi Aramco?
A: As a general rule, the IKTVA submission will be done once a year. For large projects/contracts, some suppliers may be asked to send an interim IKTVA report or provide an IKTVA schedule directly related to the project/contract.
Q: At what level do we prepare and report the IKTVA? If my company has multiple subsidiaries, do we submit a certified IKTVA for each one?
A: No, a certified submission for each individual subsidiary will not be required. As a general rule, we are asking that the one submission be prepared at the highest “parent company” level that has business dealings in KSA. If any of your related companies are selling goods or services into KSA, then they should be included in your IKTVA submission. However, some companies have chosen to have each major subsidiary file a separate survey. This too is acceptable.
Q: How do we treat partially owned subsidiaries and joint ventures?
A: You will consolidate their revenues, expenses, headcounts, and investments into your submission. However, you will only recognize your company’s ownership share of their results. For example, if you own 40% of a joint venture, then you can incorporate 40% of the in-Kingdom revenues, costs, headcounts, and investments into your IKTVA results. Also, consistent with the accounting standards, any intercompany transactions will need to be eliminated in the consolidation.
Q: Who will have access to view the detailed financial information provided in our IKTVA submission?
A: The detailed information shared on the IKTVA form will only be viewable by the Sourcing & Business Development Division within Saudi Aramco. Saudi Aramco employees involved in the procurement of goods and services will not be able to view the details; however, they will be able to view a summary of the IKTVA percentages and other information.
Q: Please provide more guidance as to what qualifies as a Saudi expat.
A: A Saudi expat is a Saudi National that is working outside of the Kingdom for your company and is not part of your GOSI numbers. These compensation costs should also be included in the Employment section of the IKTVA survey.
Q: What if our company incurs costs to develop and train our in-Kingdom customer base? Can these costs be included?
A: As long as these cost are related to enhancing the skills and capabilities of in-Kingdom customers and not contractually required (installation, commissioning, etc.), then they can be included in the Supplier and Customer Development Section of the IKTVA survey. However, traditional selling and marketing expenses would not be considered appropriate to include.
Q: Is the Goods & Services section limited to what would normally be considered a Cost of Goods Sold or Cost of Services in a traditional income statement?
A: No, the Goods & Services section is not directly related to COGS or COS. For example, payroll and compensation should be included in the Employment Section, not in Goods & Services. On the other hand, sales, marketing, administrative, and R&D expenses (items that would normally be classified as Operating Expenses), if procured from an in-Kingdom supplier, should be included in Goods and Services.
Q: What if I don’t have enough room to list enough of my top in-Kingdom suppliers of goods and services to the point where we approach 70% of the total in-Kingdom costs?
A: The latest survey worksheet available on our IKTVA website (saudiaramco.com/iktva) under “IKTVA Package” has been modified to accept up to 50 in-Kingdom suppliers. Add suppliers to the list, in descending order, based on the most recent year being reported. You can stop adding additional suppliers to the list once you reach 70% of the total in-Kingdom costs or 50 suppliers, whichever comes first. The rest of the in-Kingdom costs can be included in “Other”.
Q: If I utilize annual purchasing data to populate the Top in-Kingdom Supplier table, how can I account for fluctuations in inventory where only part of the purchased inventory will be recognized under the income statement?
A: The IKTVA report should be completed on an accrual basis so that the numbers can be tied to amounts used to generate the audited financial statements. However, if inventory fluctuations are minor and do not materially affect the IKTVA ratio, using annual purchases in the Top Supplier table is fine. If a significant difference from year to year exists because of inventory fluctuations and this variance causes the IKTVA ratio to be materially different, then a high level adjustment to smooth these difference between years would be appropriate. This difference can be inserted in the line right above the “Other” row at the bottom of the Top Supplier Table.
Q: Can end-of-service costs be included in compensation costs?
A: Yes, end-of-service costs for Saudis can be included.
Q: Can we include revenue from a company listed on Saudi Aramco’s website under “International Joint Ventures & Affiliates” (such as Al Khafji Joint Operations) as revenue from Saudi Aramco?
A: Unless the in-Kingdom entity is 100% owned by Aramco, it counts as in-Kingdom revenue but not Saudi Aramco revenue.
Q: Can customs and duties costs be included in the IKTVA calculation?
A: Expenses related to customs and duties should be excluded.
Q: Can I include the costs related to obtaining visas and iqamas for my expat employees in the IKTVA calculation?
A: Expenses paid to the government on behalf of the expat employees do not qualify and should be excluded.
Q: If we submitted an uncertified IKTVA survey to Saudi Aramco last year, which survey should we use this year?
A: Since the survey from last year was uncertified, you will use the First Timer survey tool available on the website.