Offset

Offset is an obligation required from foreign entities that sign supply contracts with the government of Kuwait, such that they would have to fulfill such obligation through implementing offset projects, which achieve the objectives of Kuwait Offset Program. Offset is required on defense contracts whose values are equal to or greater than KD3 million; in addition to civil contracts, whose values are equal to or greater than KD10 million. The offset obligation value is equivalent to 35% of the monetary value of the contract, signed with the foreign entity, with the potential of deducting the monetary value of any of the following from civil contracts:

• Subcontracts signed with Kuwaiti companies.
• The equivalent monetary value of the Kuwaiti share in a joint venture that signs a government contract, subject to offset.
• Purchases of goods and services of national origin that are made within the context of the supply contract.
• The balance of offset credits achieved by the foreign entity corresponding to charges incurred to secure a bank guarantee, and procurement of goods and services of national origin outside the scope of the initial contract, and previously achieved offset credits that are carried forward.

Offset Program Objectives:

The Offset Program seeks to achieve three primary objectives, namely:

• Transfer and integration of appropriate advanced technologies to Kuwait, and facilitate their integration and adaptation into the local economy.
• Creation of high-skill professional jobs for Kuwaiti nationals.
• Promotion of Projects that contribute to the advancement of professional education and job training.

In addition to achieving the above mentioned primary objectives the Offset Program takes into account when approving offset projects proposals, the extent to which they meet the following criteria:

• Achieve economic value added benefits to Kuwait.
• Enhance and encourage business cooperation between international companies and the Kuwaiti private sector.
• Support the Government of Kuwait efforts to attract foreign investments to Kuwait economy.
• Contribute to the expansion exports of locally produced / manufactured products and reducing the dependence on imports of foreign products.

Types of Offset Projects:

• Direct Offset Projects: These are projects through which offset obligors support and assist the Kuwait government entity with which their contracts are signed.
• Indirect Offset Projects: These are offset projects implemented by offset obligors independent of the Kuwait government entity with which their contracts are signed.

Offset Multiplier System and Granting of Offset Credits Corresponding to Participation in Offset Projects:

The offset multiplier system is intended to incentivize offset obligors to implement projects that achieve the primary objectives of the Offset Program, such that the value of the offset multiplier that is granted to offset projects is based on the nature of the projects (direct or indirect), in addition to the extent to which these projects contribute towards achieving the three primary objectives of the program. Based on the offset program multiplier system offset obligors could be granted a multiplier reaching a value of 5.5, and accordingly these entities will be granted the equivalent of 5.5 the value of their contributions into offset projects, in the form of “offset credits” which would be deducted from the value of their offset obligation.

To Review the Guidelines for Kuwait Offset Program No. (9)-2007, view this link.

Council of Ministers decisions regarding the Offset Program (2014-2017)

Sectors of projects proposed for implementation through outstanding offset obligations, as specified by Council of Ministers decision no. 400:

• Research and Development and Laboratories Projects
• Arts and Cultural Projects
• Educational And Training Projects
• Environmental Projects
• Medical Projects

Offset Projects Implementation and Follow-up Procedures, as specified by Council of Ministers Decision No. 400

In line with the directives of the Council of Ministers Decision No. 1212 taken during its meeting No. (39/2015), which was convened on the August 24, 2015 Kuwait Direct Investment Promotion Authority (KDIPA) has cooperated with the various Kuwait government and private sector entities with the aim of assessing and developing a number of government and private sector projects that could be implemented by utilizing the pending offset obligations.

As a result of KDIPA’s cooperation with the various government and private entities a number of government and private sector projects were identified. These were considered to be highly important in securing the achievement of Kuwait’s economic and social development objectives. The list of identified projects was presented to the Council of Ministers, to determine which of these projects should be given highest priority.

During its meeting No. 12/2017 held on 20/3/2017 the Council of Ministers adopted Decision No. 400, which Identified the list of projects, that could be implemented by offset obligors, and the various options by which offset obligors could fulfill their pending offset obligations.

Available Options for Fulfilling Pending Offset Obligations:

A. Cash contributions

In accordance with this option the offset obligor transfers the cash value equivalent to the offset program obligation, to an account which shall be specifically assigned to finance the list of projects, that are adopted by the Council of Ministers, such that the offset obligor shall be considered to have fulfilled its offset obligation once it presents a statement confirming its deposit of the required cash in the specified account.

KDIPA and the Ministry of Finance shall take the necessary measures to open the specified special account, such that the cash money that is transferred to this account shall remain specifically reserved for financing the implementation of the list of projects adopted by the Council of Ministers.

The following Guidelines and Procedures shall be adopted, in connection to this Option:

• The offset obligor submits to KDIPA a request for approval of its intention to transfer a cash value, equivalent to its offset obligation, to the account mentioned above, and KDIPA will undertake the assessment of the obligor request, in coordination with relevant entities that it deems necessary, and accordingly decides to accept or reject the request.
• KDIPA and the Ministry of Finance will coordinate to confirm that the cash amount, equivalent to the offset obligation, has been transferred to the account that is reserved for contributions by offset obligors, and which is entered as “Revenues” within the State Budget – Ministry of Finance, under category “15590101” (Other General Revenues).
• Upon confirming that the transfer operation has been completed KDIPA shall issue an “Offset Fulfillment Statement” to the favor of the offset obligor. It shall also inform the bank from which the obligor bank guarantee is issued, to cancel the bank guarantee.
• Corresponding to the cash contributions made by offset obligors, referred to in “Item 2” above, financial allocations within the Budgets of government entities shall be made, in line with the following:
• KDIPA receives requests from government entities that are interested in securing financing for their projects through the Offset Program acquired funds.
• KDIPA provides the Ministry of Finance with a list of the government projects that are adopted by the Council of Ministers, coupled with the names of government entities for which the projects will be implemented.
• The Ministry of Finance undertakes the inclusion of the projects within the budgets of the concerned government entities, such that the inclusion and implementation of these projects will be in line with the adopted procedures relating to government projects.

B. Direct implementation

In line with this option the offset obligor chooses one or more of the projects that are mentioned in the list of projects adopted by the Council of Ministers and gives its commitment to directly implement it, in line with the Terms of Reference (TOR), as prepared by the entity for which the project will be implemented.

The following Guidelines and Procedures shall be adopted, in connection to this Option:

• The offset obligor presents to KDIPA a detailed “Implementation Plan” which shows the stages of implementation and its participation in the implementation of each stage, coupled with the timeframe of each of the stages.
• KDIPA coordinates with the entity for which the project will be implemented, through an appointed liaison officer, to review the “Implementation Plan” in line with the what is indicated in the TOR, as presented by the benefitting entity, in preparation for KDIPA’s approval of the “Implementation Plan”.
• Upon the approval of the “Implementation Plan” the offset obligor is invited to sign an “Implementation Agreement” with the entity for which the project will be implemented, according to which the obligor gives its commitment to implement the project in accordance with the specifications of the TOR.
• The offset obligor will be committed to maintain a valid bank guarantee, corresponding to the offset obligation, until the completion of the stages of the chosen project, and until the entity concerned with the project approves its outputs; however, KDIPA shall carry out the reduction in the value of the bank guarantee, in line with the procedures specified in the Offset Program Guidelines No. (9)-2007.
• The entity for which the project is implemented shall provide KDIPA with periodic reports covering the progress achieved in implementing the project, in line with the implementation timeframe.
• The offset obligor shall submit offset credit claims, in the light of the implementation plan and the TOR.
• KDIPA shall review and analyze the project’s periodic achievement reports, and compare them with the stages of the project implementation plan, so as to determine the value of offset credits that the offset obligor is entitled, corresponding to its participation in the implementation of each of the project’s stages, as specified in the presented offset credits claims. KDIPA shall have the right to request clarifications or supporting documents, if deemed necessary.
• KDIPA shall notify the offset obligor of the decision to grant it offset credits, corresponding to its participation in in the implementation of each of the project stages. Its shall also notify the bank from which the bank guarantee is issued, to reduce the value of the bank guarantee, in the light of the obligor’s implementation of the project stages and the offset credits that it is granted for its partial offset fulfillment.
• The offset obligor is granted an “Offset Fulfillment Certificate” after it completely implements the project, in line with the TOR and the Implementation Plan.

C. Choosing a Third Party

In line with this option, the offset obligor undertakes to fulfil its offset obligation through signing an agreement with a third party to implement, on its behalf, one or more of the list of adopted projects, provided it secures the approval of KDIPA and the entity for which the project will be implemented.

The following Guidelines and Procedures shall be adopted, in connection to this Option:

• The offset obligor notifies KDIPA of its intention to implement its offset obligation through appointing a third party to implement its obligation on its behalf. It attaches to its request all information and expertise and qualifications of the identified third party.
• KDIPA coordinates with the entity for which the project shall be implemented through a liaison officer to assess the capabilities of the third party to implement the project; It can request for that purpose any clarifications or information from the initial obligor or from the appointed third party.
• In line with the above mentioned procedures the chosen third party presents to KDIPA a commitment letter indicating its acceptance to implement the project in connection to the offset obligation, on behalf of the initial offset obligor, and accordingly the third party becomes responsible towards KDIPA for implementing all the obligations relating to offset.
• The third party provides a bank guarantee, at a value equal to the bank guarantee that is provided by the initial offset obligor, such that this bank guarantee will constitute a declaration of its commitment towards implementing the chosen project.
• The initial offset obligor transfers the monetary equivalent of the offset obligation value to the third party, and presents to KDIPA proof of the transfer of money.
• Once all of the above mentioned stages are completed KDIPA instructs the concerned bank to cancel the bank guarantee of the initial offset obligor, and issues an “Offset Fulfillment Certificate” to the favor of the offset obligor.
• All procedures specified under the above Section(b) of these regulations and procedures shall be adopted by the third party, in the process of implementing the project.

Specified Multiplier for Companies that Choose to Implement its Offset Obligation by Adopting Any of the Three Options:

Companies that choose to implement their offset obligations through adopting either of the above mentioned three options shall receive an offset multiplier of
(5.5).

Confirmation of Offset Obligors Rights to Propose and implement Offset Projects Other than project in the Proposed List:

Offset obligors maintain the right to propose and implement their own offset projects; however, these projects would have to be approved by KDIPA, taking into account the economic development objectives of Kuwait, and the priorities of its economic development plan. These projects would have to be implemented in line with the Offset Program Guidelines No. (9)-2007 and the directives issued by KDIPA.