The Emirate of Abu Dhabi has already taken significant steps towards intensifying the localization requirements for manufacturers and service providers by adapting ADNOC's In-Country Value (ICV) program and the Department of Economic Development's Abu Dhabi Value program (ADV). Most recently, the Electrical Tarif Incentive Program (ETIP) was issued to push for further localization effects by attracting the manufacturing industry with reduced electricity tariffs. This legal briefing provides an overview of the requirements, procedures, and advantages of ETIP and how ETIP works along with other programs.
1. What is the Electrical Tarif Incentive Program (ETIP) and who can apply for ETIP?
The Electrical Tarif Incentive Program (ETIP) was launched in July 2019 in line with the Abu Dhabi Development Accelerators Programme 'Ghadan 21'. ETIP provides preferred electricity tariffs for industrial projects and works closely with industrial manufacturing companies to increase their efficiency in relation to the company's energy consumption. The program evolves around the following objectives:
- Enhancing the economic impact of the industrial sector in Abu Dhabi;
- Boosting investments in the field of manufacturing and improving productivity; and
- Increase the efficiency of energy consumption in the industrial sector.
Industrial enterprises in the Emirate of Abu Dhabi holding a valid industrial license can apply for the program. If the industrial license is in the renewal process, the renewal must be completed before the application can be submitted. Enterprises with no existing factory (industrial license) in the
Emirate of Abu Dhabi are not eligible for ETIP.
Successful applicants qualify for preferred electricity tariffs based on a set of criteria reflecting their economic impact on Abu Dhabi and its cost-benefit ratio.
2. What are the main factors considered in ETIP and how are they calculated?
a. Main Factors Applicants will be assessed in accordance with the following criteria (so-called eligibility criteria):
- Economic Impact (40%);
- Productivity (40%) and
- Connectivity Load (20%).
Economic Impact (40%)
The following attributes are taken into account for the Economic Impact criteria:
- Investment in Abu Dhabi (70%);
- Emiratization (20%); and
- Expatriate contribution (10%).
The Investment in Abu Dhabi is taken into account with 70%. It is calculated from the sum of the net book assets (fixed assets and investment properties in Abu Dhabi) divided by the applicant's total net book value of fixed assets.
The Emiratization impacts the Economic Impact score by 20%. Under this section, the salary and befits costs paid to Emirati employees in Abu Dhabi are divided by the applicant's total amount spent on manpower.
The Expatriate Contribution is taken into consideration with 10%. It is calculated by dividing the salary and benefits paid to expat employees in Abu Dhabi (including housing, school allowance, etc.) by the total spend on manpower.
Productivity criteria include how well a company transforms input (e.g. labour, materials, machines and capital) into outputs. The productivity will be based on the value addition done by the manufacturing entity based on the total number of employees. It is calculated based on a complex formula taking into consideration, among others, value added and revenue streams.
Connectivity Load (20%)
The Connectivity Load criteria related to the power connection. The threshold value is a connected load of 5MW:
- In case the connected load is greater or equal to 5MW (confirmed by the ADDC/AADC site power connection detail form) the applicant is eligible for the full Connectivity Load score.
- In case the connected load is below this threshold value, the applicant will not be eligible for any Connectivity Load score.
b. Weighting of the Criteria
According to the weighting of the criteria, applicants will be attributed to a score between 0 and 100. Companies exceeding 50 points are admitted to the program and are eligible to different tariffs in accordance with the following categories:
3. Which documents will applicants need to submit?
Companies have to apply online for ETIP on the Abu Dhabi Department of Economic Development's (Abu Dhabi DED) website. Applicants must upload the following documents and information:
- Audited Financial Statements (for the previous year)
- Valid Industrial License
- Copy of valid industrial license (from DED/IDB)
- Certified laborers list issued by Ministry of Human Resources & Emiratization (MOHRE)
- Working hours per day
- Working hours per shift
- Number of laborers per shift
- Labour salary details
- Number of UAE nationals in the workforce
- Site power connection detail form
Applicants will be asked to have their selfassessed ETIP evaluation audited by a certifying body. The Abu Dhabi DED has appointed a number of auditing firms responsible to audit the applicant's ETIP evaluation. The certifying bodies will charge a fee for this service.
4. Why was ETIP enacted now and how does it relate to other localization programs?
With ETIP, Abu Dhabi continues to intensify its efforts to strengthen the local economy. After having launched the In-Country Value (ICV) by the Abu Dhabi National Oil Company (ADNOC) in 2018 and the Abu Dhabi Value (ADV) program in 2019 by the Abu Dhabi DED in 2019, ETIP can be considered Abu Dhabi's next step towards localization. While ICV recognizes such efforts on a federal level (including manufacturing facilities located in free zones), ADV is focused on mainland Abu Dhabi investments. This having been said, suppliers to ADNOC should review their investment strategies against potential energy incentives granted under ETIP.
Since the Economic Impact factor (Investment in Abu Dhabi, Emiratization, and Expatriate contribution) is relatively similar under ETIP and ICV and ADV, investors could create synergy effects under ETIP and the localization programs by rerouting investments in the UAE into the Emirate of Abu Dhabi.
Finally, it should be noted that under ICV and ADV, investors face legal consequences in case of non-compliance with localization goals as shown in the investor's improvement plan. Under ETIP, this is not the case, as the program is not dependent on an improvement of the investor's localization.
With ETIP, Abu Dhabi is expanding its efforts to promote local production of goods. The program offers companies discounted electricity tariffs if they meet certain criteria, among other things related to their localization efforts.
Investors supplying goods to ADNOC and/or in ADV relevant tenders should note the following:
- Under ETIP investors may reduce production costs through preferred electricity tariffs;
- Utilizing synergy effects between ETIP's Economic Impact criteria and the various localization programmes can reflect positively in ETIP; and
- Careful planning and integrated localization strategy are necessary to make the most out of the respective programs.
3 October 2019
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.