Offset Incentives

The aim of the Counter Trade Offset Program is to achieve economic benefits and transfer of technology as described in the Objectives section.

To this end the Executive Office has devised an Offset Incentive structure for the contractor to help with the implementation of his approved Proposal Package. The structure of the incentives reflects the Government's priorities, both at the Micro (Investment) level and the Macro (Sector) level. These incentives are not mutually exclusive.

The Executive Office wishes to implement the Counter Trade Offset Program without, as far as possible, imposing requirements which interfere with normal market forces. It has elected to implement an incentive structure rather than impose artificial parameters or limitations.

The description of Micro and Macro are taken directly from the Government's published paper.

At the Micro (Investment) level, the Offset Credit Incentives are structured in such a manner so as to promote business entities that are financially and otherwise healthy. At the Macro (Sector) level the Offset Credit Incentives are structured to reflect the preferred areas of development and diversification.

For performance in excess of the schedule provided as part of its committed Proposal Package, the Contractor shall receive incentives in the form of Offset Incentives (not in monetary terms). These Offset Incentives are calculated in the following way. Offset Incentives will be offered against the commitment as calculated in the Incentives schedule (as published monthly by the Counter Trade Offset Office). It is worth noting that no Offset Incentives can be given on already awarded Offset Incentive.

A) Micro (Investment) Incentives

1. Counter Trade and commercial transactions shall be credited towards the contractor's Offset commitment on the following basis:

a) US dollar transactions shall be credited as a factor of .05 for each dollar spend.

b) KD transactions shall first be converted into the equivalent US dollar, using the middle exchange rate as published by the Central Bank of Kuwait on the date of the transaction. These transactions shall be credited as a factor of 1.10 for each US dollar spend.

c) Non US dollar and Non KD transactions shall be converted to the equivalent US dollar amount using the middle exchange rate. These transactions shall be credited as a factor of 1.00.

2. Industrial investments in Offset companies or ventures shall be credited towards the contractor's Offset commitment on the following basis:

Offset Incentive Category Factor

1. Cash and non-monetary 3

2. Debt 1

3. Retained earnings of venture
3

4. Sales of venture 1

5. Research & Development Investment 3

6. Education and Training costs 5

7. Pre-establishment costs, including:
Feasibility studies
Business plans
Market surveys and Research
Other reasonable costs
2

B) Macro (Sector) Incentives

The Offset Incentives earned at the Micro (Investment) level and calculated as above shall be totalled and then multiplied by the relevant factor.

Economic Sector Activity Factor

1. Education, Management and Training	4
2. Manufacturing	4
3. Assembling, Partial Manufacturing and Processing	5
4. Services	2
5. Counter Trade and Commercial	1
6. Transactions and Local Purchases	1

C) Calculation of Total Incentives

1. The total offset Incentives earned by the contractor at the Micro (Investment) level shall be calculated as follows:

The Dollar value, calculated from A1, multiplied by the pertinent Micro (Investment) Offset Factor (Section A2) equals Total Offset Incentives earned, at the Micro level.

2. The total Offset Incentives earned by the contractor shall be increased again by applying the following:

Total offset Incentives earned at Micro level ( above ) multiplied by the applicable Macro (sector) factor (sector B) equals the total offset Incentives.

3. The full calculation is made using the formula:

a) The amount to be invested is increased by the Micro Factor (section A1-a,b and c)
b) Then divided between the relevant categories (section A2)
c) Then increased by those incentives.
d) The amount is then totaled and then multiplied again by the one Sector / Activity (section B Macro Incentive)
e) This gives the total incentive

4. Incentive earned will be applicable for each quarter of the commitment period.

D) Accumulation of Incentives

In cases where a contractor earns Incentives for achievement in excess of his Offset obligations, these excess incentives may be accumulated and used by the contractor, with the approval of the Ministry of Finance (Program Executive Office) as Offset Incentives against the commitment in another venture, where he is prime contractor or sub-contractor.