Kuwait’s oil sector pays price of political bickering


“The oil sector is in a real crisis as plans and strategies have been frozen … The vital sector has been plunged into political dispute,” said a number of senior officials in the sector. “We believe that matters have deteriorated to a perilous level … External interference in the oil sector’s strategic decisions has reached a dangerous level,” they said in an unsigned statement. Earlier this year, Opec’s fourth largest producer said it earmarked about $ 55 billion for oil projects over five years including a new huge refinery, upgrading existing refineries and other crude facilities.

A project seeking the assistance of foreign oil majors to almost double output from Kuwait’s northern oilfields to 900,000 barrels per day, first proposed in mid-1990s, is still on the backburner.

After awarding contracts to five international companies in May and later signing memoranda of understanding to build a $ 15-billion oil refinery, the project looks in serious doubt after MPs cited faulty procedures.

The government bowed to pressure and in August referred the project to the Audit Bureau for an investigation into claims of irregularities in the bidding process and awarding of contracts.

According to local media, the Audit Bureau report has supported the views of MPs, describing the project as “economically unfeasible and technically not sound.”

Oil Minister Mohammad Al-Olaim on Monday acknowledged “differences of opinion between the ministry and the Audit Bureau,” adding that the ministry has sent its response to the council of ministers for a final decision.
A $ 15-billion project to upgrade two of three existing refineries was due for launch in August, but so far tender papers have not been issued as officials await the verdict on the new refinery project.

Kuwait’s long-term strategy which aims at raising output capacity from 2.7 million barrels per day to four million bpd by 2020 is way behind schedule.

The strategy, for which Kuwait earmarked some $ 25 billion, stipulates that capacity would rise to three million bpd in 2005 and 3.5 million bpd in 2010. The capacity remains the same five years after the plan was announced.

Mussa Maarafi, a member of the Supreme Petroleum Council, Kuwait’s highest oil decision-making body headed by the prime minister, attributed the delay to the stalling of the northern oilfields project and lack of performance.

“The performance of the oil sector has not been up to the required mark in the past years … Oil companies have achieved only 40 percent of their projects which means there is a 60-percent delay,” Mousa told Al-Jarida daily.

MPs have also strongly criticised a deal signed by Kuwait’s Petrochemicals Industries Co on Dec 1 with US firm Dow Chemical for a 50-50 joint venture, with Kuwait paying $ 7.5 billion.

MPs have vowed to form a committee to probe the deal.

Due to intense political disputes, Kuwait has over the past three years had four governments, two Parliamentary elections and a major power struggle when a former Amir was removed due to poor health.

The current Amir, Sheikh Sabah Al-Ahmad Al-Sabah, last Sunday accepted the resignation of the government following a dispute after three Islamist MPs filed to question the prime minister.

Kuwait posted around $ 300 billion of oil revenues in the past nine fiscal years, around 95 percent of total public revenues, and this year is expected to have earned more than $ 70 billion.

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