Kuwait refuels refinery hopes

The government of Kuwait breathes new life into a long-stalled $14.5bn refinery project by giving preliminary approval for funding.

The government of Kuwait has breathed new life into a long-stalled US$14.5 billion (Dh53.25bn) refinery project by giving preliminary approval for funding. A contractor said construction contracts were expected to be awarded later this year. The refinery at Al Zour, which would be the country's fourth plant, is a crucial part of Kuwait's efforts to modernise its energy sector and diversify the economy away from crude oil exports.

Parliament on Tuesday passed a four-year, $104bn spending plan to provide funding to the oil and gas industry, and other key development projects. An official at Kuwait National Petroleum Company (KNPC), who was not authorised to speak to the media, confirmed yesterday that funding for the fourth refinery was included in the spending plan. The government shocked foreign investors when it unilaterally cancelled contracts for the refinery last March, after Kuwait's parliament complained that the project had not been correctly awarded.

But the new progress from the government, together with a move to compensate contractors affected by the cancellation, had revived interest in the project, said Kong Hong-pyo, the executive vice president of Samsung Engineering, a Korean industrial engineering firm. "In Kuwait, there has been a considerable delay for their fourth refinery, but I understand they settled all the pending issues with their previous contractors and I was told the new tender is coming some time later this year," said Mr Kong, who confirmed his firm was interested in bidding.

The KNPC official declined to speculate on a timetable for the refinery, adding that "the project will be implemented on the approval of the Supreme Petroleum Council". KNPC said last month it had paid compensation to a group of Korean and Japanese companies after breaking the contracts - worth $8.3bn - and would reach a similar understanding with Fluor, a US engineering firm. The Al Zour project also received a boost when the cabinet approved the formation of a new Supreme Petroleum Council, a step KNPC said was a prerequisite to welcoming bids for the project.

Sheikh Ahmed Abdullah Al Sabah, the oil minister, confirmed in December that the government would build the refinery. The project was historically opposed by members of parliament who wanted more influence over oil policy. But after last May's elections, in which opposition Islamists lost ground, the government may have an easier time securing the legislature's final approval, said Samuel Ciszuk, a Middle East energy expert at IHS Global Insight, an energy consultancy.

"I think the government wants to push this through, and it seems to have dawned on some groups in parliament that it would be good to actually get some development projects done," he said. Even with a slightly tempered parliament, however, oil policy will remain politically contentious through the year, he said. The Al Zour refinery would process 615,000 barrels per day (bpd) of crude into fuels for export and use in the country's petrochemicals industry.

Kuwaiti officials have said the project's $14.5bn tag was likely to decrease significantly because of reduced prices for contracting services, refinery components and building materials such as steel. @Email:[e-mail] [e-mail]