(MENAFN- Arab Times) Kuwait National Petroleum Co said it awarded four contracts worth $11.5 billion (10.5 billion euros) to international consortia Tuesday to build a 615,000 barrel per day refinery. A $4.25 billion contract for the main manufacturing units went to Spain's Tecnicas Reunidas, China's Sinopec Engineering and South Korea's Hanwha Engineering and Construction Corp, spokesman Khaled Al-Assoussi said in a statement. The second and third contracts for infrastructure, worth a combined $5.75 billion, were awarded to a consortium of US Fluor Limited with South Korean Hyundai heavy Industries and Daewoo Engineering and Construction.
A fourth contract valued at $1.5 billion was awarded to South Korean Hyundai Engineering and Construction and SK Engineering and Construction and Italian Saipem, Assoussi said. A fifth contract is scheduled to be awarded within the next two weeks, he said. The project, divided into five packages, is estimated to cost $16.1 billion after Kuwait's Supreme Petroleum Council agreed two weeks ago to increase the refinery budget by $2.9 billion after bids exceeded the initial estimates. Last year, Kuwait awarded tenders for a $12-billion project to upgrade two of the three existing refineries. When that work is completed by around 2018 and the new refinery is built, Kuwait's refining capacity will increase to 1.4 million bpd from 930,000 bpd currently.
Kuwait says it sits on 10 percent of the world's proven crude reserves and is pumping 2.8 million bpd. Kuwait is preparing legislation to facilitate issues of Islamic bonds by the government as it assesses options to finance a big budget deficit caused by low oil prices, Finance Minister Anas al-Saleh said on Tuesday. "It is among the priorities of the government," Saleh said of the sukuk legislation. He was speaking via Twitter in a question-and-answer session with the public that addressed citizens' concerns about the widening deficit.
Early this month, Kuwait's Parliament approved a budget for the current fiscal year that envisages a deficit of KD 8.18 billion ($27.0 billion) - nearly half total spending - because of oil's plunge since mid-2014, which has slashed energy export revenues. The government is looking at ways to save money by limiting energy subsidies and other handouts, and this has worried a public used to a lavish cradle-to-grave welfare system. Saleh had previously said Kuwait, which has huge financial reserves, was considering various options to cover the deficit, including bond issues.
On Tuesday, he did not comment in any detail on possible government spending cuts, beyond saying a study was underway that would be presented to the cabinet once completed. He did not specify when that might happen. Kuwait's Al-Nahar daily quoted unnamed government sources this week as saying the finance ministry was proposing to raise gasoline prices about 50 percent by next April to reduce its subsidy burden. Efforts to deal with the budget deficit will not affect salaries and privileges provided to public servants, Saleh said. Kuwait has called on Saudi Arabia to resume production at a disputed border oil field, saying its neighbour will be held responsible for revenue losses, reports said Tuesday.
Kuwaiti Oil Minister Ali Al-Omair told his Saudi counterpart Ali Al-Naimi in a letter that the Saudi decision to halt production at Khafji violated a 50-year-old agreement. The move "will inflict heavy losses on Kuwait which will be borne by the Saudi government," Kuwait's Al-Rai newspaper quoted the letter as saying. Production at the offshore Khafji oilfield, which pumped over 300,000 barrels per day and was jointly operated by the two countries, was halted in October. Kuwait said Saudi Arabia unilaterally stopped production due to pollution concerns even though it was entitled to five years' notice under the joint agreement. Omair said that the Saudi halt violated a 1965 agreement to share output in the neutral zone between the Gulf neighbours, and also breached the joint operation deal signed in March 2010.
In May, work at another jointly operated oilfield in Wafra was halted for maintenance but never resumed. The two Gulf neighbours began talks in June to resolve the dispute. Khafji is jointly operated by Kuwait Gulf Oil Co. (KGOC) and Saudi Aramco Gulf Operations, while Wafra is operated by KGOC and Saudi Arabian Chevron. Industry sources say Kuwaiti authorities were unhappy with Saudi Arabia for renewing an operating agreement for the Wafra field with Saudi Arabian Chevron for 30 years in 2009 without consulting them. In response, it stopped issuing or renewing visas for Chevron foreign employees. The halt to output comes in the face of a worldwide supply glut that has driven down prices of crude. The dispute has been a blow to Kuwait which, unlike its much larger neighbour, has little spare output capacity to compensate for drops in production.
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