Kuwait’s oil sector found itself caught up in the general sense of political confusion that has been gripping the country for the past several weeks, when, on February 8, Sheikh Saud Nasser al-Sabah, the country’s oil minister, tendered his resignation.
On January 29 of the entire Kuwaiti cabinet, including the prime minister, Crown Prince Sheikh Saad Abdullah al-Sabah, tendered its resignation, and on February 4 the Emir of Kuwait, Sheikh Jaber al-Ahmad al-Sabahm entrusted the crown prince once again with the task of creating a new government.
Sheikh Saud had been widely expected to stay on at his job. So, consequently, his latest announcement reportedly stunned the local oil sector and the international oil majors. The outgoing oil minister was widely considered as very professional, cool-headed, and as an ideal figure to attract foreign investments to Kuwait.
There currently are two persons believed to be suitable candidates for the vacant job. Khaled al-Fulaij, a Kuwait Oil Company (KOC) veteran, and Adel al-Subaih, Kuwait’s former minister of electricity and water and the minister of state for housing. Evidently al-Fulaij turned down the offer while the al-Subaih is believed to have agreed to the appointment.
The new minister will be taking over at a very sensitive time, as the Kuwaiti oil sector appeared set for the entry of foreign players, who are being drawn in by the lure of projects worth $7 billion, in the country’s northern oil fields. But the program, which will involve the end of state hegemony in the oil sector, is controversial.
Numerous deputies in the Kuwaiti legislature have warned that a law, which is being introduced to provide a legal basis for the entry of foreign concerns, essentially lays the groundwork for Kuwait’s relinquishing of ownership of its most-prized natural resource.
What is all the fuss about? Involved are five northern oil fields–Rawdatain, Sabrya, Ratga, Abdali and Bahra. The aim of the Kuwaiti authorities is to increase their production from 450,000 barrels per day to 900,000 barrels per day within several years.
When, on January 3rd, the government announced formally that a foreign investment plan had been approved, the Kuwaitis were already searching for candidates for foreign operators among the oil majors.
They selected nine firms—Chevron Corp., Exxon Mobil Corp., Texaco Inc., TotalFinaElf, Royal Dutch/Shell, Conoco Corp., Phillips Petroleum Co., BP Amoco and Eni—as leading candidates. Other companies could be added to the list at a later date.
After the initial invitations were issued, data rooms were opened on February 5th for the first foreign companies to begin their feasibility studies, with the first two major to be brought in being Exxon-Mobile and Royal Dutch/Shell.
A Kuwaiti source announced that this opening is part "of the second phase of the project which includes sending the Initial Protocol Process (IPP) and signing the confidentiality agreement"
According to sources, the Kuwaitis are expecting a full response to the IPPs. After signing the confidentiality papers, the sources said, the majors can take the data, study it and then prepare and present development plans.
The plans, the sources added, should include information about expected production, costs and other details
The Kuwaiti oil authorities will then evaluate the plans and send its recommendations to the Central Tenders Committee (CTC), which is a government body that must approve government contracts worth $325,000 and more. Phases four and five of the project involve the presentation of detailed bids.
Kuwait’s elected legislature is studying the entire bidding process with a very suspicious eye. Twenty-nine deputies have called for a debate, and have suggested that the government intends signing agreements with foreign companies without parliament's approval.
Kuwaiti oil officials have stressed that there is no intention of acting unilaterally or signing any agreements until the project met constitutional demands.
Kuwait’s bold decision to open in northern oil fields project to foreign investors was a result of a belief that massive foreign investment was required for them to reach the optimal potential.
But the country is making this move at the same time that some of its Gulf neighbors are also looking for investors in apparently lucrative, but enormously expensive development projects.
Its powerful neighbor, Saudi Arabia, recently declared a $100 billion investments program, and Iraq is expected to do as soon as the UN sanction regime is removed or relaxed.
The chance of all the all majors passing on the Kuwaiti deal is extremely unlikely, but the Kuwaitis are obviously aware that, in a buyer’s market, they will not get the terms that they may have hoped for.
While Sheikh Saud gave no detailed account of why he decided to resign, it is likely that the political and the economic imbroglio—both within the oil sector and in the Kuwaiti government in general—played an important role.
And so the situation claimed as a victim a very capable oil minister. Nonetheless, as things appear at present, despite this obvious setback, the process by which Kuwait’s oil sector is opened to the world industry will continue unabated. – (Albawaba – MEBG)
© 2001 Mena Report (www.menareport.com)
