Kuwait confirms cancellation of fourth oil refinery

CANCELLED CONTRACTS: The Kuwait government has pulled the plug on the refinery at Al Zour after its finance watchdog vetoed the project. (Getty Images)

OPEC member Kuwait confirmed on Friday that it was scrapping a $15bn refinery project, the second multi-billion-dollar major deal to be cancelled in three months, after facing opposition in parliament.

State refiner Kuwait National Petroleum Co (KNPC)confirmed specualtion circulating in the media last week that it had cancelled a plan to build its fourth refinery.

It had now informed the companies who were awarded contracts of the decision, a spokesperson said.

"We have cancelled the project based on a decision of the cabinet," KNPC spokesman Mohammed Al Ajmi said. "We told the companies."

However, he declined to give further details.

In May, KNPC awarded deals worth $8.4bn to four South Korean firms and one Japanese firm for the 615,000 barrels per day Al Zour refinery with more to be awarded later.

Final contracts were not signed.

Earlier this week Kuwait newspaper Al Watan reported the government would cancel the refinery project, citing Prime Minister Sheikh Nasser Al Mohammad Al Sabah who said the government was committed to adopting the findings of finance watchdog the Audit Bureau.

At the time there was no official confirmation of the report.

"That was expected after the Audit Bureau report. KNPC didn't adhere to the tenders committee regulations," Kuwaiti oil analyst Kamel Al Harami said.

"The project met opposition by parliament and public opinion. There was no transparency," he added.

On Friday, South Korea's Hyundai Engineering and Construction said it had been notified of the project's cancellation due to a lack of economic feasibility.

US company Fluor Corp, which was managing the project, said the Gulf Arab state had cancelled its contract, prompting the construction company to cut $2.1bn from its work backlog.

The project had faced opposition from several deputies, who alleged there were violations, particularly in handing out a package to Fluor without a tender.

Some deputies threatened to question former oil minister Mohammad Al Oliam if he went ahead with signing contracts.

The government bowed to pressure and asked the Audit Bureau to investigate whether the tender process showed irregularities.

The bureau's report was not made public but according to local media it concluded that the project was not feasible.

KNPC awarded a package worth $4bn to build crude distillation units to a consortium of JGC Corp of Japan and GS Engineering and Construction Corp of South Korea.

It awarded a $2bn project to build hydrogen production units to SK Energy of South Korea, while South Korea's Daelim won a $1.2bn project to set up storage tanks.

Hyundai Engineering won a $1.1bn project for marine export facilities.

Kuwait had plans to boost refining capacity to 1.415m bpd from around 930,000 with the new Al Zour plant and upgrades to two other refineries.

The new plant was to replace the country's aging 200,000 bpd Shuaiba plant.

In December, Kuwait scrapped a $17bn joint venture with US group Dow Chemical just a month after signing the deal, saying it was no longer viable in light of the global crisis after parliament opposed the agreement. (Reuters)

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