Political row threatens $15bn Kuwait refinery

A $15 billion oil refinery project in Kuwait appears to be in doubt amid political wrangling, allegations of flawed procedures and a fight for a piece of the cake.

The Gulf state's government last week bowed to political pressure from parliamentary opposition and referred the project to the Audit Bureau for an investigation into claims of irregularities in the bidding process and awarding of contracts.

The opposition Popular Action Bloc however said on Tuesday the measure was insufficient and renewed threats to grill "any member of the government" including Oil Minister Mohammad al-Olaim.

The bloc and several other MPs are demanding that the bidding process and awarding of contracts go through the Central Tenders Committee (CTC), an independent state body that deals with major public tenders.

In May, national refiner Kuwait National Petroleum Co. (KNPC) bypassed the CTC and awarded four major contracts worth 8.3 billion dollars -- one to a Japanese-South Korean consortium and three to South Korean firms -- to build the 615,000 barrels per day refinery.

A fifth contract, estimated at two billion dollars, was awarded to US engineering firm Fluor without bidding.

The total cost of the project will be around 15 billion dollars since the contracts are based on a cost plus profit margin, which means Kuwait paying the cost of the project plus an agreed profit which has not been disclosed.

The oil ministry was due to sign the contracts awarded in May within weeks but the Audit Bureau investigation is likely to delay the process.

A first round of bids was scrapped in September 2007 because bids came in at more than 19 billion dollars, way above the initial budget of 6.3 billion dollars.

That round was handled by CTC while the second round was handled by a KNPC committee. Opposition MPs insist this violated the law.

The oil minister repeatedly defended his action, arguing that oil companies are exempted from subjecting their projects to CTC.

Oil sources said that Kuwait, which pumps around 2.6 million barrels of oil per day, has already sent letters of intent to successful bidders as proof of its seriousness in going ahead with the project.

But the signing ceremony may have to wait for months.

"We ask the government to halt all procedures regarding the refinery project, and that all contracts pass through the CTC ... Otherwise we will grill any member of government," the Popular Action Bloc said in a statement.

Political observers said this was a direct threat to Prime Minister and ruling family member Sheikh Nasser Mohammad al-Ahmad al-Sabah.

Parliament speaker Jassem al-Khorafi, himself a wealthy businessman, supported calls for a wider probe, citing the need for "full transparency."

Some MPs and writers have blamed fighting between local businessmen for the controversy.

"The dispute over the oil refinery is a struggle between merchants and highly influential people," independent MP Nasser al-Duwailah said on Tuesday.

All international oil companies (IOCs) must have a local agent in order to operate in Kuwait and most other Gulf states. Agents normally receive a handsome commission for contracts won by IOCs.

Political disputes have obstructed or slowed down several major projects in Kuwait, especially in the oil sector which accounts for about 95 percent of public revenues.

A multi-billion-dollar potential investment by IOCs to boost production in the emirate's northern oilfields has been blocked by political opposition for the last 12 years.

KNPC is also planning a multi-billion-dollar project to modernise two of its three refineries at Al-Ahmadi and Mina Abdullah, which currently have a combined capacity of just over 700,000 bpd. But the project has yet to get off the ground.

The third, 200,000 bpd refinery may be retired.