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Sat 13 Nov 2010 12:00 AM

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Winning Equation

Hamad Al-Terkait, president and CEO of Equate Petrochemical Company says the business model of his company is different to that of his regional peers as it both produces and markets its products.

Winning Equation

Accounting for more than 60% of Kuwait’s non-oil revenue, Equate Petrochemical Company plays an important role in adding value to the country’s oil-based economy.

Equate is a joint venture between Kuwaiti public and private sector companies and Dow Chemical. It recently inaugurated a major expansion project, EQUATE II, in February, 13 years after the first facility in Shuaiba began production. The event represents another milestone in the cooperation between the two partners, and was widely overlooked following the cancelation of a US$17bn K-Dow project in December 2008.

“The partnership with Dow was excellent before and after the inauguration of Olefins II, as Dow has a stake in all of our projects, with the exception of the aromatics project,” says Al-Terkait. “Our collaboration with Dow goes back to 2001 when it acquired Union Carbide Corporation (UCC), one of Equate’s founders. Being one of the world’s top companies in production, technology and operating systems, Dow has proven to be a better partner than UCC,” explains Al-Terkait.

Equate differs in its partnership structure compared to other JV in the Middle East. “Equate both manufactures and markets its products, while most partnerships in the Gulf are based on a 50:50 share, with each partner marketing its own split by its own means,” says Al-Terkait. “When Equate’s foreign partner was chosen, it was stipulated that Equate handles all operations and marketing, this is why we have the Equate Marketing Company (EMC).” EMC is based in Kuwait with three sales offices in Hong Kong, Singapore and Beijing. It markets over 1.5 million tonnes of products per year. “This give us a global presence, another added-value factor of a company that contributes over 80% of Kuwait’s non-oil exports.”

Equate receives feedstock from the national oil company, Kuwait Petroleum Corporation (KPC) at a reduced price, including ethane for olefins plants and naphtha for its aromatics project. “It is untrue that Equate receives subsidised gas. It is in reality a preferred rate offered to all shareholders (BPC, Dow and QPIC) during the first 10 years of operating, not only to Dow. After that, gas pricing depends on oil prices. Due to this, Kuwait’s gas rate is higher than that of other Gulf countries. Kuwaiti prices are now closer to Canadian prices,” explains Al-Terkait. “Since 2007, the first 10 years of preferred rate have ended; now prices are changed annually based on global oil and gas prices. As for Olefins II, the 10 years of operating will end during 2018.”

The company faced problems with gas supplies in May 2009, which forced it to reduce production. This situation posed questions about KPC’s ability to meet its commitments to supply gas to Equate. “There was a fire at a KNPC refinery which provides feedstock to different clients including Kuwait’s petrochemical and power plants,” explains Al-Terkait. “Since fixing this issue, gas allocation to all our projects has been constant and we are now operating normally, which proves gas supply is not an issue,” Al-Terkait reassures.

Equate’s ability to launch new projects is very limited, as such a decision would have to be taken by PIC, the parent company of Equate. “Currently we have just started commercial production from Equate II, and we are in full operation,” says Al-Terkait. “So far, there’s nothing specific, but we have many plans. As for EQUATE III, the decision is in the hands of Petrochemical Industries Company and other partners as Equate has no right to launch investments, it only handles planning and research, as well as operations and marketing,” he says.

Also, the availability of feedstock is another issue halting future expansion as Kuwait signed a four year LNG contract with Shell and Vitol. Kuwait has begun receiving LNG imports in April and will receive 500 million cubic feet a day between April and the end of October. “All of Kuwait’s petrochemical projects rely on the availability of gas and once it’s available, projects of Equate’s scale can be established,” he says.

Boosting throughput

2009 was a remarkable year in the company’s history, as it started several major expansion projects, including the 225,000 tonners per year (t/y) polyethylene (PE) project in June, along with new 450,000 t/y ethyl benzene styrene monomer (EBSM) plant in August.

The total cost of the expansion projects was estimated at US$5bn. More than a third of the contractors involved in the project were local. Major international contractors involved in the project included Fluor and Air Liquide.

More than 85% of the project’s funds were through local and regional banks. “We had closed our financing deals in 2006, at that time the lending market was good and there was liquidity, so none of  our projects were affected by the credit crunch,” says Al-Terkait.

Moreover, the company saved about $330m during the execution of its projects by integrating the utilities of the different facilities, Al-Terkait proudly points out.

Equate also operates the Greater Equate project, which includes the Kuwait Paraxylene Production Company (KPPC), the Kuwait Olefins Company (TKOC) and the Kuwait Styrene Company (TKSC). Asian markets are the main destination of the company’s products. “We are diversifying our presence for different markets, and in different geographical areas including South East Asia, the Middle East and China,” says Al-Terkait. “The company’s annual sales to local Kuwaiti plastic manufacturers have increased by 200% between 1998 and 2009,” he reveals. “During that period, the volume of local sales has increased from 11,000 t/y to over 35,000 t/y in 2009 with a value of over $30 million.”

With the increase of its capacity, and the diversification of targeted markets, supply chain issues have become more prominent. “Supply chain difficulties is a big challenge in the whole region, as all people complain about constraints related to this issue,” says Al-Terkait. “The problem is mainly linked to congestion in the Jebel Ali port in the UAE, as the port serves all GCC countries.”

Safe Haven

The involvement of parliament in economic decision-making is unusual for political systems in the region, yet it is common in Kuwait. This frequently exasperates the specialist technocrats and industrialists who run the oil and petrochemicals industries.

Although Equate has significant freedom to act as an independent entity, Al-Terkait would prefer the level of autonomy granted to the petrochemicals industry in Saudi Arabia.

“I wish KPC would get autonomy from the Oil Ministry to avoid politicisation,” he says. “This would enable it to operate as an independent commercial entity.”

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