VOL. XLV
No 16
22
Greater Commercial Orientation For KPC Seen As Key To Better Oil Sector Performance In Kuwait
The debate in Kuwait regarding the desirability of according state-owned Kuwait Petroleum Corporation (KPC) more scope to exercise appropriate commercial freedom in the conduct of its operations registered a fresh development last week with the publication in the local press of a lengthy interview with the Deputy Chairman and CEO of KPC, Mr Nader Sultan, on this and other subjects (for full English text, see below).
This debate was launched last February by the former Minister of Oil, Dr Adel al-Sabeeh, who – shortly before his resignation was accepted on 10 February – sent a memorandum to Shaikh Sabah al-Ahmad al-Sabah (First Deputy Prime Minister, Foreign Minister and Chairman of the Supreme Petroleum Council) complaining that political interference and pressures were causing problems within the oil sector and constituted a contributory factor to the negligence and mismanagement that had resulted in a string of accidents in the oil sector over recent years. Dr Sabeeh had tendered his resignation immediately after the explosion and fire at Raudhatain oilfield in northern Kuwait on 31 January in which four people were killed and 19 injured. In his memo to Shaikh Sabah, which was published in full in the local press (for full English translation see MEES, 4 March), Dr Sabeeh came out with the following conclusions: “It is clear from the above that there are many matters hindering the running of KPC on a purely commercial basis, and this is contrary to the aims and goals for which it was established. In the absence of the application of radical solutions guaranteed to give the oil sector a commercial and economic character, and similar measures to review the structure of this sector by separating the chairmanship of KPC from the rank of oil minister, and removing all the burdens of government regulations from it, in addition to preventing any outside interference or pressures on the methods and regulation of work in this sector, then the level of performance of operations in the oil sector will continue as it is at the moment, a state of affairs that is impacting negatively on safety issues in the Kuwaiti oil industry.”
Within the oil sector – in response to the question as to how the oil sector in Kuwait should be managed - it is clear that the majority opinion sees the enhancement of commercial orientation for KPC, together with less bureaucratic regulation, more autonomy and better salaries, as the key to improved performance by the oil industry. Some commentators in the local press have been attempting to dramatize and trivialize the affair by portraying it as a dispute over turf prerogatives between KPC and the Oil Ministry under its new Acting Oil Minister (and Information Minister) Shaikh Ahmad al-Fahd al-Sabah. However, well-placed Kuwaiti oil sources tell MEES that this represents a complete travesty of the actual situation, which is best characterized as a “constructive and civilized debate” between the parties concerned as to the appropriate steps that need to be taken to improve oil industry performance.
What follows is a brief summary of what Mr Sultan had to say in his press interview – published in the Kuwait-daily al-Qabas on 13 April (full text MEES translation follows on pages A4-A9) – about these points and other issues:
• As regards the problem of improving the commercial orientation of KPC, Mr Sultan noted the following:
– “The difference between us and commercial companies is the existence of many obstacles as exemplified by external supervisory measures imposed by bureaucracies outside KPC. In the end we find it difficult working as a commercial establishment in the true sense of the word because of these outside restraints.”
– “Some time ago, we asked an international consultant to prepare a study to evaluate the work of KPC. It reached the conclusion that one of the challenges faced by KPC was the delay in implementing capital projects. In noting the internal and external stages that KPC needs to pass through to take a particular decision, the study found that there are approximately 36 steps that need to be taken for a project worth KD0.25mn, whereas international companies need only four steps.”
– Regarding the constant changes in the post of oil minister, the CEO of KPC commented. “It is crucial that the oil minister stays in his post in a supervisory capacity for as long as possible, because this means continuity of long-term policies. The role of the minister is important and crucial in the interpretation of government policies…It is important to explain here that every minister needs time to understand the oil sector and to implement government policy. Because of the continual changes of ministers, one should not be surprised that there are substantive or minor… differences in interpreting public policies. There are also differences in priorities. This, of course, halts the work of KPC. We go ahead, and then we stop…If you ask any KPC official about this issue, he will tell you that he wants ministers to be stable in their posts. And if they cannot keep ministers in their post, then they have to think of other solutions.”
– As an example of the above-mentioned “other solutions,” Mr Sultan cited the proposal for separating the post of oil minister from the chairmanship of KPC which had been raised during a meeting of the KPC board. “the majority supported this opinion. Yes, there were a few who were not in support. Dr Adel al-Sabeeh dealt with this issue in a memo he sent to the Deputy Prime Minister and Foreign Minister, Shaikh Sabah al-Ahmad, and this was one of the solutions…Regarding this matter there is an ongoing debate inside and outside KPC. If the executives are given the choice of continuing with the present situation, with continual changes of ministers over periods not exceeding two years, or choosing the separation of the post of minister from the chairmanship of the board (of KPC), I would not be surprised if seven out of 10 supported the second option.”
– With regard to the problem of outside interference, he pointed out that “most people know and realize that there is outside interference in KPC. Interference and political pressures impact the management of KPC at all levels. This is not restricted to KPC but happens with all corporations and government agencies, and is part of Kuwaiti culture. Most of the interference is related to administrative issues like promotions, appointments, transfers and things of that sort.”
• As regards the Raudhatain fire, Mr Sultan noted that a report had been completed with the participation of four international companies and two international insurance companies, and had been submitted to the oil minister. A second report is now being awaited from the higher committee which is studying the relationship between what happened in Raudhatain and the security and safety systems in other companies. This second report was due for completion in a week’s time.
• Mr Sultan disclosed that KPC’s long-term strategy, which covers the period to 2020, has two options for production objectives: one is for 4mn b/d and the other for 5.6mn b/d. He also pointed out that recent quota reductions by OPEC had decreased the organization’s share of world oil production to only 30%, while Kuwait’s current quota is only 1.74mn b/d which is close to its output in 1961, the year after OPEC was established. He then posed the question: “Are Kuwait and OPEC satisfied that production should remain at this level?”
• Asked whether KPC’s rationale for seeking the assistance of international oil companies (IOCs) to develop the northern oilfields as part of Project Kuwait meant that Kuwait itself lacked the necessary expertise, the CEO of KPC replied: “We in Kuwait have experience in dealing with previous problems, but future challenges are different. For example, in the northern fields we expect to produce four barrels of water for every barrel of oil. We do not have the experience of dealing with this huge volume of water which will definitely increase production costs. In the past, we depended on the Burgan field, but in the future we will depend on other fields. These other fields are the most difficult, and they are the ones that need the new technology that will be provided by the IOCs, in line with Operating Service Agreements.”