Kuwait New Refinery Deals Finally Awarded

State downstream operator Kuwait National Petroleum Co. (KNPC) on July 28 finally awarded four of the five main construction contracts, worth a total of 3.48 billion dinars (US$11.5 billion), on its long-awaited flagship New Refinery Project (NRP), offering the promise of an end to a decade of delays to the increasingly urgent scheme.

The selections follow accession the previous week by the country’s highest petroleum authorities to a request for an increase in the venture’s budget – from an earlier estimate acknowledged by the client to have become outdated.

Proceeding with the existing offers rather than retendering the work in the hope of securing lower prices was also spurred by revised bids submitted in mid-July for the fourth, as-yet-unawarded, contract – which came in higher than the previous offers. The project calls for the construction of a 615,000 barrel-per-day refinery at Al-Zour, in the south, primarily to supply light fuels to the fast-growing domestic market.

All four engineering, procurement and construction (EPC) contracts awarded went to the lowest bidders – immediately precluding a reprising of the objections raised in 2008/9 by opposition politicians in the National Assembly over KNPC’s failure to select the cheapest tenderers, thus feeding perennial suspicion of official corruption and leading to the deals’ cancellation.

Officials from the various state bodies have also been relatively open on this occasion about the decision-making process since the submission of bids for the first of the five packages – for the storage tanks – in December 2014. Thus shortly after the early-March submission of bids for the final three packages, KNPC executives quoted by the state news agency KUNA admitted that these had far exceeded the firm’s budget and that options being considered included a retender or a repricing as well as accepting the higher costs.

In June, the downstream subsidiary revealed having requested an increase in the scheme’s budget from the parent company, Kuwait Petroleum Corp. (KPC), which was agreed in mid-July. Additional funds of 871 million dinars (US$2.87 billion) were provisionally allocated, with the decision then ratified by the Supreme Petroleum Council (SPC) days later. The original budget was 4 billion dinars (US$13.2 billion).

The largest package, covering the main process units, has been let to the team of Spain’s Tecnicas Reunidas with South Korea’s Hanwha Engineering and China’s Sinopec Engineering for 1.28 million dinars (US$4.2 billion). A consortium of US-based Fluor Corp. with Daewoo Engineering and Hyundai Heavy Industries (HHI), both of South Korea, won packages 2 and 3 covering the process support units and the offsites and utilities for a reported combined value of 1.74 billion dinars (US$5.7 billion) – having bid lowest for the separate contracts at respectively 832 million dinars (US$2.7 billion) and 987 million dinars (US$3.3 billion) in March and implying some downward negotiation took place.

Perhaps more surprisingly, the marine works package 5 was awarded for exactly the price offered in January of 454 million dinars (US$1.5 billion) – despite being the bid proportionately furthest from KNPC’s budget – to South Korea’s Hyundai Engineering & Construction with Italy’s Saipem and India’s Essar. 

Award of the contract will be especially welcome in allowing the smooth progression of the separate EPC tendering process under way for the planned US$3.3 billion fixed LNG import terminal at Al-Zour, which is due to share some marine facilities with the refinery.

The final NRP contract, package four covering the storage tanks, was retendered in May – with the result in early July being that the low bidding team of Essar and Saipem remained cheapest but with a higher price of 475 million dinars (US$1.574 billion). The result may have persuaded KNPC against attempting a wider retender. Announcing the four awards, deputy CEO Khaled al-Asousi predicted an award by mid-August and final signature in October.

Bidders for the EPC contract – being handled by KNPC’s upstream counterpart Kuwait Oil Co. (KOC) – on the 270-km crude pipeline to deliver heavy oil from the northern fields to feed the NRP were informed in June of a planned retender, with almost a year having elapsed since original prices were submitted and with the low bidder, India’s Larsen & Toubro, having let its bid expire. The entire refinery scheme is now scheduled for completion by the end of 2019.