Al-Zour dispute forces delay on $18bn Clean Fuels deals

26 September 2008
Probe postpones upgrade at Mina al-Ahmadi and Mina Abdullah refineries.

Prequalification for $18bn worth of deals on the Clean Fuels Project (CFP) will be delayed for months, while Kuwait National Petroleum Company (KNPC) resolves a contract dispute on the Al-Zour refinery, contractors tell MEED.

The award of more than $9bn worth of contracts at Al-Zour was thrown into doubt in August, when Oil Minister Mohammad al-Olaim referred them to the State Audit Bureau.

This followed criticism in parliament over the way the bidding process had been handled (MEED 29:8:08).

The CFP covers the upgrade of the Mina al-Ahmadi and Mina Abdullah refineries to boost their combined capacity to 800,000 barrels a day (b/d) , from 736,000 b/d. Prequalification had been due by mid-September.

But contractors have now been told that the ministry will resolve the dispute over the 615,000-b/d Al-Zour project before pressing ahead with the CFP.

“KNPC has Al-Zour on its plate and we have to take a back seat while they work through that,” says a source at one South Korean contractor that has expressed interest in the CFP.

“We expect to hear which companies are prequalified by late November now.”

Part of the difficulty is due to the involvement of the US’ Fluor Corporation in both projects, according to one executive close to the schemes.

“Fluor cannot progress the CFP without the Oil Ministry first clearing the Al-Zour deal,” he says.

Fluor won the $2bn contract for package three on Al-Zour, which has subsequently attracted controversy because it was awarded without competition. The firm is also the consultant on the CFP and its Houston office is handling the prequalification applications.

While Al-Olaim continues to hold talks to resolve the issue, KNPC is prepared to revise the contracts for Al-Zour if required, according to the executive.

“It could go either way,” he says. “KNPC is aware the existing letters of intent are not necessarily seen as a firm contract, and it may have to scrap them altogether.”

KNPC sent letters of intent to South Korean, US and Japanese contractors in July for the cost-reimbursable deals at Al-Zour (MEED 25:7:08).

Parliamentary critics complained that the contracts were not tendered through the Central Tenders Committee, which handles most public sector contracts.

KNPC and Fluor were unavailable for comment.

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