SOME seven years after the project was first approved, work on the Equate petrochemical complex in Shuaiba has at last begun.

On completion in 1997, this new development will enable Kuwait to join the elite club of major petrochemical producers.

The complex has broken new ground for the traditionally state-dominated energy sector in Kuwait. The US' Union Carbide has a 45 per cent stake in the project and a consortium of US, regional and local banks have come together to provide the finance, making it the largest private sector project ever undertaken in Kuwait. A similar structure is now envisaged for a planned $1,000 million aromatics plant at Shuaiba.

The Equate petrochemicals complex is a joint venture between the state-owned Petrochemical Industries Company (PIC) and the US' Union Carbide, both of which hold a 45 per cent stake. A 10 per cent stake has been taken by Bubiyan Petrochemicals Company, a $50 million public shareholding company established in June 1995.

All the major construction contracts were awarded on the scheme during 1995. The US' Brown & Root is building the 650,000tonne-a-year (t/y) ethane cracker at a cost of $450 million. In November, Italy's Snamprogetti won a $170 million contract to build the 450,000 t/y polyethylene plant. Foster Wheeler Italiana is building the 350,000 t/y ethylene glycol plant at a cost of $165 million. The US' Fluor Daniel was appointed project manager for the complex in July 1994.

Novel structure

The joint-venture approach on a project of this scale is a new development in Kuwait.

On the technical side, PIC has been able to utilise Union Carbide's licensed technology, and management and marketing skills. The participation of such a huge US enterprise has also helped ensure the interest of private sector financiers.

The financial advisers on the scheme - National Bank of Kuwait (NBK), JP Morgan & Company and Chemical Bank - initially held talks about financing with the US' Export-Import Bank (Eximbank), Germany's Hermes and SACE of Italy. After months of complex negotiations, the Eximbank board finally approved a loan on 23 January. However, days later this offer was rejected in favour of a $1,200 million financing package put together by a group of local, regional and international banks.

The following institutions are participating in the loan:

US banks: Chemical Bank, JP Morgan & Company and Citibank Regional banks: Gulf International Bank, Gulf Investment Corporation, Arab Petroleum Investments Corporation, The Arab Investment Company and Arab Banking Corporation Kuwaiti commercial banks: NBK, Gulf Bank, Commercial Bank of Kuwait, Al Abli Bank of Kuwait, Burgan Bank and Bank of Kuwait & the Middle East A $200 million tranche of Islamic financing has been arranged by Kuwait Finance House. Of that sum, $120 million is being underwritten by the local Islamic financiers, The International Investor.

The bulk of the loan is being raised by regional and international banks. Kuwaiti commercial banks are expected to provide $150 million in dinar-denominated working capital. The loan is priced at 1 5/8 percentage points above the London interbank offered rate (Libor) if the project is completed by 30 September 1998. If the work continues beyond that date, the loan will be charged at 1 7/8 percentage points above Libor.

Working capital is priced at 3/4 percentage points above the Kuwait interbank offered rate (Kibor).

The total cost of the Equate complex is about $2,000 million. PIC Union Carbide and Bubiyan Petrochemicals Company are providing $730 million in equity and subordinate debt towards the project. A large proportion of Union Carbide's subordinate debt is in the form of technology licences for the plant. Final documentation on the financing is expected to be completed by the end of May, with a formal signing ceremony tentatively scheduled for June or early July.

With work on the Equate complex moving ahead, PIC is now expected to concentrate its efforts on the planned aromatics complex in Shuaiba. The plant will produce benzene, xylene and paraxylene using feedstock provided by Kuwait National Petroleum Company (KNPC).

Like the Equate project, the aromatics project will be developed in partnership with a foreign firm. The US' Amoco is the clear favourite to be selected as PIC's partner in the project. In November, PIC Managing Director Khaled Bouhamra said that 'the company is negotiating with many foreign companies... but Amoco is one of the partners with which talks are the most serious.' However, it may be many months before a joint venture is signed. Industry sources say that PIC has still to decide the size and type of reformer at the complex. PIC appears to favour Amoco's technology, but other processes are still under consideration.

There are also basic organisational problems that have to be resolved, including a clarification of the role and burden of costs for PIC, KNPC and any foreign partner.