State upstream operator, Kuwait National Petroleum Companys (KNPC) efforts to reduce the cost of the Al-Zour refinery by retendering the projects tankage package has backfired. New prices are in and have generated a low-bid that is KD68m ($225m) more expensive than the previous low bid.
The results of the retender are a significant blow to the Al-Zour Refinery Project, which is worth an estimated $15bn, and could have significant ramifications for the countrys wider oil and gas project market.
The higher price produced by the retender increases the cost of the Al-Zour project at a time when it is already struggling to gain approval for an increased budget.
Before the retender, KNPC was already seeking approval for an extension to the projects budget worth KD800m ($2.6bn), but this has so far been ignored by both the board of Kuwait Petroleum Corporation (KPC) and the Supreme Petroleum Council.
One key factor delaying the approval needed for the budget extension is an ongoing dispute between Kuwaits oil minister and the CEO of KPC over political appointments to the state-owned energy companies.
This has reduced cooperation between KPC and the oil ministry, something that is needed to push the project forward.
Another factor that is making it tricky to secure a green light for the increased budget are the worsening fiscal pressures, which are a consequence of lower oil prices.
On 1 July, parliament passed the 2015/16 state budget, which forecasts that revenues will reach $40.7bn, a 39 per cent drop on last years forecast.
Spending for the year is projected at $63.9bn, more than 17 per cent lower than last years estimate.
As a result of these factors no awards have been made on the Al-Zour New Refinery Project, despite it being more than six months since the first bids were submitted.
Industry insiders say the ongoing disruptions to the 615,000 barrel-a-day facility, which will potentially be the biggest refinery in the Middle East, could have a knock-on effect for related petrochemical schemes and the liquefied natural gas terminal due to be built nearby.
Though the retender of the tankage package, which is known as package four, has proved to be an expensive mistake some industry insiders are hopeful that it could focus the concentration of key officials working in Kuwaits biggest public oil companies.
KNPC was arrogant before. It thought that it could bully contractors into producing a lower price, said one industry insider. Now they have learned their lesson: as the delays drag on things arent going to get cheaper.
Others are less optimistic and believe that the failure of the retender of package four is the symptom of a rapidly deteriorating environment for oil and gas capital projects that is unlikely to improve in the near future.