Kuwait in numbers

$10bn Value of contracts for the new refinery planned by KNPC in 2009

$15bn Estimated cost of the fourth refinery project at Al-Zour

4 million b/d Kuwait’s proposed oil production target

b/d=Barrels a day. Source: MEED

With oil accounting for almost half of the country’s gross domestic product, 95 per cent of export earnings, and 79 per cent of government income, it is hardly surprising that the role of the chief executive officer of state oil company, Kuwait Petroleum Company (KPC), is one of the most important and high-profile positions in the country. It is certainly one of the most scrutinised.

In October, the former managing director of state refiner Kuwait National Petroleum Corporation (KNPC), Farouk al-Zanki, was appointed to the post for a fixed term of three years by Kuwait’s Emir, Sheikh Sabah al-Ahmed al-Jaber al-Sabah, and Prime Minster, Sheikh Nasser Mohamed al-Jaber al-Sabah. Al-Zanki had held the post on an acting basis from the previous month.

The appointment confirms Al-Zanki as one of the most powerful executives in the country.

Challenging mandate

His qualifications for the job are impeccable. Al-Zanki has enormous experience across some of the most significant areas of Kuwait’s oil sector. He will need it. The job he has taken on is loaded with technical, commercial and political challenges.

Former and current KPC executives alike say that Al-Zanki faces a tough task. “It is a hell of a job,” says one KPC executive. “Not everyone would want it.”

And, if the recent history of the role is anything to go by, Al-Zanki will also need strong political support.

Al-Zanki takes over from Saad al-Shuwaib, who was appointed in 2007, after three-years characterised by parliamentary disputes that prevented him from delivering any of the company’s strategic projects.

“Everything is a little controversial. What is needed now is for Al-Zanki to get people to trust him”

KPC executive

In particular, the decision to cancel $10bn of construction contracts for a new refinery planned by KNPC in 2009 was taken over
Al-Shuwaib’s head by the emirate’s Supreme Petroleum Council, chaired by the prime minister, despite his protests that the scheme should move forward. Lengthy and fraught negotiations between KPC, its subsidiary Kuwait Oil Corporation (KOC) and international oil companies (IOCs) over technical service agreements broke out following the decision. By the end of 2009, there were no international energy firms actively participating in Kuwait’s energy industry. This raised concerns over future development plans.

Al-Shuwaib’s predecessor Hani Hussain resigned the position before the end of his three-year term in April 2007, after a disagreement with the then oil minister Sheikh Ali Jarrah al-Sabah.

Hussain took early retirement just four months before the end of his contract as chief executive. And he is rumoured to have been so disillusioned by the experience that he has subsequently turned down several offers to take up a position in government. Hussain was seen to have been continuing the work of Nader Sultan, who served as CEO at KPC for two full terms, from 1998 to 2004.

Reforms stalled

Sultan advocated streamlining the company and opening up to IOCs, despite Kuwaiti constitutional laws which ban foreign companies from ownership of state resources. His plans for the industry remain largely in place, but have seen little progress since he retired.
They include an increase of oil production capacity to 4 million barrels a day (b/d) from about 3 million b/d currently and boosting domestic gas production, a particular priority as Kuwait recently became a net importer of gas. Other key projects include revamping KNPC’s existing refineries to international standards and the construction of a new refinery, Kuwait’s fourth, capable of processing heavy oil.

Political opposition to the upstream plans has largely come from the suggestion that KOC, the upstream operator, works in partnership with IOCs to develop heavy oil fields and non-associated gas fields in the north of the country. The partnership will form part of a scheme known as Project Kuwait, which has been under discussion since 1991. The fourth refinery project at Al-Zour, meanwhile, has faced criticism because of its cost, which was estimated at up to $15bn in 2008, and the contracts offered to international engineering companies when construction deals were tendered in the same year.

Plans to revamp the country’s three existing refineries at Mina al-Ahmadi, Mina Abdullah and Shuaiba, known as the clean fuels project, have also stalled. The scheme, which could cost up to $18bn, was meant to go ahead only when the fourth refinery was under construction, so as not to exhaust the local labour market.

Long experience

Kamel al-Harami, a local independent oil and economic analyst, says Al-Zanki’s experience will stand him in good stead. Before joining KNPC in 2007, he was the managing director of upstream operator KOC, where he had worked for 27 years. During his time at the state refiner, he also gained necessary experience of the downstream, details of the fourth refinery and the clean fuels project.

Starting out as a petroleum engineer in 1980, the new chief executive moved into reservoir control in the 1980s, heading KOC’s reservoir department from 1991. In 1995, Al-Zanki was made manager of the operator’s planning group. Between 1997-99, he headed the exploration and development department.

He was made KOC deputy chairman and managing director in 1999, and in 2004 was given the top post at the upstream operator. His move to KNPC came in 2007, when Al-Shuwaib decided to cycle all of the KPC subsidiaries’ top management to give them experience in other sectors.

“Al-Zanki is the first chief executive at KPC, who has come from the upstream,” Al-Harami says. “If Kuwait wants to hit 4 million b/d, then this is a good choice. The other top priority is gas, and again here he is the right man for the job.”

Private and public sector energy workers and IOC executives say that the first signals of Al-Zanki’s intent will come in late November when new managing directors are appointed to the top posts at the company’s subsidiaries.

“Al-Zanki will focus on the strategic projects and push them through,” says a senior KPC executive. “He is also going to focus internally on the people in charge and fix what he feels needs fixed to make sure they happen.”

Opponents of Al-Zanki’s appointment say it was made over the head of oil minister, Sheikh Ahmad al-Abdullah al-Sabah – a line some local newspapers and lawmakers have been more than happy to take up. “This appointment is being seen as political rather than professional, and that is causing a lot of problems,” says one former senior KPC executive. “They are saying that they want yes men in the top jobs, so it can be controlled from above.”

Others dismiss this argument. Another executive at KPC says that whoever had been appointed to the role, the decision would have been seen as a political one, particularly given that the selection panel was made up largely of former KPC executives.

“This is Kuwait,” he says. “Everything is a little controversial. What is needed now is for Al-Zanki to get people to trust him. He needs them to believe that he wants to push the major projects through and more importantly that he is not being pushed by someone else. He has a lot of lobbying to do.”

A long-term advocate of the involvement of IOCs in the country and in recent years a supporter for the fourth refinery and clean fuels projects, Al-Zanki is no stranger to the country’s political machinations and may well be willing to make strategic sacrifices to make sure the projects he sees as key go ahead. “I think Al-Zanki would be ready to make a deal with the fourth refinery,” says the KPC executive. “He doesn’t see it as an economic priority – it is more about processing heavy oil and providing fuel for the electricity ministry. I think he’ll take a line of, if you don’t want it for the electricity then tell me.”

Future strategy

Al-Zanki is likely to present the clean fuels project as the more economically pressing scheme, says the source. He is also likely to describe the scheme as being completely separate to the Al-Zour refinery to avoid further political opposition.

Upstream, he will also push for greater IOC involvement, building on technical service deals already signed with UK/Dutch Shell Group and France’s Total earlier in 2010.

Al-Zanki is also likely to approach neighbours Iraq and Qatar over long-term gas supply deals to cut the cost of gas imports, currently supplied by UK energy major Shell.

Al-Zanki will be expecting a hard time in the country’s top energy job, particularly given a recent reawakening of the parliamentary opposition. “After the [National Assembly] opened up in September, the parlimentarians have all been rushing to grill ministers. One of those is the oil minister. If the minister does not go ahead with his plans, then neither can Al-Zanki.”