Kuwait in talks with Daelim over $885m Mina al-Ahmadi refinery deal

28 April 2010

State-refiner in direct negotiations with low bidder Daelim

Kuwait National Petroleum Company (KNPC) has entered into direct talks with South Korea’s Daelim Corporation over their proposal for the retendered deal to build a new gas fractionating column at the Mina al-Ahmadi refinery in southern Kuwait.

Daelim emerged as the frontrunner to win the deal with a KD256m ($885m) proposal in early March, beating rival bids from a consortium of Italy’s Saipem, South Korea’s GS Engineering & Construction, and SK Engineering & Construction, also of South Korea.

However, sources close to the deal tell MEED that the firm’s price includes a number of scope reductions.

“If [Daelim] removes these [scope reductions], then the project can move ahead. If not, KNPC will have to reject the bid and talk to the other bidders,” says one source close to the deal.

The project has faced numerous delays since it was first tendered in 2007. KNPC originally awarded the contract to SK in December 2007 after a competitive bid round, but then cancelled the contract in early 2008 after it failed to reach an agreement with SK on the size of the contractor’s profit from the deal (MEED 25:9:09).

Daelim’s price is some 15 per cent higher than SK’s original proposal. However, matching KNPC’s scope requirements could add another $200m to their bid, explains one source familiar with the project.As a result, the state refiner may approach other contractors over the deal.

“KNPC sees an opportunity to talk to the second- and third-ranked bidders,” says the source.

However, Kuwait’s Central Tenders Committee (CTC), which oversees the country’s contract award process, is likely to make this difficult.

“They have a 20 per cent difference in price from the nearest bid, and no real excuse to talk to the other bidders. All the CTC cares about is the price,” explains the source.

The eventual winner of the engineering, procurement and construction (EPC) deal will build a fourth gas fractionation facility at the Mina al-Ahmadi refinery, about 45 kilometres south of Kuwait City. The unit will separate associated gas produced in the north and southeast of the country into its basic components.

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