Kuwait reviews oil sector restructuring plans

31 August 2010

State oil firm merger depends on new top chief executive

Kuwait Petroleum Corporation (KPC) restructuring

1998: KPC awards management study to Booz, Allen & Hamilton, now Booz & Company

1999: Booz recommends KPC subsidiaries be merged into holding company. Kuwait Oil Company and Kuwait National Petroleum Company heads object to CEO Nader Sultan

2004: Hani Hussein takes over as CEO, resurrects restructuring plan

2007: Hussein quits in April, six months before his term ends after fall out with oil minister Sheikh Ali Jarrah al-Sabah. Saad al-Shuwaib, Petrochemical Industries Company CEO takes over as head of KPC

2008: Al-Shuwaib announces plans to revisit restructuring plans

2009: New financial, technical studies completed

2010: KPC and KOC tender study on legal impact of restructure; new KPC head, board due to be appointed in September

Kuwait plans to commission two studies that will review the legal ramifications of a decade-old plan for the restructuring of the emirate’s oil sector as it prepares for key changes to its own leadership.

The contracts for the studies are being tendered by state energy holding firm Kuwait Petroleum Corporation (KPC) and upstream subsidiary Kuwait Oil Company (KOC). The first study is being tendered by KOC under the title “Upstream 2030 full-scale implementation strategy” and incorporates studies into how the oil producer would work as an integrated part of KPC while the second covers a review of the legal implications of restructuring the company and its affiliates.

The new CEO will have to drive it. If we don’t have someone who wants it, then it won’t happen

Former KPC executive

US firms including KPMG, Deloitte, PricewaterhouseCoopers and McKinsey & Company, all of the US, have been asked to submit proposals for the study by mid-September. Both contracts are part of a long-standing plan to integrate KPC, a state-run holding company and its subsidiaries into a single operating firm.

Currently, the corporation has 10 subsidiaries including KOC, state refiner Kuwait National Petroleum Company (KNPC), petrochemicals producer Petrochemical Industries Company (PIC) and distributor Kuwait Oil Tanker Company, each of which operates as an autonomous firm with its own chief executive.

Under the restructuring plans, there would be a single company, KPC, with a single chief executive overseeing a series of divisions, which would all report to a single centralised management structure.

Legal sources in the country see the studies as a sign that KPC and the government are seriously considering moving ahead with the merger, which has been planned since 1999 when the US consultancy Booz, Allen & Hamilton, now Booz & Company, completed a complete review of the sector’s management. Its recommendations included the merger of most of the state firms and the privatisation, or part privatisation, of PIC and KOTC and were supported by then-chief executive Nader Sultan.

Senior executives at the subsidiaries, particularly KNPC and KOC, objected vociferously at the time, gaining sufficient support from members of the country’s National Assembly to halt the merger plans. Sultan’s successor Hani Hussein’s attempts to revitalise the plans suffered a similar fate.

In 2008, current KPC chief executive Saad al-Shuwaib said that he wanted to relaunch the restructuring process, bringing the number of subsidiaries down to eight from 15 at the time and integrating them into KPC while rebranding them with the corporation’s name.

However, these plans have not come to fruition and sources with close ties to the corporation say that the end of Shuwaib’s term at the head of the company on 23 September, along with that of the current board of directors means that it is unlikely that the latest study will lead to a rapid restructuring of the company.

“The plan is old,” says a senior source within KPC. “The first study was in 1999 and that is currently being reviewed, but the pace is slow. Nothing concrete will be done until we know who is in charge of the company.”

“It is very nice to have studies,” says a former top KPC executive, “but the new CEO will have to drive it. If we don’t have someone who wants it, then it won’t happen.”

A committee has been formed by the current KPC board of directors to review the progress of existing executives and discuss key appointments, sources with close ties to the company say.

The current frontrunners for the chief executive position are Al-Shuwaib, KOC chief executive Sami al-Rushaid and Farouk al-Zanki, who heads KNPC, former and current company executives tell MEED. Analysts and industry insiders expect Al-Shuwaib to be replaced after a slow three years at the top.

“Change looks very likely,” says Kamel al-Harami, an independent analyst based in Kuwait City. “There is a great deal of pressure on the current chief executive from the Oil Minister over general lack of performance and progress on projects. It is lots of things at the same time.”

Al-Rushaid is thought to be in favour of the restructuring plans while Al-Zanki is ambivalent, sources close to the pair tell MEED.

Regardless, neither will move ahead with a restructuring before completing their own review of KPC’s operations and should Al-Shuwaib be replaced the new company head will have to work with new management at one of the subsidiaries at the very least.

“It wouldn’t be wise to do anything today to upset the new chief CEO and the new management [of the subsidiaries],” says one company insider. “They will need to review the plan.”


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