Kuwait to retender Al-Zour tankage package

16 April 2015

State downstream operator believes contractors could not justify high prices

  • Retender may be fast-tracked with minimal changes to the scope
  • The tankage package was $263m over budget
  • Other packages may also be retendered
  • All five of the unawarded packages for the project have come in over budget
  • A request has been made to increase the budget for the project by $2.88bn

State downstream operator Kuwait National Petroleum Company (KNPC) is preparing to retender the tankage package of the Al-Zour New Refinery Project (NRP), according to sources.

The package consists of storage tanking, piping and underground works for the planned refinery, which will be built on the Kuwaiti side of the Divided Zone that lies between the borders of Saudi Arabia and Kuwait.

“Just how all of the price issues associated with the new refinery project will be resolved is undecided, but package four will definitely be retendered. That is certain,” said one source connected to the project.

“KNPC believes that the prices submitted for package four could not be justified by the contractors,” said another source.

A fast-tracked retendering process is being considered by KNPC, according to sources who say that the retendering could be carried out in a matter of weeks and may involve minimal adjustment to project scope.

Speaking via Kuwait’s state-controlled news service, Kuna, KNPC’s deputy CEO for support services Khaled al-Asousi has said that the company is dropping applications for the fourth package and seeking additional budget for the first, second, third and fifth packages.

“The company has several choices,” he said.

The main cause for seeking additional budget is due to the rise in costs over time, he said.

According to Al-Asousi these higher costs are the main reason for the bids coming in above the approved budget.

The retendering of package four comes after bids for the project’s five unawarded packages all came in over budget, requiring billions in extra funding.

The low bid for package four was submitted by a consortium of Saipem (Italy) and Essar (India), KD406,905,688 ($1.35bn), $236m over KNPC’s budget of $1.1bn

The full bidder list is:

  • Saipem (Italy) and Essar (India), KD406,905,688
  • Daelim (South Korea), KD503,437,332
  • Daewoo (South Korea), KD560,825,709
  • Petrofac (UK) and Hyundai Heavy Industries (South Korea), KD623,319,246

Out of all the five unawarded packages, the low bid on package four was the closest to being within budget.

The low bid for package one was submitted by a consortium led by Spain’s Tecnicas Reunidas and came in $1.2bn over budget.

For package two the low bid came in $794bn over budget and for package three the difference between the low bid and the budget was $710bn.

There is ongoing speculation that package five may also be retendered.

The low bid of $1.55bn was submitted by a consortium made up of South Korea’s Hyundai E&C, Italy’s Saipem, and India’s Essar. This figure is more than twice the $850m budgeted for the package.

Sources told MEED on 15 April that the KNPC has started the process to gain approval for boosting the project’s budget by $2.88bn.

If the Al-Zour refinery’s unawarded packages are retendered, it will be a major setback for the country’s plans to overhaul its refining sector, slash the sulphur content in its fuels and lift its refining capacity from 930,000 barrels a day (b/d) to 1.4 million b/d by 2020.

The NRP will see a 615,000-b/d refinery constructed on a greenfield site in the Divided Zone, which is shared with Saudi Arabia, and has a long history of delays and setbacks.

Since it was first announced in 2005, the scheme has been tendered three times. It saw contracts awarded on the second occasion, but they were cancelled before construction started by the Supreme Petroleum Council (SPC), a government agency that is charged with oversight of the country’s energy sector.

Package four of the Al-Zour Refinery includes the construction of:

  • Five floating-roof tanks
  • 28 fixed-roof tanks
  • Two dry slop tanks
  • Two wet slop tanks
  • A plant fuel oil tank
  • A continuous flushing oil tank
  • An intermittent flushing oil tank
  • Four crude pipelines
  • Two imported fuel gas lines
  • Three low-sulphur fuel oil pipelines
  • A new liquid petroleum gas line
  • A new low-sulphur diesel line

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