Any new delays to the refinery project must be avoided
The prices for the process and utilities packages for the Al-Zour New Refinery by Kuwaits Central Tenders Board on 9 March have done little to calm the nerves of those with a stake in the scheme.
All of the low bids came hundreds of millions of dollars over their estimated budgets, something that has fuelled speculation that the project will be retendered, dealing a significant reputational blow to Kuwait.
In 2014, Kuwait saw a record-breaking year for project contract awards after a more than a decade of stalling and political infighting over key schemes.
The record awards from last year increased optimism in the business community, with many hoping the country had reached a point where strong political will would help push through key megaprojects.
This new spark of confidence in the political establishment is likely to be quickly extinguished if a major strategic project, such as the Al-Zour New Refinery, is delayed.
After years of healthy surpluses and high oil prices, Kuwait is in a secure financial position, with fiscal reserves of about $34bn and a sovereign wealth fund, the Kuwait Investment Authority, worth $548bn.
Thanks to these funds, Kuwait can easily afford to pay a premium for the new 615,000 barrel-a-day (b/d) refinery to ensure the project starts moving and the country hits its target refining capacity of 1.4 million barrels a day of oil by 2020.
If Kuwait does not pay the higher prices demanded by contractors, the cost to Kuwait will not only be reputational.
Retendering will delay work on the project by at least six months and create extra work for government departments, which could otherwise be focusing on new projects.
It is also likely to increase the risk premium charged by contractors already wary of dealing with Kuwaits government-owned companies due to the frequent project setbacks and cancellations that have plagued the country over the last decade.
This is a chance for Kuwait National Petroleum Company (KNPC) to show it is committed to realising its megaproject ambitions and it needs to show the business community it is not afraid of making difficult decisions.
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