Kuwait's political turmoil unsettles contractors

30 August 2012

International firms concerned multibillion-dollar projects will be delayed by recent events

The ongoing political stalemate in Kuwait is starting to unsettle international contractors planning to bid multibillion-dollar worth of projects in the Gulf state.

Kuwait’s National Assembly was dissolved in June and since then there has been confusion about which projects will be prioritised by the country’s new government. Kuwait’s Emir Sheikh Sabah al-Ahmed al-Jaber al-Sabah swore in a new cabinet in July and it is hoped that not too much time is lost in moving ahead with major projects planned in the country.

The uncertainty could not have come at a worse time for Kuwait as it is pressing ahead with several megaprojects that in some cases, it has been planning for well more than five years.

According to regional projects tracker MEED Projects, there are $99.5bn-worth of projects across that are currently at the design, prequalification or tender phase in Kuwait.

Almost $55bn of the projects are in the country’s oil and gas, and power and water sectors. Some of the major schemes are already beginning to fall behind schedule. It includes two projects that are central to state refiner Kuwait National Petroleum Company’s (KNPC) $30bn plan to overhaul its downstream sector.

MEED reported in July that international engineering, procurement and construction (EPC) firms hoping to prequalify for the Clean Fuels Project (CFP) and New Refinery Project (NRP) had been told to expect a delay of up to one month. Now contractors are expecting that delay to lengthen.

“I have been trying to contact someone at KNPC over the summer regarding the prequalification process for these [refining] projects, but am finding it hard to get a definitive answer about what is going on,” says a contracting source based in the GCC. “Now many of us are thinking that the previous history of both of these projects does not bode well.”

The projects are part of Kuwait’s plans to increase refining capacity to 1.4 million barrels a day (b/d) from 956,000 b/d currently. However, political turmoil in Kuwait has already delayed both schemes and forced contractors to take a more cautious approach.

KNPC has already opened the tenders for the project management consultancy (PMC) deal for both of the planned schemes, but has not made a decision yet despite Australia’s WorleyParsons being named as the lowest bidder for both projects.

“I have been told that one [engineering consultancy]  will not get selected for both projects,” says a source familiar with the bidding process. “Everyone is assuming that WorleyParsons will be selected for at least one, but there is some confusion as to which project it will win.”

In the power sector, there has been confusion regarding Kuwait’s first independent water and power project (IWPP) at Al-Zour North. The $2bn project was cancelled by Kuwait’s National Assembly before its dissolution in June and companies looking to participate in the project are unsure if it will go ahead.

“The people who made the decision have been removed from office, so there is hope that the original preferred bidders will remain in contention for the project,” says a power source based in the Middle East.  “This is a sensitive issue at the moment, but everyone is hoping it will be resolved soon.”

MEED reported in February that a consortium comprising the UK/French IP-GDF Suez, Japan’s Sumitomo and Kuwait’s AH Sagar & Brothers Group was the preferred bidder to build the project.

Political instability has become a normal state of affairs in Kuwait and the next government is the 10th to be sworn in in six years.

“Everyone knows how much potential is in Kuwait,” says the contracting source. “But with all the  delays and bureaucracy, you have to put up with it is one of the most difficult markets in the Middle East.”

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