State refinery operator Kuwait National Petroleum Company (KNPC) has issued letters of intent to the selected contractors on its $15bn refinery project at Al-Zour, effectively removing the final hurdle to the project proceeding.
The move in mid-July comes despite strong opposition to the project in the National Assembly (parliament).
The client announced the winners of each of the five main process packages on the planned 615,000-barrel-a-day grassroots facility in May, but the contracts could be not be considered finalised until official written notification was received from KNPC (MEED 23:6:08).
Because of the delay in issuing the letters of intent, there has been growing concern among selected firms that the verbal agreement would not be converted into contracts.
Their concerns were heightened as they had all earlier paid multi-million-dollar performance bonds.
Calls from Kuwait’s parliament to investigate the tendering process also added to their fears.
Some members of parliament (MPs) argue that not all of the contracts went to the lowest bidders and were demanding an investigation before any work went ahead.
MPs are calling into question the tendering process on packages four and five, which were awarded to two South Korean contractors: Daelim Industrial Company and Hyundai Engineering & Construction Company respectively.
They claim that rival firms’ bids were as much as $50m lower than the South Korean companies’ bids.
“We have requested that the contracts not be finalised,” said MP Ali al-Hajeri, a member of the petitions and complaints committee, in early July. “This is an important project, but public money is more important.”
As the tendering process did not go through the Central Tenders Committee (CTC) KNPC was not obliged to follow the normal practice of awarding contracts to the lowest bidders.
Instead, KNPC says it was able to select firms on their combined commercial and technical bids.
“The project has followed all legal procedures,” says Oil Minister Mohammad al-Olaim, responding to MPs’ claims.
“The whole purpose of not going through the CTC was to have the freedom to avoid awarding the contracts automatically to the lowest bidders,” says one Kuwaiti oil industry official.
“We were looking for the most accomplished and technically qualified bid, not necessarily the cheapest.”
It is unclear if an agreement was reached with parliament prior to the issuing of the letters of intent.
Local newspaper reports state that MPs had no problems with the first three packages but are holding back approval for packages four and five, although this is contradicted by reports by other local media.
Officials from KNPC were unavailable to comment on the issue, but local industry observers say further difficulties could still emerge.
“There are some doubts locally about the openness and transparency [of the tendering process], but to what extent they [MPs] escalate this is what everyone is watching out for,” says local oil analyst Kamel al-Harami. “It is a juicy project, so everyone is keeping their eyes open.”
Some minor issues over land rights in the Al-Zour area had threatened the project, although these were resolved by Kuwait Municipality in June.
The project had also previously stalled over a dispute between the Kuwait government and Saudi Arabian Chevron, which claimed that the planned Al-Zour site was on land granted to it under its 60-year Divided Zone concession, although again this was resolved (MEED 28:9:07).
The letters of intent were signed into effect on 24 July, allowing the selected contracting groups to start mobilising on each of their packages.
Most of the initial work will be focused on the engineering elements of the project, with the majority of construction work not due to start on site until next year.
A formal signing of the contracts is expected to take place within eight to 10 weeks.
Along with packages four and five, MEED exclusively revealed in April that the first package had gone to a Japanese/South Korean consortium of JGC Corporation and GS Engineering & Construction, while package two had been awarded to Seoul-based SK Engineering & Construction, and package three had been won by the US’ Fluor Corporation (MEED 18:4:08).
The same companies and groups are also competing for KNPC’s $15bn clean fuels project (CFP), having submitted prequalification applications in early July.
The massive downstream scheme involves the upgrade of the existing Mina al-Ahmadi and Mina Abdullah refineries to enable them to produce a range of different products.
Other firms that are bidding for the project include: Chiyoda Corporation of Japan with South Korea’s Hyundai Heavy Industries; the US’ KBR; Italy’s Snamprogetti with the US’ Foster Wheeler; CBI Lummus of the US with South Korea’s Samsung Engineering Company; Spain’s TR with Italy’s Tecnimont; UAE-based Petrofac with the US’ Shaw Stone & Webster; Paris-based Technip with Italy’s Techint; and the US’ Bechtel.