OLD Kuwait Oil nears biggest construction deal in four years

16 December 2009

South Korean firm to be awarded $726m deal in January 2010

Kuwait Oil Company (KOC) is on the verge of awarding its biggest oil and gas construction deal in four years after the country’s Central Tenders Committee (CTC) approved the contractor chosen by the state energy giant for the job.

South Korea’s SK Engineering & Construction submitted the lowest price of KD208m ($726m) for the deal to build a new gas booster station in northern Kuwait in a competitive bid round in September (MEED 4:9:09).

Documents seen by MEED show that the CTC, which reviews all contracts tendered by state-run firms in Kuwait, approved the deal in early December. Sources close to SK say that KOC will award the deal in January.

“The deal has not been formally awarded yet,” says the source. “SK expects to receive a letter of intent either this week [ending 17 December] or next week. They will sign the contract in mid-January and once that is done we would expect work to start effectively immediately.”

The contract covers the construction of a booster station, BS-132, with a single gas train of 250 million cubic feet a day (cf/d), including high and low pressure compressors, each with a separate gas turbine driver and a gas dehydration unit.

Booster station 132 will work in tandem with an existing booster station 131 (BS-131), drawing gas from gathering centres 15, 23, 24 and 25, and redistributing it countrywide.

The contract also involves enhancing booster station 131 by installing low pressure and high pressure separators and flaring systems.

If the deal goes ahead, it will be the biggest contract to be awarded in the oil and gas sector in Kuwait since South Korea’s Hyundai Heavy Industries won the $1.24bn contract to build a new crude oil export terminal at Mina al-Ahmadi in the fourth quarter of 2005.

Although five $1bn-plus construction contracts were awarded to build a new refinery at Al-Zour in April 2008, they were cancelled in March 2009 after Kuwaiti parliamentarians called into question the way they had been awarded (MEED 16:3:09).

MEED research shows that KOC has awarded around $1.8bn of contracts worth more than $100m in 2009, but that major $500m-plus contracts like the booster station, early production facilities in the north of the country, and a new oil and gas gathering centre in the west of the country have seen significant delays.

Sources close to KOC say that the lack of major awards is due to the cumbersome bureaucracy imposed on the state energy firm by the government. This is in turn due to the level of scrutiny placed on any deal do with the controversial energy sector by members of the country’s National Assembly, says one senior advisor to KOC.

“The people in charge of tenders have to pass everything by government departments and auditors so many times that it sometimes takes a year longer to get things awarded than it would in other countries in the Gulf,” the advisor says.

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