South Korean firms bid low for Al-Zour

04 January 2008

South Korean contractors are in prime position for all four of the main process packages on the $14bn refinery project at Al-Zour, after technical and commercial offers were submitted on 26 December.

State refinery operator Kuwait National Petroleum Company (KNPC) is due to publish bid prices by early February for the project. However, initial indications suggest the leading contenders for the awards all come from South Korea.

The project was first tendered in 2006, but the bids came in well above budget. As a result, KNPC decided to retender it. In an apparent endorsement of that decision, sources close to the deal indicate the latest bids are likely to be lower than those submitted in 2006 (MEED 24:12:06).

According to unofficial bid opening results, South Korean firms are low bidders for all of the engineering, procurement and construction (EPC) packages on the 615,000-barrel-a-day (b/d) grassroots scheme.

The South Korean/Japanese consortium of GS Engineering & Construction and JGC Corporation is understood to be best placed commercially for process plant package 1. This is the largest contract covers the installation of the six crude distillation and atmospheric residue desulphurisation units and diesel, naphtha and kerosene hydrotreating plants.

Two other groups have also priced the work: Paris-based Technip with SK Engineering & Construction of South Korea and the US' Foster Wheeler; and an Italian/Korean joint venture of Snamprogetti and Hyundai Engineering & Construction Company.

For process plant package 2, covering hydrogen recovery and compression and sulphur recovery, SK Engineering is believed to have submitted the lowest price. The other bidding contractors are Hyundai Engineering with Daelim Industrial Company of South Korea, UAE-based Petrofac International, GS Engineering and Snamprogetti.

For package 4, covering the tank farm, the lowest price is understood to have been submitted by Seoul-based Daewoo Engineering & Construction, with six other prequalifiers also bidding.

Korean contractors Hyundai Engineering and Hyundai Heavy Industries are thought to be best placed for package 5, covering the marine works element. The only other bidder is Australia's Leighton.

As revealed by MEED in 2007, KNPC is directly negotiating with the US' Fluor Corporation, the project's front-end engineering and design contractor, for the contract on package 3, which covers the offsites and utilities portion of the scheme (MEED 17:8:09).

Under the proposed bidding schedule, KNPC says it plans to award each of the contracts by the end of February, following a comprehensive evaluation of technical and commercial bids. The prices themselves are expected to be published earlier the same month.

Unlike the vast majority of major EPC contracts in the state, the contracting of the project is not being carried out by the Central Tenders Committee. This is in an effort to give more flexibility to the client and to allow the contracts to be awarded on a cost-reimbursable basis, with the option to convert to a lump-sum basis in the future.

However, this also means that the lowest-priced bids will not automatically win the contracts, in contrast to the norm in the state.

The likely Korean domination of the bidding process is similar to the original tendering process in late 2006 when Seoul-based contractors - most notably SK Engineering for process plant package 1 and GS Engineering for process plant package 2 - submitted the lowest bids for all of the four process packages on offer at the time.

The contracts were retendered because the original lump-sum turnkey bids came in at more than $15bn, far higher than initial budget projections for the project, and also because of a lack of perceived competition from European, Japanese and US contractors (MEED 24:12:06).

The much wider participation of contractors this time around means that the retendered scheme is not anticipated to hit any similar obstacles.

In fact, sources close to the scheme say prices in the retender are likely to be far lower than the original bids, representing a significant success for KNPC.

“Bidders could afford to price the work much more reasonably because nearly all the cost escalation risk is being taken on by the client,” says one source. “This may produce lower headline bid figures, but also means the final cost of the project will not be known until it is completed.”

When commissioned in 2011, the Al-Zour facility will be by far the largest refinery in the region, and the biggest refinery ever built in one phase anywhere.

It has been designed to produce low sulphur fuel-oil for the state's oil-fired power plants, although some production has been allocated for export.

With the new refinery coming on stream, KNPC is expected to decommission its ageing Shuaiba refinery and upgrade its Mina al-Ahmadi and Mina Abdulla refineries.

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications