Funds for development & investments

ACCORDING to an announcement made by Kuwait Petroleum Corporation (KPC), it has signed a memorandum of understanding with Nippon for financing and cash support through its investments and export company NEXI, for exploring business opportunities between the two companies in the energy sector, for the import of Japanese goods and services to Kuwait, and for exploring ways to reduce gas emissions.

The borrowing of funds and outside financing by KPC is a clear sign that it is running out of cash, or its own profits of the last many years. This happened after the government decided to take over all of KPC’s net profits of more than $30 billion to perhaps decrease its debts and support other immediate domestic needs.

Also, the Central Bank of Kuwait prevented local banks from giving loans to local companies. Furthermore, KPC has not yet received the dues worth more than $3 billion owed to it by the Ministry of Electricity and Water over the past many years. Without government support due to lack of funds, and with the ministry refusing to pay its due bills, the treasury of KPC is left without any surplus cash. KPC has another route or avenue for cash instead of directly seeking to borrow funds from outside sources. Privatizing its K-companies will defi- nitely give it a huge cash boost.
However, it needs government approvals and hard work to get it passed by our parliament, which is another headache that the government just does not want to be bothered with. The other source of additional income or profit for KPC is to try hard in enhancing its crude oil production to the previous production level of almost three million barrels from its current poor production level of 2.6 million barrels per day, according to figures released by our oil minister last week.

The additional 300, 000 barrels would bring more than $300 million or additional $9 billion in a year. KPC must strive to bring its upstream operations in line with our neighboring Gulf countries. It must always work on improving our crude production.

The ongoing losses of crude oil production is now clear. We are neither moving forward with any new fresh crude oil discoveries nor maintaining our past production levels. Fortunately for KPC, it has finished all major refining projects in Kuwait.

It has upgraded its two refineries, while the third and biggest refinery Al-Zour Refinery is near completion with the need for further financing. Now it must focus on its most challenging task, which is increasing its crude oil production from its ongoing decline.

It must focus on new oil discoveries, search for new wells, and carry out new explorations, for which it therefore must search for new financing and cash from sources outside of Kuwait. Of course, KPC most likely did not have any alternatives except to borrow more funds from outside sources after all of its local doors were closed. However, local banks will surely have to pitch in as soon as the borrowing procedures with Nippon have been concluded.

The call now is for new oil discoveries, to restore our old crude oil capacity, and to hopefully produce more barrels. This however will take many years. It is time for KPC to come up with new and more realistic numbers for our future crude oil production.

By Kamel Al-Harami
Independent Oil Analyst

email: [email protected]