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KNPC to invest $35bn in oil and gas projects

A new five-year development plan, or Kuwait Development Plan (KDP) for 2015-2020 was announced earlier in August with a focus on economic reform and the implementation of several long-stalled mega strategic projects, a senior government official said. The plan, which includes the establishment of joint Public Private Partnership (PPP) projects with capital exceeding  KD 8bln, was debated and approved by the cabinet but, must still be approved by the parliament. The plan aims to address a range of challenges and imbalances facing the socio-economic development process, Hind Al-Subaih, Minister of Social Affairs and Labour and Minister of State for Development and Planning Affairs. The plan has two objectives:

1. to address the imbalances in the economic reforms through giving a free rein to the private sector to play a bigger role in development; and 
2. to realize the country’s strategic vision through the implementation of mega projects, Al-Subaih explained.
The country’s last five-year development plan did not have a successful implementation rate as many of the previous plan’s projects have been moved to the 2015-2020 plan. The plan has made only sluggish progress; as of January 2014 the government had spent only 57% of the allocated budget.
 
Some of the projects included in the plan are:
* Construction of a metro project and KD 8bln rail project to link the five partners of the Gulf Cooperation Council;
* A media city;
* Privatisation of some public schools and cooperatives and university;
* Further development of the Mubarak Al Kabeer Port on Boubiyan Island;
* Al Zour 2 power generation project;
* Al Zour refinery and the construction of a refinery and petrochemical complex in China as well as another petrochemicals complex in Vietnam;
* Establishment of a joint stock low-cost housing company;
* Madeenat Al Hareer (Silk City), a proposed 250-square-kilometer urban area in the northern Subiya region. It will feature the Burj Mubarak Al Kabir, a nature reserve, a duty free area, a nearby airport, a large business centre and other facilities;
* Development of Failaka Island off Kuwait’s eastern coast;
* Expansion of the sewage network and plant in south Kuwait;
* Solid waste treatment facility in Kabd in northwest Kuwait;
* Construction of a new terminal at Kuwait airport.
 
Furthermore, Kuwait has confirmed the network layout for its new $20bln metro with construction due to begin in 2017. The three-line system would include 61 stations and cover the entire capital. A 23.7-kilometre line would run from Salwa to Kuwait University, with 19 stations.  A 21-kilometre line would run from Hawally, stopping at 27 stations to end in Kuwait City. A third line would stretch 24 kilometre from Kuwait International Airport to Abdullah Al Mubarak area, passing through 15 stations.
 
Furthermore, oil sector spending is expected to expand in the upcoming years. The Kuwait National
Petroleum Company (KNPC) chief executive Mohammed Ghazi al Mutairi said earlier this year that KNPC would invest $35bln on expanding oil and gas projects over the next five years. Much of this will be spent on Kuwait’s Clean Fuels Project (a major component of Kuwait’s current development plans), which involves a series of refinery upgrades.
 
Such development projects will undoubtedly spur and stimulate the country’s national economy to include wider aspects like housing, education, health, airports and harbors, in addition to oil and infrastructure projects. The targeted development projects are part of the State’s drive to diversify national income sources by means of promoting the private sector’s investments and boosting the competitive edge of other sectors.
If the government and National Assembly establish a better working relationship, major progress is expected on development projects. 
 
Kuwait Economic Performance & Outlook 2014
Real GDP forecast for Kuwait stands at 4.5% in 2014 and 5.0% for 2015 (2013E: 4.5%). Growth will be supported by resilient oil production, which forms the bulk of exports, on-going recovery in the non-oil sector, strong public and private investment in infrastructure projects and increasing foreign direct investment (FDI). 
 
Kuwait has increased its oil production capacity to 3.3mln barrels of oil a day (bpd) and is hoping to reach 3.5mln bpd in 2015. Kuwaiti officials have previously said that capacity in the OPEC member state was around 3.1-3.2mln bpd. Kuwait hopes to reach 4.0mln bpd of capacity in 2020, despite slow progress in developing new projects. The Al Zour refinery, a major part of Kuwait’s economic development plan to upgrade its infrastructure, is expected to cost around KD 4bln ($14.18bln).
Moreover, the Kuwait Oil Company (KOC) signed three contracts worth $2.3bln to build three collection centers in the company’s areas of operations north of Kuwait. The three contracts with Petrofac, Larsen & Toubro and Dodsal.
 
Kuwait’s non-oil deficit stood at KD 16.4bln in the fiscal year 2013-2014, compared to KD 17.3bln in the previous fiscal year, said the Ministry of Finance in a statement earlier this month. The ministry statement said the State actual financial status could not be determined by comparing total income with overall expenditure, along with the deficit or surplus, but by making a comparison between the whole non-oil proceeds with the overall spending. Data of the final accounts of the 2013-2014 revealed that the total revenues reached KD 31.8bln, compared to the previous fiscal year, where they amounted to KD 32.0bln - a drop by 0.6%. Oil revenues constituted 92.1% of the overall government returns for the 2013-2014 fiscal year, in contrast to 93.6% in the previous fiscal year.
 
Non-oil GDP growth is expected to register from 2.7% y-o-y in 2013 to 3.9% y-o-y in 2014, and is projected to increase to about 5.0% in the medium term due to increased government investment in infrastructure and refineries. Structural reforms are needed to improve the business environment to enable the sustained implementation of Kuwait’s Development Plan to meet growth target. However, a sustained drop in oil prices could deplete fiscal surpluses and adversely affect long-term fiscal sustainability. Measures to effectively control current expenditures - wages and subsidies, and continued heavy dependence on oil revenues are required to mitigate risks to the economy from downward oil price shocks.

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