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LEGISLATION ENSURES STATE OWNERSHIP OF RESOURCES; Panel nod for refined oil bill; Draft ‘precise’

KUWAIT (KUNA): “The bill regulating assistance from qualified oil field development companies ensures the state’s total ownership of all of its resources and its sovereignty over every land plot,” says chairman of the parliamentary finance and economic committee MP AbdulWahab Al-Haroun. This came at a press conference Saturday after the committee concluded its report on the government’s draft bill for the development of Kuwait’s northern oilfields and referred it to the National Assembly for discussion in its next term. Al-Haroun, who is also acting National Assembly speaker, said that all comments of MPs on the bill have been taken into consideration and that in its current form, the bill does not give any foreign company the right to invest in the oilfields, but only to act as contractors receiving specific payment over a designated period. He said that the bill also affirms state ownership of all resources, adding that none would be given up under any circumstances and that the state’s sovereignty over land plots included in contracts or agreements would not be touched.

The MP added that several rules and regulations stipulated in the bill may be harsh in the opinion of some, but are a must, noting that the draft bill presented by the government was general and gives the authority control over development and investment through foreign companies. MP Al-Haroun added that the committee saw it fit for the bill to be precise with no obscurity as to investment, only specialization and contracting, thus preventing foreign companies from claiming a share of Kuwait’s oil and remaining in accordance with articles of the Kuwaiti constitution. The MP also said the committee made a number of amendments to the government’s draft bill, transforming it from a general law to a special one regulating the development of northern oilfields alone where the four fields to be developed are Al-Rawdatain, Al-Sabiriya, Al-Ritqa and Al-Abdali. He added that oil traps to be developed include Al-Mawdood, upper and lower Burgan and Al-Zubair, where oil companies are not to work outside the stated fields or oil traps.

The bill also limits contracts with qualified companies to the development of only the northern oilfields, preserving the right of Kuwait Petroleum Corporation (KPC) to work on oil traps not included in development contracts within the targeted fields where foreign companies are operating. He went on to say that a new article was added to the bill stipulating that the qualified company must take on the necessary administrative and development expenses for four oilfields included in the contract, and prohibits direct and indirect agents, the payment of any commission or any other form of profiting. MP Al-Haroun explained that the bill stipulates that one of KPC’s subsidiaries must be a party in the coalition of contracting oil companies at no less than five percent so as to allow for close monitoring of the work of the foreign company, gain experience and ensure the transfer of advanced technology, especially when handling difficult oil traps. He went on to say that unlike the government bill which limits the contract to a period of 10 years with a possible extension of a further 10 years, the bill now limits the period to 20 years that may be extended only upon presentation of suitable reasons by the government and the approval of the Assembly.

The bill also raised the percentage of national employment to a minimum of 70 percent at all vocational levels, and these percentages must be taken into consideration by sub-contractors. The bill states that the main source for supplying the project’s requirements of products and equipment must be the local market or through local suppliers at no less than 30 percent, resorting to local suppliers at no less than 30 percent of the total value so as to activate local economy. He added that the bill subjects profits of the foreign company developing oil traps to a tax of 25 percent of total revenues, and gives the state the right to reduce its oil production levels in accordance with decisions of the Organization of Petroleum Exporting Countries (OPEC) without having to compensate the companies. MP Al-Haroun added that the bill stressed the importance of training, especially in difficult oil traps, as experience in this field is not available in KPC.

As for the economic feasibility of developing the northern oilfields, Al-Haroun said that it is important to reduce pressure on Burgan field, Kuwait’s largest, so as not to deplete the oil traps of the field on the long run or during periods of increased global demand on oil. He added that exploration must be conducted to uncover other fields and oil traps so as to accommodate demand away from Burgan, requesting that exploration take place in seawater to uncover oil traps there. The MP expressed hope that the issue of continental shelving be resolved with Iran so as to allow for the development of Kuwait’s marine oil traps. He added that reaching the targeted production rate of 900,000 barrels per day is a matter of gradual growth for foreign companies working on the development of oil traps, then a fixation of levels followed by a reduction. He explained that there is a maximum level of production in targeted oil traps and foreign companies would not have the right to develop others.

As for the expected costs of developing these oil traps, Al-Haroun said that the costs to be born by foreign countries would be USD 1.5 per barrel, a cost much less than the USD 2.5 per barrel born by local companies as they lack in advanced technology. Al-Haroun recounted comments of the committee members on models arrived at by visiting oil development companies from Norway, Iraq and Saudi Arabia. In response to a question on whether the Assembly would form a parliamentary committee for following up the implementation of the project in the event that the bill is passed, Al-Haroun said that there is no article in the bill stipulating this and that the issue would be left up to the Assembly.

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