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Wednesday , November 14 2018

MEW policy change causing $2m loss for Al-Zour Refinery

Arab official touts Kuwait’s youth backing

KUWAIT CITY, Aug 13: The loss borne by Al-Zour Refinery due to the change in the policy of Ministry of Electricity and Water is estimated at $2 million, reports Al-Qabas daily quoting informed sources. They explained that the ministry changed the policy for generating of energy using gas turbines that work on natural gas or fuel gas instead of vapor turbines that work on fuel oil. This change will require amendment to the designs in order to handle the surplus fuel oil that will not be needed. This will be accomplished through variation orders.

The sources went on to explain that they are also expecting the refinery to continue producing 225,000 barrels of fuel oil per day for about six years starting from the date allotted for starting the operation in 2019 until the end of the amendment of designs in 2025. The cost of fuel oil is less than the cost of crude oil. The losses resulting from the differences in revenues when comparing production of fuel oil and production of crude oil is nine percent of the total value of the refinery.

If the refinery is primarily designed for commercial reasons, the revenues is supposed to increase by 12 percent per year instead of only three percent. Accordingly, the unfulfilled profits during the six years are estimated at $1.5 billion per year, reaching almost $9 billion after six years. The sources stressed that the consumption by the current vapor turbines is much less than the expected production of the new refinery. In such a case, KIPIC has only two options but both are difficult. KIPIC can either reduce the operation capacity of the refinery so that it is limited to the demanded amounts only, or it can run the refinery with its full capacity and then export the surplus produce at low prices that do not match the billions spent for establishing the refinery.

This issue indicates to what extent the lack of coordination between the oil sector and Ministry of Electricity and Water can harm the state resources. The lack of precise planning might turn the project of Al-Zour Refinery from being the most outstanding developmental project into the one with the highest economic losses in the field of energy.

 

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