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Wednesday , August 10 2022

Partial privatization of Kuwaiti oil sector

This post has been read 4091 times!

Kamal Al Harami
Kamal Al Harami

According to local media, the acting oil minister has declared the intention of Kuwait Petroleum Corporation (KPC) to privatize four of its ten ‘K’ companies, namely Kuwait Oil Tankers Company (KOTC), Kuwait Petrochemical Industries Company (PIC), Kuwait Foreign Petroleum Exploration Company (KUFPEC) and Kuwait Petroleum International (Q8), of which about 20 to 30 percent of the shares will be offered for public subscription.

We do not know the real purpose behind such a move, whether it is financial for generating cash to reduce the state budget deficit or to genuinely encourage the private sector to be involved and gain experience in the energy business. Certainly, the low percentage of local participation is not clear for either purpose.

So, what is it? The first two companies — KOTC and PIC — were 100 percent privately owned when established. So, why don’t we sell them and let the private sector handle their activities, as planned during the stages of inception. Anyways both companies do not represent core KPC activities. The other two companies — KUFPEC and Q8 — are the retail arm of KPC due to which now is not the right time to sell them when the oil prices are low and will remain so for sometime.

They will end up being sold cheaply. Q8 should remain intact as it is the solid base and core of Kuwait oil sector and should never be sold. In fact, selling it should never be an option as it is the marketing and dispensing outlet for more than 1.2 million barrels per day.

Therefore, we need to know the rational justification behind the privatization of these 4 ‘K’ companies. Was it just based on copying others? Privatization of Kuwait oil industry is part of KPC’s long-term strategy since 2002. It agreed on fully privatizing the local gas stations, and it started well by establishing two companies.

The strategy also calls for another one, which is still pending. Wouldn’t it be better to finish the domestic one for instance instead on embarking on a new one or selling 40 percent shares of Kuwait National Petroleum Company (KNPC), as it used to be in the 60s with the involvement of the private sector? There is nothing wrong with the concept of privatization, especially considering our complete knowledge and experience in running some aspects of the oil sector such as refining, transportation and petrochemical.

However, the objectives must be clear cut. We should stick fully to KPC’s longterm strategy instead of cutting and pasting some of its goals. If the state is in need of cash, let us then create the third retail outlet and sell the transportation and chemical sectors completely. After seeing the results, we can move on to selling our local gas plants and our local distribution and local marine agencies. Undoubtedly, privatization is the best option and it should be implemented fully and immediately.

By Kamel Al-Harami
Independent Oil Analyst


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