In the last four years, Kuwait has been incurring deficit in its annual budget. The coming year, the government will be faced with a shortage of KD 7.7 billion or $24 billion to balance our annual budget of KD 22.5 billion.
To balance such a deficit, we can either withdraw from the reserve of the Central Bank, borrow from outside financial houses, pull from the future generations’ fund, or use the annual earnings.
Touching the future generations’ fund is not allowed and should not be allowed, as it belongs to our future generation and not the current one. However, we can fully utilize oil both underground and over the ground to meet our annual deficit, by increasing production, upgrading, increasing refining capacity and other means related exclusively to oil and gas. Or we can follow the example of our neighbors in the Gulf region like Saudi Aramco, Adnoc of Abu Dhabi, and Qatar Oil which formed partnerships with international oil companies.
Saudi Arabia, for instance, have close to 5.4 million barrels of refining capacity, of which 40 percent is in joint ownership with foreign companies. Adnoc last week announced its partnership with Eni of Italy and OMV of Austria after selling 30 percent of the ownership to the two companies at $6 billion, thereby generating a new stream of income for the state. Similarly, Qatar also has joint gas operations with international oil companies for developing its gas resources.
The benefits of joint partnerships are many but most importantly training and developing the local human resources, providing the best technology and know how, and ensuring cash flow into the State Treasury. We in Kuwait need to reactivate our privatization laws and allow foreign oil companies to come and share with us their updated experience in refining and petrochemical operations, and develop our human resources, since relying on own experience is no longer of any added value.
Implementation of Kuwaitization policy in the oil sector by 80 percent is getting us nowhere. Productivity is going down and we end up having to rely heavily on foreign contractors to do the work in places where Kuwaitis are reluctant to join as they prefer KPC and its affiliated companies that don’t have much record in balances and performance level.
It is our duty to allow foreign companies to invest in our refining sector and create joint ventures in order to raise the standard of our employees by developing and training them on the most updated technology.
Such benefits and advantages cannot be bought but through being part of a larger organization. Through privatization or selling part of our assets, Kuwait will be generating cash to reduce our deficit on the short-run while gaining experience, developing and training our employees through partnership, and enhancing long-term returns for our oil investments.
By Kamel Al-Harami Independent Oil Analyst