THE ongoing internal debate is whether to borrow money from outside financial institutions or sell some of the KPC’s K-companies and try to finance its needs internally, thereby avoiding exposing our books and the state ratings.
The decision to borrow came after the government, with the approval from the parliament, decided to transfer all KPC profits to the State Treasury instead of keeping KPC’s profits within. KPC is required to pass to the government about KD 8 billion from the year 2007 and keep its current fiscal year’s profit within the corporation.
The future profits are to be paid back to the government starting with 25 percent, gradually increasing to 50 percent and then 90 percent in the future years. For KPC’s future projects, about KD 12 billion or $36 billion must be borrowed – 40 percent from the local banks and 60 percent from outside.
The local borrowing has been increased from 30 percent to 70 percent, which has in turn put more pressure on the local borrowings and depriving it of cash.
The question is – Why not try to sell some of our K-companies like KUFPEC – our upstream arm operating outside Kuwait, or Kuwait Oil Tankers Company (KOTC), or Petrochemical Industries Company (PIC), or partially Kuwait National Petroleum Corporation (KNPC) – our refining arm? In the case of KNPC, it will also improve our productivity and efficiency, and help in learning the best practice, and cut cost. Or have we thought about total or partial selling, or inviting international companies to buy part of our operations, like the rest of our Gulf oil-producing countries, Saudi Aramco, Abu Dhabi and Qatar Petroleum? Our oil industry is in need of foreign international experience, as we are falling behind. The internal domestic interference in the recruitment process from all the way to the appointment of managers and senior officials is the main cause for bad performance. Another reason is our poor human resources departments and developmental programs.
There are other means for our oil industry to finance its projects, but there are risks of lower oil prices – below $ 60 a barrel – or not achieving its target of producing 3.6 million barrels by 2028 of equivalent oil. The demand on Kuwaiti oil will be less, and this is in turn cost the country dearly. Such factors should be taken into consideration. We should look into the option of selling some of KPC’s assets instead of going for our domestic oil sector. Let us have more debate instead of taking prompt decisions.
By Kamel Al-Harami Independent Oil Analyst