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Sunday , November 29 2020

Kuwait crude oil industry should start cost cutting – Hard times yet to come; KPC must act

Kamal Al Harami
Kamal Al Harami
After our Amir initiated the cost cutting process in the Amiri Diwan and instructed the government to follow suit, it is time for our Kuwaiti oil industry to work on reducing the expenses of the biggest sector of the country by 10-15 percent immediately. It is the minimum that Kuwait Petroleum Corporation (KPC) and its affiliated companies can do at this time since the oil prices have hit the $20 level and the Kuwaiti crude oil is about $18 per barrel.

KPC, its new board, the new K companies and their newly appointed executives must set examples for other governmental sectors to follow. They must act promptly because our oil industry must share the burden along with the rest of the country.

Since this sector had shared and took profits when the oil prices were high, it is time for it to share losses. It must share the burden and act accordingly instead of focusing only on success and profits.

KPC should study the recent practices of other international oil companies in reducing expenses and cutting costs in every aspect, and follow their example. Of course, we are not calling for reduction in manpower but for reduction in all other expenses related to soft fields, upstream and downstream and in the field of crude oil production, refining, petrochemical, etc in all the K companies as well.

Minimum cost reduction should be about 10-15 percent and the companies must compete in reducing its expenses.

It will be the first ever exercise taken up by KPC to reduce expenses. It has to change its culture of overspending prevalent in the last ten years of high oil prices because we are now losing more than 80 percent of our daily income.

Time has come for serious reconsideration and determination about our oil expenses. It is not enough that we produce one of the lowest priced crude oils; we can do better with a few cuts here and there.

KPC has to change its culture, introduce or bring on new companies and adopt new ideas for cost savings. It must follow the best practices of international oil companies in this regard.

His Highness the Amir of Kuwait started the cost-cutting process in his own Diwan and told all of us to take up this responsibility of committing to a minimum of 15 percent cost reduction. This must be announced, practiced and informed to the public on a regular basis.

KPC and its affiliated companies must commit to a fixed figure of reduction which should not only include travel expenses, training courses’ costs, car allowances or petty cash but also cover the contractors, commercial and raw materials, shipping costs, logistics, etc. A roadmap must be formed to guide the oil industry on the steps to take for cutting costs.

Kuwait is losing revenues on a daily basis and is facing huge budget deficit of more than KD 8 billion. It is time for Kuwait Petroleum Corporation to act and show us how to save money because hard times are yet to come.

Email: naftikuwaiti@yahoo.com

Kamel Al-Harami

Independent Oil Analyst

 

 

 

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