Why not privatize part of its assets?
FOR how long can Kuwait Petroleum Corporation go on a borrowing spree? It knows well that the oil industry will neither recover from the price slump nor recover its record d e m a n d rate of 100 million barrels per day of the year 2019 anytime soon.
There is a sudden urge by most national oil companies in seeking overseas funds to support and finance its ongoing hydrocarbons projects of upstream and downstream or at least maintain its production portfolio. The low oil prices are forcing all oil companies to do the same, but with assurance to its shareholders of certain degrees of returns on investments with sharp guidance. KPC’s decision to seek outside funds is mainly due to Kuwait government’s shortage of cash and the ongoing budget deficit from the year 2019 until date.
The deficit is increasing, while the oil price is decreasing. Also, our expenses are increasing in the absence of any concentrated effort to reduce them in consideration of the decline in the oil prices. The main reason for KPC to go to the international financing houses is simply that the government has taken over its total accumulated profits in order to meet its budget requirements and pay monthly salaries, which amount to roughly KD one billion per month or $45 billion per year.
This has resulted in KPC opting to borrow from the international markets. The question is – For how long will Kuwait’s oil industry continue borrowing? The immediate question to be answered is related to why KPC is not opting to privatize or sell some of its assets and joint projects in the refining sectors like our operations in Europe, Oman, and Vietnam? Why not sell its oil transporting company entirely, or complete forming its third local fuel distribution company? There are other opportunities to sell or privatize some activities with a shortage of upstream, in line with other national oil companies’ practices such as Saudi Arabia, and the rest of Gulf countries. In the mid-60s, companies like KNPC, PIC and KOTC were fully controlled by private owners.
Is it not sad that we all refer to the Kuwait of the past and have a poor outlook for the future of this country? We were the sole leader of the oil industry within the OPEC Plus, and now we follow them.
The next question is – For how long can KPC continue with the borrowing? This will certainly will be for many years in the absence of finding alternative sources of revenues other than oil … it is a big IF. Finally, will the government use part of KPC’s $20 billion borrowed fund to finance its own deficit? Borrowing money is not the solution … It is a temporary solution to a long term situation that seems unknown.
By Kamel Al-Harami Independent Oil Analyst