In Aramco's footsteps
Kuwait's government wants to follow Saudi Arabia's and sell off some state energy assets. The move will face opposition
Weak oil prices and the loss of 250,000 barrels a day of production from the Neutral Zone have prompted the Kuwaiti authorities to consider partly privatising bits of its energy sector. Neutral Zone output, shared with Saudi Arabia, stopped in May 2015 because of a dispute between Kuwait and the kingdom. No final decision has been taken on privatisation, and any move will probably meet objections from Kuwaiti parliamentarians and the media.
The idea of selling off subsidiaries of the state energy company, Kuwait Petroleum Corporation (KPC), was first mooted in early July by Khalifa Hamada, undersecretary at the finance minister, on the basis that "oil prices have dropped and indicators show the slump may last five more years".
The country's finance minister and acting oil minister, Anas al-Saleh, subsequently told Bloomberg that studies were being carried out into the possible privatisation of some service companies under the KPC umbrella, adding that Kuwait Oil Company (KOC), the state upstream firm, would not be touched. In any event, no more than 20-30% of stock in KPC subsidiaries would be offered, leaving the government retaining majority control. Saleh said the public listings would be part of a general reform plan to generate liquid assets and enhance operations.
The minister indicated that likely candidates for partial privatisation are: Kuwait Petroleum International, which operates Q8 petrol stations in Europe; Kuwait Oil Tanker Company, with a fleet of around 20 crude oil and product carriers; Kuwait Foreign Petroleum Exploration Company, operating in 15 countries; and Petrochemicals Industries Company. No time frame or estimation of the value of the proposed IPOs has been given.
In May, Saudi Arabia announced its intention to offer up to 5% of the state energy giant Saudi Aramco for public sale, as part of Vision 2030, an ambitious plan aimed at gradually ending the kingdom's dependence on oil revenue. The proceeds of the IPO will be a major component in what will be the world's largest sovereign wealth fund. When land and other assets are added, it is estimated that the Public Investment Fund will have more than $2 trillion under management.
For their part, the Saudi authorities insist that the Aramco privatisation initiative was not prompted by the decline in oil revenue and will go ahead regardless of any rise or fall in oil prices. Kuwait, by contrast, which already operates the world's fifth-largest sovereign wealth fund, is considering privatisation in the context of low prices and constrained oil output.
The announcement of the Aramco IPO caused considerable surprise in Saudi Arabia. But no criticism was heard in public. This will be different in Kuwait, where parliamentarians and media commentators are not afraid to speak out in public. In the past, voices have been raised in protest at any at-tempt to meddle with the state-controlled energy sector-even to the principle of foreign firms being brought in as upstream contractors with no rights to own Kuwaiti oil. This was the case when, in 1998, the government sought to engage international oil firms on the basis of operating-service agreements to expand output from northern and western oilfields by 0.9m b/d. Project Kuwait, as the proposed scheme was called, was finally shelved after frequent attempts by the government over several years to win parliamentary approval failed.
In June this year, the Kuwaiti government was successful in signing modified service accords-enhanced technical-services agreements-with BP and Shell. But such is the sensitivity of the contracts that the government has made no formal announcement about them. According to Kuwaiti energy commentator Kamal al-Harami, writing in the Arab Times, "official approval was given last March, but KOC opted to delay [the signing] as much as possible in order to avoid local publicity". The deals were ultimately signed in private.
BP has been contracted to maintain 1.7m b/d of output at the ageing super-giant Burgan field. Shell is to develop the Ratqa heavy oilfield, and, in a separate contract, carry out water-flow operations at a number of fields.
The Kuwaiti authorities will hope that they can silence potential critics of energy-sector privatisation proposals by giving assurances that the core company producing the country's 2.7m b/d of crude oil, KOC, will remain fully under state control. But in a culture where the subjects of mismanagement and corruption-genuine and alleged-are the bread and butter of parliamentary debate and media speculation, it will be surprising if the sale of components of KPC begins any time soon.