The Kuwait Petroleum Corporation has sounded the alarm bell about the obstacles and sensitive challenges facing the oil sector during the next phase with the new leader managing the affairs of the KPC since about two weeks ago, as it monitored a package of obstacles that it believes significantly affect the growth and development of the oil sector in light of the great changes and the financial situation resulting from the payment of retained earnings to the Kuwait Investment Authority, which is about to 7.7 billion dinars.
KPC revealed in an official document, a copy of which has been obtained by a local Arabic daily, shows that the current accounting system for exploration and production activity inside Kuwait, which is based on the cost system, does not stimulate work on commercial bases at all and limits the ability of the institution to fulfill its obligations, noting that the length of the documentary cycle delays the implementation of projects, not to mention the poor performance of contractors.
The KPC sources said Kuwait is on the verge of building modern oil projects, such as offshore production, which Kuwait does not have sufficient expertise to start, and engage in unconventional oil production.
The most important obstacles and challenges that are expected to face the oil sector in the coming years are as follows:
1 – The repercussions of the emerging Corona Virus pandemic and the changes in global markets, which in turn affect oil prices and demand for it, in addition to increasing competition with national, regional and global companies.
2 – The financial position of the Kuwait Petroleum Corporation in light of the accumulation of previous profits repayment, the danger of its continuity, and the delay in the borrowing plan.
3 – The current accounting system for exploration and production activity inside Kuwait, which is based on the cost system, which does not stimulate work on commercial grounds.
4 – The length of the documentary cycle in terms of obtaining approvals, whether internal or external.
5 – The length of the governmental decision-making process, which delays the executive procedures for the implementation of major capital projects.
6 – Lack of sufficient experience in some of the new required fields such as exploration and offshore production, unconventional oil, trading, research and development.
7 – The inaccuracy and the continuous change in the future expectations of the local demand for fuel by the Ministry of Electricity and Water.
8 – Achieving compatibility with the partners in the divided region.
9 – Delayed implementation and completion of some vital capital projects as a result of the poor performance of some contractors.
10 – The high costs of capital projects and the attendant huge financing needs necessary to implement expansion and growth plans in the oil sector.
It is worth noting that there are studies and plans in place to confront and overcome the above-mentioned challenges, thus limiting their expected impact on the completion of the plan.
Note that the Petroleum Corporation and the Kuwait Investment Authority have reached an agreement to reschedule the payments due (to include all profits due) according to the following payment arrangements:
1 – Paying quarterly installments, in 60 equal installments, amounting to 137.5 million dinars, to be paid over a period of 15 years starting from June 30, 2021.
2 – The payment of 137.54 million dinars includes returns for the delay, which is a percentage of the amount due 0.85%, and this percentage pertains to this agreement specifically, to be paid on a quarterly basis in equal installments during the period starting from June 30, 2021.
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