VZCZCXRO9971
PP RUEHDE RUEHDIR
DE RUEHKU #0814/01 1991531
ZNR UUUUU ZZH
P 171531Z JUL 08
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC PRIORITY 1881
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 KUWAIT 000814 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG EPET
SUBJECT: KUWAIT DEVELOPING FOURTH REFINERY AT AL-ZOUR AMID 
ALLEGED BIDDING CONTROVERSY 
 
 Summary 
--------- 
 
¶1. (U) Kuwait National Petroleum Company (KNPC) is moving 
forward with plans to build the $15 billion Al-Zour oil 
refinery in southern Kuwait despite concerns from the 
National Assembly's Petitions and Complaints Committee. In 
May 2008, KNPC awarded $10.4 billion in contracts to four 
South Korean companies, one Japanese firm, and one American 
company. According to the Petitions and Complaints Committee, 
there are alleged financial irregularities with at least one 
of the contracts.  The Committee is requesting a freeze on 
all future deals and a review of "questionable" past 
contracts. The addition of Al-Zour coupled with upgrades to 
two additional Kuwaiti refineries -- Mina Abdullah and Mina 
Ahmadi -- aims to increase Kuwaiti refining capabilities from 
930,000 barrels per day (bpd) to 1.415 million bpd by 2012. 
End summary. 
 
Background on Al-Zour 
--------------------- 
 
¶2. (U) KNPC announced in August 2006 that it was looking for 
foreign partners to participate in the establishment of a 
fourth refinery in Al-Zour. The refinery will be one of the 
world's largest (615,000 bpd) and will replace the aging 
Shuaiba plant (capacity 200,000 bpd.) The addition of Al-Zour 
coupled with upgrades to two additional Kuwaiti refineries -- 
Mina Abdullah and Mina Ahmadi -- aims to increase Kuwaiti 
refining capabilities from 930,000 bpd to 1.415 million bpd 
by 2012. The Kuwaiti budget for the project grew from $6.3 
billion in May 2007 to $15 billion in July 2008. According to 
GOK officials, the rising budget costs reflected the 
increased cost of construction materials resulting from 
growing oil sector investments globally. The change in budget 
will also delay the completion of the project from 2010 to 
¶2012. 
 
¶3. (U) In December 2007, a variety of international companies 
from the U.S. (Foster Wheeler and Fluor Corporation), 
Australia, France, Italy, Japan, Saudi Arabia, Singapore, 
South Korea, and the UAE submitted tenders for the six 
proposed projects covering engineering, procurement, tank 
farms, marine works, and utilities. In May 2008, the 
contracts were awarded to Japan's JGC Corporation and South 
Korea's GS Engineering and Construction ($4 billion), South 
Korea's SK Engineering and Construction ($2 billion), South 
Korea's Daelim Industrial Company ($1.2 billion), and South 
Korea's Hyundai Engineering and Construction ($1.1 billion). 
In addition, the U.S. Fluor Corporation was awarded an 
off-site and utility contract ($2 billion.) 
 
Controversy Surrounding Bidding Process 
--------------------------------------- 
 
¶4. (U)  The National Assembly's Petitions and Complaints 
Committee in July 2008 urged the Oil Ministry to freeze all 
future contracts due to alleged financial irregularities 
connected with the current bidding process. The Committee 
raised concerns following meetings with the Kuwaiti agent of 
one of the international firms that did not receive a 
contract. The agent alleged that his company was 
pre-qualified for the bid and submitting a tender $78 million 
lower than the winning South Korean bids for $2.3 billion in 
contracts. KNPC argued that cost was not the sole criteria 
used in decision making and that the contracts were also 
awarded due to "other technical considerations." 
 
¶5. (U) Press reporting as of July 16 suggests that despite 
continued controversy, the National Assembly supports the 
development of the Al-Zour refinery.  The Petitions and 
Complaints Committee continues to call for additional 
scrutiny, including submitting the $2.3 billion tender to the 
Audit Committee, but supports the selection process and 
outcomes of the remaining contracts. 
 
¶6. (SBU) Embassy comment: It is difficult to tell at this 
time if this is indeed a case of foul play or if Kuwaiti 
wasta (influence and connections) is attempting to alter the 
outcome of an unfavorable decision. At present, it seems as 
if the Petitions and Complaints Committee will continue to 
pursue this issue publicly until they "attain clarity on the 
process." Embassy will continue to follow this issue and 
report septel.  End comment. 
 
 
********************************************* * 
For more reporting from Embassy Kuwait, visit: 
http://www.state.sgov.gov/p/nea/kuwait/?cable s 
 
Visit Kuwait's Classified Website: 
 
KUWAIT 00000814  002 OF 002 
 
 
http://www.state.sgov.gov/p/nea/kuwait/ 
********************************************* * 
JONES