Legal challenges and waning enthusiasm among potential investors are threatening to complicate Kuwaits downstream expansion plan in the same way that domestic political opposition is thwarting capacity development in the upstream oil sector. An objection by Saudi Arabian Texaco, which operates Saudi Arabias half-share onshore interest in the Partitioned (Neutral) Zone, to the siting of Kuwaits proposed fourth refinery at Al-Zour port in the south of the country, could force Kuwait National Petroleum Company (KNPC) to find a new location for the planned complex at considerable extra expense, MEES understands. This in turn could force a reduction in the size of the refinery as a cost-saving measure. The problem over the proposed site came to light when Saudi Arabian Texaco head Ahmad al-'Umar wrote to Kuwait City municipality objecting to the choice of the site, claiming that the area was reserved for Partitioned Zone operations according to the concession agreement of 1954.

While the dispute may yet be contained, the potential for it to become a major sticking point is another setback for the proposed fourth refinery project. Even if the location issue is resolved, the bid deadline for foreign investment in the 615,000 b/d refinery the largest new build planned globally has had to be pushed back after international investors requested more time to study documentation. In terms of the construction contracts, KNPC now proposes to award the four packages of work for the $6bn refinery project in December with contracts signed early in 2007 (MEES , 10 April).

Investors Taking Their Time

Meanwhile, Julys announcement that foreign participation in the refinery would be capped at 40% with 20% of the remaining shares allocated for public subscription was designed to draw greater foreign interest, especially since some had indicated they would not be satisfied with a smaller minority stake (MEES , 7 August). Even so, MEES soundings indicate that public enthusiasm in Kuwait for the project will be limited unless a major oil company agrees to invest in the project. This lack of enthusiasm is in part the result of the mixed performance of the  Kuwait  Stock  Exchange down  some 16%  on the  years high over  the last year. But KPCs mixed safety

and operational record over the years may have also undermined public confidence. A fire at the sulfur recovery unit of the Mina al-Ahmadi refinery on 2 October is understood to have forced the closure of some units for 24 hours and is the latest reminder of the problems facing the Kuwaiti refining sector. Major accidents at Kuwait refineries have been a feature for some years. In 2000, an accident at the same refinery left five dead and 50 injured, while a gas leak killed two and injured four at the Mina al-Shu'aiba refinery the same year. In 2002 the Raudhatain oilfield accident, which killed four, forced the resignation of then oil minister Adel al-Sabeeh, and was followed by a rash of incidents at the ageing Shu'aiba refinery (MEES , 18 February 2002).

Uncertain Fate For Project Kuwait

In the oil sector, political developments in recent months have almost buried any hope that the government will be able to make headway on Project Kuwait. The National Assembly reconvenes after the summer break on 30 October, with the fate of Project Kuwait one of the hottest issues to be discussed although it is unlikely to be put on the parliamentary agenda before the end of 2006. Shortly before parliament was dissolved by the Amir, Shaikh Sabah al-Ahmad al-Sabah, in May, the National Assemblys finance committee approved the wording of the draft law governing Project Kuwait after extensive discussions with the Oil Ministry and Audit Bureau (MEES , 29 May). But five Popular Bloc MPs are seeking further changes in the draft before it is put before the assembly. The five, Ahmad Sa?dun, Hasan Jawhar, Muhammad al-Khalifah, Muslim al-Barak and Walid al-Jari, said in May that they wanted the creation of a Kuwaiti company to carry out Project Kuwait, with foreign capital from the winning consortium of international oil companies limited to a 40% stake. At least 10% would be in the hands of one of the wholly-owned subsidiaries of Kuwait Petroleum Corporation (KPC), with the remainder of shares offered to the Kuwaiti public (MEES , 15 May).

According to an ­al-Qabas report of 2 October, the five also want the contract with the winning IOC consortium for Project Kuwait to be signed by a government body (Kuwait Petroleum Corporation), rather than the subsidiary set up for this purpose (Oil Development Company). This is because the latter would be subject to laws governing commercial companies, while under the proposed change the signatory on the Kuwaiti side would be the government, with the contract subject to administration law. If this were the case, then the contract would have to be presented to parliament in the form of a law, with the assembly monitoring its observation throughout the contract period.

The government, for its part, is sticking to its insistence that the successful IOC consortium will serve only as a contractor, meaning that the contract does not need parliamentary approval or a special law governing it. Sources quoted by al-Qabas said the deputies wanting the changes were effectively seeking to negotiate with the companies over complicated technical matters, rather than leaving it to experts in the oil establishment. If the proposed changes were adopted, the sources continued, they would cause still further delay to Project Kuwait and displease the IOCs seeking to bid for the contract. In short, they would kill off the project.

Oil Reserves Still Unclear

The government and Kuwait Oil Company (KOC) have also yet to respond to requests from Popular Bloc MPs for a full statement on the countrys oil reserves (MEES , 25 September) following a report in January which suggested the true reserves figure could be less than half the official figure of 100bn barrels (MEES , 30 January). In July, opposition MPs submitted a draft law that would force the government to make an annual declaration of the emirates proven oil reserves and limit annual production to 1% of the declared figure (MEES , 31 July). MEES understands that KOC and the government are unlikely to publish a comprehensive report on reserves before the National Assembly reconvenes. Opposition MPs insistence that production plans be tied to official reserves means that for all intents and purposes, there is no way that parliament will approve Project Kuwait while the matter remains unresolved.