Kuwait halts refinery construction

Prime minister says project called off due to sharp drop in oil prices, but sources in country say decision prompted by corruption claims

Doron Peskin |Published: 03.24.09 , 15:34

The Kuwaiti government informed American company Fluor on Saturday that it would be halting the construction of a new refinery in the country. Some 300 of the company's workers have been engaged in engineering work at the refinery's construction site.

Fluor was chosen by Kuwait's National Petroleum Company to manage the project, which was slated to earn the American company more than $2 billion.

Fluor was not completely surprised by the cancellation, as several days ago Kuwait's Prime Minister Nasir al-Sabah was quoted by the local al-Watan newspaper as saying that the project would be halted due to economic inadvisability.

The prime minister noted that the sharp drop in oil prices was what had prompted the government to cancel the project and save the money required for its completion.

Simultaneously, four construction companies from South Korea, who were slated to take part in the refinery's construction, received an announcement cancelling the letter of intent they had signed in May of 2008. The Korean companies' share in the project totaled more than $6 billion.

According to the original plan, Kuwait was meant to expend some $14 billion on the new refinery in the region. It was scheduled to be ready in 2012 and serve as the country's fourth refinery, with a manufacturing ability of 615,000 oil barrels a day.

Sources in Kuwait estimated that the project was not cancelled for financial reasons only. The Kuwaiti parliament recently discussed the deal, and several parliament members raised questions over the way Fluor won the project without a tender.

Opposition members claimed that this was a case of corruption, in addition to a series of accusations voiced against the government recently. Regardless of this issue, the Kuwaiti ruler disbanded the parliament last week and called new elections.

Late last year, Kuwait terminated a multibillion-dollar joint initiative with Dow Chemical. Country officials estimated that the cancellation of the project had saved the public some $6.5 billion.