"Project Kuwait" Will Provoke a Heated Parliamentary Debate

Kuwait's crude oil reserves are estimated at around 100 billion barrels, while current production stands at 2.6 million barrels per day (b/d). For the past eight years, the government of Kuwait has tried to win parliamentary approval for participation of foreign oil companies in development of the country's northern oil fields. Up until last June, the Kuwaiti parliament showed little interest in this initiative, which is known as Project Kuwait (PK). Finally, in June, the parliamentary committee for finance and economy voted to recommend the project for debate and approval. While many MPs were—and some remain—opposed to PK, the head of this committee, Wahab al-Haroun, was a strong supporter who played a crucial role in pushing the initiative forward. The committee, however, gave its approval only after adding some modifications that limited the project's scope. Parliament, which began its new session after the summer recess on October 17, is expected to finally debate this proposal in the next few weeks.

Project Kuwait would allow foreign oil firms to operate in four oil fields—Rawdhatain, Sabriey, Ratqa, Abdalli—located in the northern part of the country. Since the constitution of Kuwait prohibits foreign ownership or control of oil assets, these firms will operate under a special type of service contract, called Incentivised Buy Back Contracts (or IBBC). Under IBBC, the foreign partner that works on expanding the production capacity of these fields, will be paid an allowance for capital investment, a fixed fee per barrel of production, and an incentive for additional production above a predetermined level. Many aspects of these contracts will be similar to the buyback contracts that Iran and several other oil-exporting countries have adopted in recent years. According to PK projections, oil output from these fields will rise from 530,000 b/d currently to 900,000 b/d by 2020. In anticipation of parliamentary approval for this initiative, the Kuwait Oil Company has created a new entity named Kuwait Development Company (KDC) to manage Project Kuwait. This firm has taken control of the oil assets in the four oil fields that will be available to Project Kuwait. Foreign oil firms are expected to invest up to US$40 billion in these fields during 2006–20.

The Kuwait Petroleum Company is a strong supporter of Project Kuwait, which also enjoys backing from high-ranking members of the ruling al-Sabah family. Proponents point to many benefits of opening up the oil industry to foreign participation. Their main argument is that Kuwait needs the technological capability of multinational corporations to modernize and expand its oil production. Moreover, Project Kuwait could attract up to US$40 billion in direct foreign investment during 2006–20. Kuwait did introduce a new foreign investment law in 2001 that offered many incentives for foreign direct investment, but severe restrictions still hamper the oil industry. The third benefit is the creation of thousands of new jobs for Kuwaiti nationals during this 15-year period. Indeed, creating jobs for Kuwait's young population has become a major challenge for the government in recent years.

Several parliamentary blocs are still opposed to Project Kuwait. These opponents have repeatedly argued that it violates Kuwait's constitution, which strictly forbids foreign ownership of crude oil and other mineral assets. They also believe that, with oil prices expected to remain high in the foreseeable future, Kuwait does not need any additional capacity and can meet its financial needs under current production and export levels. Some PK opponents also claim that the poor technical progress in the oil industry is a result of mismanagement and corruption, which can be remedied with better management and more effective leadership.

After eight years of political wrestling, though, both sides of the PK argument may be ready for compromises that could finally lead to parliamentary approval. The opponents, headed by MP Nasser al-Abdali, have announced they might support the project if parliament is given a more proactive role in its supervision. This would include the right to screen the contract awards and demand revisions to the terms of these contracts. For its part, the Kuwaiti government, will likely show more flexibility on these compromises to move the project forward. Indeed, it has already acceded to some modifications requested by the finance and economy committee, including a reduction in the number of oil fields covered under the project from five to four. The compromises and concessions from both sides give Project Kuwait a more than 50% chance of approval, but parliament might still be distracted by other issues in the coming weeks. For example, mounting concerns about corruption in various government ministries could preoccupy parliament for several weeks. Furthermore, the outcome of parliamentary debate over government corruption might very well affect the ministers' attitude toward this project.