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Kuwait Approves $14 Billion Budget for New Oil Refinery

Kuwait has approved a budget of 4 billion dinars ($14.29 billion) to build the Middle East's largest refinery, more than double the initial estimate, state refiner Kuwait National Petroleum (KNPC) said.

The cost of building new refineries has spiraled as the energy industry strains to increase capacity to meet rising global fuel demand. The Gulf's top oil producers were all building new refineries and expanding old plants, but costs have hurt budgets and delayed plans.

Kuwait's Supreme Petroleum Council approved the budget for the giant 615,000 barrels per day (bpd) al-Zour refinery on Tuesday, KNPC Chairman Sami al-Rushaid said.

"God willing, this will be enough," Rushaid told reporters late on Tuesday.

The world's seventh-largest oil exporter will boost refining capacity to 1.415 million bpd from 930,000 bpd with the new plant and upgrades to two other refineries, Rushaid said in the written text of a speech.

The new refinery will start operating near the end of the first quarter of 2012, he said. That was a few months later than the last estimate for start up at the end of 2011, and over a year behind the initial plan to launch the refinery at end-2010.

Kuwait cancelled a first tender for the refinery in February, after bids came in far above its initial budget. Local media said some bids had reached as much as $15 billion.

Rushaid said that KNPC would soon announce the firms that it had approved as qualified bidders for the five engineering, procurement and construction packages for the refinery project.

He said he was hopeful Kuwait would find a solution to a dispute over the refinery's location near the Saudi border, but he gave no details of the issue.

"I'm not in charge of this issue but I can say that I'm convinced we will hopefully find a solution," Rushaid said.

Upgrades

KNPC will also separately invest 245 million dinars in a first stage to upgrade its Abdullah Mina and al-Ahmadi refineries, according to the speech text. Final costs had yet to be estimated.

Kuwait plans to boost combined capacity at the two plants to 800,000 bpd from 730,000 bpd, he said.

The new al-Zour refinery is to replace the ageing 200,000-bpd Shuaiba refinery, which has been hit by several accidents.

KNPC said in July around 30 companies had made preliminary bids for al-Zour. KNPC intends to prequalify several companies for each package.

French firm Technip, U.S. companies KBR , Bechtel and Foster Wheeler and Italy's Snamprogetti submitted pre-qualification bids, according to media reports.

U.S. engineering and construction company Fluor Corp is in talks for a contract of around $2 billion to build part of the refinery, an industry source said in August. Fluor already holds the project management contract for the refinery.

At 615,000 bpd, al-Zour would exceed the capacity of the Middle East's largest refinery, Saudi Arabia's 550,000-bpd Ras Tanura plant. Saudi Arabia plans to build another 400,000 bpd refinery in Ras Tanura.

OPEC-member Kuwait sits on around 10% of the world's oil reserves. It produced 2.41 million bpd of crude in August, a Reuters survey showed.

Rushaid also said KNPC had formed a committee to cut costs.

The Supreme Council decided to increase salaries in the state oil industry on Tuesday. Al-Wasat newspaper said salaries would rise by 20%.

Rushaid said KNPC had earned $1.3 billion in the first five months of its 2007/08 fiscal year after posting around $2 billion per year in each of the past three entire fiscal years.

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