I wrote this a couple of years ago (2014) about doing business in the Kuwait Oil sector.
DECK: Meci Group provides mergers and acquisition, transaction advising and consulting services. As Kuwait’s oil and gas industry begins major upstream and downstream projects and is looking to attract more international players and investors, senior consultant Jeremiah Emanuel Josey argues that understanding KPC and its subsidiaries’ structure is key to project execution in the country.
Petroleum products account for almost 93 percent of Kuwait exports and most government revenues. The original Kuwaiti trades of shipbuilding and pearling are now only hobbies, and long-distance commerce, once the business heart of Kuwait, has been replaced by long-distance investing. The Kuwait Investment Authority (KIA) for instance, one of the world’s largest sovereign wealth funds, has taken a portion of oil revenues since 1953 and positioned itself as one of the GCC leading investors overseas. Global watchdog Transparency International ranks Kuwait 69 out of 177 countries in its corruption perceptions index. The country is fluid in its politics. The national assembly has been reformed five times in the past eight years, and government decisions are often formally questioned. Despite these apparent obstacles, rewards can be reaped. $75 billion is to be spent in the upstream oil industry over the next five years, and much more is to be spent on infrastructure.
Upcoming projects include Silk City , a business and residential centre for more than 700,000 people , and the Sheikh Jaber Bridge now under construction, both included in the country’s $130 billion development plan adopted in 2010. Investment opportunities abound in this small coastal territory and with the right attitude and approach, navigating the waters correctly will yield results, especially in the oil and gas industry.
Doing business in Kuwait’s oil industry requires a multi-pronged, multi-faceted approach. There are four informal levels of influence in the “ K ” Oil industry companies and particularly with the Kuwait Oil Company , which is responsible for oil production, and the Kuwait National Petroleum Company , which is responsible for oil refining. These levels are upper management, upper-middle management, lower-middle management, and lower management. When providing a service to the K companies (or any ministry in Kuwait), managing all four levels is equally important for a successful, profitable venture. Their relative importance changes over the duration of a project and the way each level is formed.
Staff rotations typically occur every two years in the K companies. The lower level consists mainly of eastern (Indian) expatriates. A good number of them have 20 or more years experience at their respective K company, in the same or very similar positions to the day they started. They have an excellent working knowledge of their position, their company and in particular their Kuwaiti managers. Their friends and relatives also often find positions within the same or related companies, or in the EPC companies of the country. As a result, tightly knit, well-connected and very knowledgeable groups throughout the oil industry companies can exercise significant influence across all levels of the business.
The two middle levels of K company management are made up of Kuwaiti nationals. They rotate normally within the same company and the result is twofold: a heavy reliance upon the lowest stationary level for operational information and a high level of competition for upcoming promotions. Decisions that may adversely affect a promotion may be deferred or passed to other departments. Therefore output-based performance is generally not the focus of activities, and often resolutions can be delayed for some time. For profitable business, managing projects proactively and maintaining the support of these management levels through regular positive communications is necessary.
The top-level rotation for senior management is not as regular. Rotation means more senior positions across other K companies, retirement or entering the private sector. Engagement of this level is important to ensure full support across all other levels within each company.
All four levels must be engaged at carefully staged times during a project, each requires a different success strategy. For instance the fourth level is best approached with personnel from the same geographical region. For the two middle levels, one must focus on positive performance and communication. The approach to the top level is similar to the middle levels only with less frequency.
Work with the K companies is normally awarded through a competitive tendering process, but there are other ways to do business in Kuwait such as the country’s legislated Offset Programme , which is necessary for projects more than KWD10 million ($35.3 million) and administered by the National Offset Company , and “Unsolicited Projects” of the legislated Public-Private Partnership Programme , where private investors can bring their own projects. Both schemes are new in Kuwait, and if properly approached they can offer significant opportunities in Kuwait leading to further profitable ventures. For example, Toyota Tsusho Corporation of Japan is following the Public-Private Partnership route for a 280-MW integrated solar combined cycle power station in the southwest of Kuwait.