KPC marketing on a new dangerous path

‘Our oil should not be traded or gambled with’

TBy Kamel Al-Harami

he statement issued last week by Kuwait Petroleum Corporation (KPC) concerning establishment of a new marketing and trading company is the first step towards dealing directly with traders and becoming involved in open trading with the only source of our daily income.

It is a complete deviation from our established oil policy since the inception of international marketing in 1965.

KPC went on to state the various benefits of the new marketing company in terms of enhancing returns and profitability by being more flexible towards its customers, trading through third party, perhaps storing products outside Kuwait, hedging and taking positions and risks which means added costs. However, there is no assurance for its success, as using unknown tools and methods could end up in huge losses.

Playing with our only source of income is not the right of KPC or any other national oil company, as it can result in corruption, hidden losses and even bankruptcy. If a few members of KPC wish to deal with risky markets, they can simply quit the company and launch their own private trading company using which they can play, gamble and take all kinds of risk instead of playing around with the wealth of the nation.

A recent example in this regard is KPC’s decision to market stored crude oil in the Far East which had resulted in huge losses due to deduction of costs of insurance, time, money value, and value of original price of crude oil.

KPC concluded its statement by affirming that it will establish the new marketing company in line with the practices of other national oil companies.

It ignores or pretends not to know the fact that none of those companies publish their annual financial reports or issue their profit-loss statements. They do not undergo audit of their accounts or have free press. They do not need approvals from their board, supreme petroleum council, or even the free elected parliament. Therefore, such a comparison does not

Al-Harami

apply in this case.

In addition, the national oil companies are not prohibited from dealing with traders. They are free to deal with any party unlike KPC, which, since its inception, was banned from dealing through third party and had to deal directly with the end consumers. This was reinforced in 2005 by the minster of oil at that time.

Another fact that KPC should bear in mind is that trading companies do not invest directly or own oil and gas fields and refineries. They do not invest in refineries or in downstream marketing. This is because oil is not their core business. They deal and trade with commodities, minerals, steel, gold, metals, precious stones, oil, and gas. They can switch from one to another, as their investments are minimal and can be ended overnight.

We were wondering for some time about the main reason behind building Doqum refinery in Oman because there wasn’t any justification behind this, as it was neither built for domestic consumption nor is it an export refinery. However, it has become crystal clear now – it is simply to trade with and to be used for trading by selling all its throughputs in the open market, hedging, and for various high-risk trading tools and purposes that are totally foreign to KPC.

It should have instead properly invested in a reliable consuming country that can ensure stable and reliable stream of income and steady long-term supply.

How could the KPC board agree to such a venture at a cost of nearly $18 billion to be used for trading and to create a new marketing company for selling our petroleum products? All investments from our own money will be directed for trading, hedging, taking positions, and all other tools that available in the markets for the sake of gambling. Have they forgotten what happened to some of our banks in Kuwait when they did the same a few years ago? They ended up losing everything, and became bankrupt.

This time KPC is trying to gamble with the wealth of the nation. Its board has approved such uncalculated risks that could take us all down. Our oil should not be traded or gambled with; it belongs to all and should not be used for hedging or any other risk-taking tools. Certainly not to be used for public trading!

email: naftikuwaiti@yahoo.com