Kuwait Hangs Korean Builders Out to Dry
$6.5 Bil. Project in Doubt; Embassy in Seoul Keeps Mum
By Jane Han
Staff Reporter
The cancellation of Kuwait's multi-billion dollar refinery project couldn't get any more official, as the Kuwaiti prime minister came forth last week and said that the deal involving South Korea's top builders will be scrapped. But local contractors ― still uninformed of the backtrack ― remain out of the loop.
``We have yet to get a formal cancellation notice from our Kuwaiti counterparts,'' said Kim Woong-sik, a spokesman for Hyundai Engineering & Construction, one of the four Korean builders that last year won a $14-billion oil refinery project awarded by the state-owned Kuwait National Petroleum Co. (KNPC). The Kuwaiti Embassy in Seoul refused repeated requests for clarification.
The 615,000-barrels-per-day refinery, planned to operate starting 2012, was intended for the refinement of oil for domestic power generation and to produce fuel for exports.
However, opposition lawmakers have scrutinized state officials of profiteering from the deal, as it did not go through the country's Central Bidding Committee. They called for an investigation by Kuwait's Audit Bureau, which reportedly concluded that the refinery was not viable.
``Those folks have their own political situation going on, but they haven't given us the official no-go so there is no reason for us to get shaken by media reports,'' he said, adding that there are no changes in the usual communication between the two sides. ``We talk of course, but there is no word about the cancellation.''
Kim Kyung-wook a spokesman for SK Engineering & Construction, said there are ``no significant developments,'' without further elaborating. Officials at Daelim Industrial and GS Engineering also denied reports on the demise of the deal.
Of the $14-billion project, contracts worth $8.4 billion had already been awarded. Some $2 billion of the work went to GS Engineering, $2.06 billion to SK E&C, $1.18 billion to Daelim Industrial and $1.12 billion to Hyundai E&C. The remaining went to Japan's JGC, the other key contractor.
The collapse of such a lucrative project can dent the image of local firms overseas, but experts say that it won't deal a financial blow thanks to the order pile-up they've already secured.
``Cancellation possibilities have been floating since the end of last year, so the official fallout won't be a huge issue at this point,'' said Baek Jae-wook, an analyst at Eugene Securities.
However, he added that the latest Kuwaiti cancellation could prompt a series of further backtracks in other parts of the Middle East as oil prices continue to fall and with the rebound of the economy not yet in sight.
Overseas orders have been a crucial cash source for local builders. South Korea's major construction companies won record orders totaling 16.4 trillion won ($12.69 billion) in 2008 as demand for plants and oil facilities from Middle Eastern countries jumped sharply.