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Kuwait Petroleum Corporation is a state owned and commercially orient ed corporation. It is one of the leading oil and gas producing companies in the world and its activities are focused on petroleum exploration, refining, and marketingpetrochemicals and transportation.

Our mission is to manage and develop these integrated activities worldwide in the most effective manner so as to ensure the optimum exploitation of Kuwaitʼs hydrocarbon resources to achieve the maximum financial return to our shareholders,the Government of the State of Kuwait and develop the capabil i ties of the national manpower.

KPC Mission

TheKPCWorldEditorialTeamexpresses its thanksand appreciation to all who contributed editorialand information material and photographs toproduce this issue of KPC world

P.O.Box: 26565 Safat - 13126 Kuwait

Tel.: (965) 2400960 - Fax: (965) 2407872Website: www.kpc.com.kw

E-mail: media@kpc.com.kw

EDITORIAL

Steady Steps Towards Progress

KPC is taking major steps day after day in its march of development and improvement and progress. The Corporation is applying state-of-the-art techniques in leadership, management, strategic planning and using modern systems. This is manifested in the successful application of the strategic plans approved by the management last year.

The previous year has witnessed some remarkable activity in the oil industry, both inside and outside Kuwait. Notable events included the MEED Conference on Major Projects and their Opportunities and the Gas Manufacturers Conference. The Kuwait oil sector was a major and active participant in these conferences. The purpose was to meet with the different bodies working in the industry, to learn about the best studies and developments and to benefit fromthe expertise and experiences presented. KPC announced through the conferences that it will go ahead with its strategic expansion plans.

On the level of quality achievements by KPC subsidiaries, KNPC obtained the prize for the best Arab state company. Sheikh Mohamed Bin Rashed Al-Maktoum, the Crown Prince of Dubai Emirate and Minister of Defence of the United Arab Emirates, sponsors this prize to reward the efforts of Arab institutions. It aims to encourage Arab institutions to achieve the highest quality controls and to develop their work according to modern concepts in management and technology. KNPC was considered the best among more than 30 Arab state companies nominated for the prize in this category. This is recognition of the outstanding performance in quality control in a public sector Kuwaiti company which employs more than 5.500 employees.

As for the International Marketing Sector, there have been achievements in gaining a stronghold in key markets. These achievements are evidence of sound strategic planning. It has recently gained access to the Spanish markets and is supporting its position in Indian and Bangladesh markets amid tough competition for market share between the major companies.

The outstanding performance is not only limited to KNPC or the International Marketing Sector. KUFPEC has also achieved much success in its field of business. It has been able to access many new markets after various feasibilitystudies.

Also in this issue, there is a report on the achievements of the oil sector in the field of Health, Safety and Environmentand its efforts to meet the approved world requirements and specifications in order to safeguard the health and securityof the employees and the environment. The ultimate objective is to take KPC to the highest standard among the leading world oil companies in this vital field.

Talal Al Khalid Al Sabah Executive Assistant Managing Director

Corporate ProjectsGovernment and Parliament

Relations & MediaEditor- in- Chief

The Organization of the Petroleum Exporting Countries (OPEC) decided in its extraordinary meeting held at Beirut, Lebanon, to increase the OPEC production ceiling (excluding Iraq) to 25.5 mb/d, with effect from July 1, 2004, and to 26 mb/d, with effect from August 1, 2004. The decision was taken in order to ensure adequate oil supply and give a clear signal of OPECʼs commitment to market stability and to maintaining prices at acceptable levels to both producers and consumers.

The decision was taken after reviewing market developments as well as the supply/demand outlook. The Conference noted with concern that, as a result of several factors, prices have continued to escalate, despite the efforts by OPEC Member Countries to meet market requirements.

These factors are mainly the robust growth in demand in the USA and China, which had not been fully anticipated; geopolitical tensions; and refining and distribution industry bottlenecks in somemajor consuming regions, coupled with more stringent product specifications. Combined, these factors have led to unwarrantedfear of a possible future supply shortage of crude oil, which has, in turn, resulted in increased speculation in the futures markets with substantial upward pressure on crude oil prices.

The Conference again called on all other parties, including non-OPEC producers and consumers, to take appropriate measures to address the challenges facing the industry, including the structural changes.

Sheikh Ahmad Al Fahad Al Sabah- Minister of Energy & Chairman of KPCʼs Board of Directors- said that “the decision to

To Meet Market NeedsOPEC Raises

Production Quotas

raise production have to be evaluated during the emergency meeting in Vienna on July 21.”

World oil prices have soared on the back of worries about the threat of fresh terrorist attacks on Gulf oil facilities after gunmen attacked a Saudi oil facility at Yanbu port, killing five staff of theSwiss engineering group ABB and a Saudi national guard.

Aside from terrorism fears, crude prices were also being infected by a feverish gasoline market, with fuel stocks low ahead of the so-called “summer driving season” in the United States when motorists flock to the roads, analysts said.

Global Energy Security: A Strategic Perspective

In the following speech presented at Middle East Oil and Global Energy Security Conference held at Bahrain from the 9-11 May 2004, Nader Sultan Deputy Chairman & Chief Executive Officer, talksabout the means to ensure the global energy security in the new World Order.

Since September 11, energy security has received a new focus, with increased emphasis on the physical aspects of security as well as on the more traditional one of supply security. More recently the implication of the growing dependence on Middle East oil has been raised as a major issue. There is also new attention being paid to the quality and size of the reserves in our region. This has led to questions about the ability of the Middle East not just to increase production, but simply to maintain it at current levels.

However, whilst a lot of emphasis has been placed on the subject from the consuming nationʼs side, little attention has been paid to the concerns of the energy producers and their perception of energy security, namely that of demand security and the long-term viability of being so dependent on oil in our economies.

With the expected growth in GDP of the world economy, oil demand is projected to increase to about 120 m bpd over the next 25 years. The bulk of the increase, some 70%, will be in the developing countries, with Asia and China showing the largest increases.

On the supply side, the Middle East will strengthen its position as the worldʼs largest oil exporter. In fact the IEA projects that with half of the worldʼs reserves, the Middle East will meet at least two thirds of the increase in global oil demand.

However, as the main areas of supply are not the main consuming areas, the inter regional trade in crude oil and refined products is projected to increase80 percent.

With regard to the shorter time frame of the next ten years, recently Exxon has repeatedly cautioned that about half of the oil and gas volume needed to meet demand 10 years from now is not in production today. Therefore the industry will have to add capacity equal to two thirds of todayʼs production levels.

In view of the recognized growing importance of the Middle East in future supply, key concerns are being raised about the regions ability to produce the oil needed. The status of the reserves in the area is being questioned, as well as the technical and financial ability to make thenecessary investments. Finally geopolitics of the region remains a key worry.

In March of this year, Lord Browne, the C.E.O. of BP, speaking in Washington had some important points to make on energy security. He stated; “In reality, energy security is about the supply of oil and gas to meet the future demand”... (Which is expected to grow dramatically). He further asked the question, “Can the oil and gas industry meet that demand? In physical terms the answer is clearly yes. So in terms of physical resources, energy security is within reach.” However, he went on; “One key element of risk arises from the fact that supply and demand is not typically co-located. So one of the key issues of energy security over the next decade will be the growing trade in both oil and gas which will be necessary to match supply to demand.

The other key issue of security arises because the resources needed to supply the worldʼs growing demand are concentrated in three regions.

The Middle East, Russia and Africa. I think Lord Browne addressed the right issues, and his point about the concentration of supplies is an important one, but let me take a minute to distinguish between the regions.

Firstly, let me say that real security comes from diversity of supply. So it is important that the world should develop the resources in Russia, Africa and the Caspian.

Similarly, in the context of differentiating between the regions, Dan Yergin of CERA made an interesting observation in a paper to the US Senate just before the Iraq war. He argued that the US should recognize that there is really only one oil market. The United States is part of a global oil market, an extraordinarily huge logistical system that moves 80 million barrels of oil around the world every day. So US security resides in the stability of the overall market. So it does not make sense to

focus on imports or reliance on one region. Once again the importance of diversity of supply was stressed.

At the same time, Vahan Zanoyan the president of Petroleum Finance in Washington also submitted a paper to the Senate in which he strongly argued the need to distinguish between large commercial suppliers like Russia, the Caspian and Angola versus strategic suppliers like Saudi Arabia and the Gulf countries who are prepared to maintain spare capacity. This is a very important distinction, as in the latter countries, government policies are more important. Naturally, commercial companies, in developing reserves, try to maximize the economic return during the life of the contract. They have no incentive

in maintaining spare capacity.On this same topic of spare capacities,

Nordine Ait-Laoussine at the Oxford Energy Seminar recently pointed out that the maintenance of spare capacity and the defense of stable oil prices are two sides of the same coin. Without spare capacity prices would fluctuate more widely. Similarly, Mr. Ali Naimi, the Saudi Minister of Oil recently reminded us that it was his countryʼs spare capacity, and not any non OPEC production that came to the rescue during the Iranian revolution, the Iran - Iraq war, the Gulf war, and the Iraq war.

When you think about it, one year ago, there was a major war in our part of the world and remarkably, because of the policy to maintain spare capacities, supplies were not affected. So the firstdistinction to make is the important role of the Gulf governments in maintaining spare capacity.

The second distinction is to accept the reality of where the reserves lie. God Almighty has blessed us with the huge and low cost oil reserves. A recent study by Dresdner Kleinwort Wasserstein entitled “World Oil Supply - Cost Matters” emphasized the relative low cost of

exploration and production in the Middle East of around $ 2/per barrel compared to cost of $10 in North America, or Russia at $6, (without the rail transportation costs).

So from a reserve and cost stand point, the Middle East and Gulf countries will remain important. What about from the geopolitical perspective? In December 2002, the Economist magazine had on its cover the title “Addicted to Oil.” The arguments in the magazine stated, “The world will be increasingly dependent on the Middle East for oil. The region is unstable. There is a vulnerability to possible disruption of supply. OECD countries are evaluating policies to reduce imports from the Middle East”.

However the magazine also came to what I would call some “common sense” conclusions. One of these was that to the oil producers in the region, oil is of no use buried in the ground so under whatever scenario of politics, producer governments will ensure that the oil will flow. It furtherargued that dependence on the Middle East may be unavoidable but it need not be a problem.

Robert Mabro, in an article before the Iraq war, argued that as opposed to the

US approach to reduce import dependence from the Middle East, and the European approach to reduce demand as a way to reduce dependence, there is also a third solution, not mentioned by energy policy makers, which is for the major countries, by their policies towards the region, to enhance the reliability of those on whom dependence is inevitable for many years to come.

Once again, Vahan Zanoyan, a few years ago in January 2000 wrote a very perceptive article on Energy Security in MEES, entitled “Energy Security - The Tables Have Turned”. In it he argued; “It is the oil exporters, particularly those in the Gulf, who now face the more serious energy security problem. Two distinct but complementary challenges best characterize this problem: first, the challenge to securea material place in the global energy business of the future. Second, the challenge of reducing their dependence on oil revenues.

So he recommended two strategies; 1. First secure the present, through: (i)

prolonging the importance of oil as a source of energy in the global economy; and (ii), prolonging the importance of the Gulf as a source of oil.

2. Second, secure the future, through: (i) a significant reduction in the dependenceto the Gulf economies on oil revenues; and (ii), investing in, or buying a right of passage to, the energy business of the future”.

Interestingly, in this regard, in Bahrain a few months ago, Michael Porter gave a fascinating presentation on the challenges being faced by the oil rich Gulf countries. In it he emphasized that whilst the Gulf countries have registered solid economic growth, however growth in per capital GDP has been negative in some countries, and population and work force growth will challenge economic development efforts. He then went on to distinguish between “inherited” prosperity, such as that from natural resources, to “created” prosperity, coming from creating valuable products and services and created by companies. With “inherited” prosperity, governments are the central actors, where as with “created” prosperity it is the companies, or private sector. He cited research, which indicated that presence of high natural resource

exports is associated with declining competitiveness over time.

In essence he was arguing for the need to diversify from our dependence on oil and for governments to create the right business environment to allow private companies to become globally competitive companies.

So this is the other side of the security argument, where to achieve security we need to prolong the importance of oil and the Gulf as a source whilst at the same time, securing our future by reducing our dependence on oil.

Having emphasized the critical role that the Middle East and Gulf countries will play, how are we meeting the investment challenges? Let me share with you Kuwaitʼs perspective.

We in Kuwait believe strongly that dependence is not the same as being vulnerable. Actually it is mutual interdependence, since we want security of demand and we realize that that to monetize our reserves below the ground we need the markets. This interdependence may actually be a source of energy security.

Today we should recognize the inevitable advance of forces promoting stability. There is greater internationalization of economies, with joint ventures fostering common interests. As you know that most of the Gulf countries, in their quest to expand capacity have chosen the route of joint ventures with the international oil companies. We are hopeful that Project Kuwait will succeed as well within the same framework. Such joint ventures create growing interdependence between producer and consumer.

So what are we doing to meet the investment challenge? On the upstream, we are progressing with our plans to expand our productive capacity to between 4- 5 million bpd by the year 2020. We expect in this process to spend some $30-$45 billion to reach these targets.

On the financial side, we seeno difficulty in being able to fund theinvestment. On the reserves side, we are confident that they are adequate toincrease our production to these levels. But as is normal with reservoirs, the higher the production targets we set in the shorter time frame, the higher will be the decline

curve later. So our objective is always to maximize reserves recovery over the longer term.

However, we do anticipate serious technical challenges, with regard to the new reservoirs we wish to develop. We will need to produce crude from the heavy crude reservoirs, some of which have an API of 18, which are more complex and have larger water cut. For instance at a crude production rate of 4 million bpd, we anticipate a water production of some 10 million bpd. So the managing of so much water, with itʼs associated corrosion, will be a challenge.

This is the reason why we believe the participation of the international oil companies in our future investments is critical. So we remain committed to work with our parliament to bring Project Kuwait to a conclusion.

However, in planning for our investments, one major uncertainty is the security of demand. As you all well know, there are so many assumptions built into the long-term demand and supply forecasts, and any of them could change. So as a major resource holder there is always the risk that

the capacity you build will not be required. This could result in higher operating costs but more important it could be a waste of resource allocation. However this risk is taken in the context of our commitment to ensure long-term stability of markets. In a sense it comes with the responsibility of being a large resource holder and this is what distinguishes us from the international companies.

While energy security appears threatened by dependence, it is actually strengthened by interdependence. Although the oil market is a global one, the future role of the Gulf and the Middle East will be critical, and we in Kuwait, remain committed to make the necessary investments to ensure energy security. We recognize the inherent risks in investing for the long term but that is part of the responsibility and burden we carry as a major resource holder. We support and encourage diversity of supplies, but our policies in maintaining spare capacities need to be recognized as contributing to the long-term stability of markets. As we support the international markets, we will also have to meet our internal challenge of reducing our dependence on oil so as to ensure our future economic security.

Talal Al Khalid Highlights the New Promising Era of Progress

There is a strong sense of optimism overwhelming the Kuwaiti oil sector. The sector is set to enter a new era of progress and enhancement which will elevate its status after the approval of major new projects.

In a comprehensive interview, Sheikh Talal Al Khalid Al Sabah-Executive Assistant Managing Director Corporate Projects Parliament and Government Relations & Media- highlights the sectorʼs key projects that will fulfil strategic directions.

PIC has recently announced two new ventures with the American Company DOW. This announcement was received with great interest from industry observers. Can you shed more light on this matter?

In conformity with our strategic directions, KPC is seriously exploring alliances with industry majors in ventures inside and outside Kuwait. This strategic alliance, which PIC developed with DOW, translates those plans. After obtaining all necessary approvals PIC and Dow will form the following:

1. MEGlobal, a 50/50 global joint venture for the manufacture and marketing of merchant monoethylene glycol and diethylene glycol (EG).

2. Equipolymers, a 50/50 global joint venture for the manufacture and marketing of polyethylene terephthalate resins (PET) and the manufacture of purified teraphthalicacid (PTA).

Additionally, as announced in May 2003, Dow and PIC propose to construct the second Olefins plant to produceethylene and derivatives in Shuaiba and a new ethylbenzene/styrene unit in Shuaiba as well.

These projects build on the successful business relationship in EQUATE Petrochemical Company between PIC and Union Carbide Corporation, a wholly owned subsidiary of Dow. These projects combine Dowʼs strong existing asset base, technology position and market presence with PICʼs commitment to increasing its investment in downstream petrochemical markets. Additionally, they demonstrate the commitment of Dow and PIC to better supply growing customer needs for these products around the world.

Currently, PIC is executing an Aromatics project for the production of paraxylene and benzene in Kuwait. PIC is committed to carrying out its operations in accordance with best industry practice and to ensuring that its facilities comply with highest safety and environmental standards.

What about the plans to establish a

fourth refinery in Kuwait?

I am pleased to announce that during its last meeting KPCʼs Board of Directors approved the building of the fourth refineryin Kuwait, which is a major expansion. It will most likely replace the Shuaiba Refinery. This is a 1 billion KD project andis viewed as another sign of progress being made in the Kuwaiti oil sector.

According to our strategic directions we aim to enhance our refining capacity.The project will also create new job opportunities for young Kuwaiti graduates. We face pressing challenges of creating new jobs opportunities to accommodate the escalating number of graduates.

The oil sector directly employs around 14,000 employees, and another 17,000 indirectly through our contractors. The coming years will witness an increase

of 18,000 national workforce looking for job opportunities and all eyes are directed towards the oil sector to fulfill part of thoseneeds. The national workforce represents 77% of the total number of employees as compared to only 9% of our contractor staff. We are striving to increase that percentage to at least 25%.

What are KPCʼs other major projects?

One of the milestones in the realm of privatizations has been the successful offering of the coke calciner project. The project was offered up for bidding last year and it was awarded to the ʻAl Malʼ Consortium headed by leading businessman, Mr. Wael Al Saqer. The project is extremely vital to boosting the local economy and allows the private sector to invest in some of the oil sectorʼs key projects. The project will also provide Kuwait National Petroleum Company (KNPC) with an outlet to market petroleum coke locally as well as create new job opportunity for the national workforce.

Calcinized coke is the basic component in manufacturing aluminium. It is thought that the plant will be one of the largest of its kind in the world. It will incorporate all the latest international technologies and will also take into consideration all environmental requirements. It is anticipated that the total cost of the plant will amount to $150 million. The plant

will start its operational life in two years time, with a production capacity of 350,000 tons per year, which will be exported, to countries within the Gulf area, the United States, East Asia and China.

The idea of having the private sector participate in the projectʼs construction was first mentioned about two years ago,when KPCʼs Board of Directors decided to invite the private sector to participate in some oil sector projects. The project will be the first project to be built solely by theprivate sector. Two years of detailed studies and meticulous assessment, assisted by the International Investment House (Global), preceded the announcement of the tender. The Corporation conducted the bidding and tendering process with absolute openness in order to guarantee fair competition.

The contract drawn up between the Corporation and the “Al Mal” Consortium includes the fulfilment of a number ofterms and conditions, most important of which is that KPC will provide the plant with feedstock at a capacity of 420,000 tons per year from Mina Abdullah refinerymanaged by KNPC.

Do you have final remarks toconclude the interview with?

The Kuwaiti oil sector faces and will continue to face several challenges in its journey of progress, however, we are confident in our ability to surmount allchallenges that may come our way with true will and determination from all our staff to maintain our leading status as a regional oil leader.

On the Threshold of a New Era

KPC is standing on the threshold of a bright new era of progress and prosperity. With large projects already in motion and bigger ventures all set to start, the present and the future were never brighter. The strategic directions for the year 2020 indicate that the only way to go from this point onwards is up. To ensure the application of all strategic plans, KPC and its subsidiary companies are operating in two parallel lines: on the one hand, continuously developing existing operations, while on the other, launching a number of major projects to strengthen the sectorʼs business for several decades ahead.

The future plans of Kuwaitʼs oil sector were underlined clearly during the Corporationʼs participation in the Conference for Major Projects and their Opportunities organized by MEED Magazine. The conference, attended by delegates from the worldʼs leading oil companies, witnessed discussions of the promising opportunities offered to international investors by Kuwait under the World Order where Kuwait has positioned itself as the Gulfʼs new commercial gateway.

Huge Forthcoming Projects

A sense of optimism prevailed during the opening remarks of His Excellency Sheikh Ahmed Al-Fahad Al-Sabah, Minister of Energy and Chairman KPCʼs Board of Directors marking the start of the two day conference. The speech was presented on his behalf by Mr. Abbas Al-Naqi, Assistant Under-secretary for Economic Affairs at the Ministry of Energy (Oil). Al Fahad said “by all measures, Kuwait stands on the threshold of a new era, driven by an increasing desire to modernize its infrastructure and launch development projects directed toward increasing and developing its sources of revenues and achieving a more active national economy.”

Sheikh Ahmed added “This conference comes at a time of optimism and hope for a general boom in all fields. Decision makersin the oil industry are looking forward to enhancing production and processing capabilities in various areas in order to increase revenues, distribute income and strengthen Kuwaitʼs position as a major global energy producer.”

He went on to say that the Ministry of Energy and Kuwait Petroleum Corporation are seeking to launch a number of huge projects “as part of our future strategic directions for the year 2020 to enhance our refining capacity, KD 3.3 billion hasbeen ear-marked for the building of a new refinery to raise the refining capacity to a million bpd. We are also planning to build a new pier and to upgrade the Northern Export Pier at Ahmadi Refinery”. With regard toexploration and production, “several large projects are being executed at a total cost of KD 6.5 billion in order to increase production capacity to 4 million bpd. These include an increase of production through Kuwait Project to develop the northern fields with theassistance of international oil companies. It is hoped that this project will double production of the Northern Oil Fields.”

Al-Fahad emphasized that Kuwait has optimistic expectations for several large petrochemical projects with a total cost of KD 1.8 billion, including the Aromatics

and Olefins Complex, and also in electricityand water development, where the Ministry has plans for large projects in transmission networks and distillation plants at a cost of several hundred million Dinars. Sheikh Ahmed Al-Fahad said he was confident of theability of the private sector, local contractors and personnel and petroleum services companies to build these vital projects.

Major Energy Projects ProgramNader Sultan, Deputy Chairman and

Chief Executive Officer, shared the optimismof Sheikh Ahmad and presented an “Outlook for Challenges of Major New Projects in the Kuwait Oil Industry. Sultan said “ the timing of the conference is very appropriate as we are about to enter into a major phase of expansion in the oil sector in Kuwait. Recent estimates of long-term oil demand from the IEA indicate that world demand for oil will increase from the current level of 80 million bpd to 120 million over the next 25 years, and with the Middle East holding half of the worldʼs oil reserves, it will meet at least two thirds of the increase in demand. This will require an increase in capacity from Kuwait.”

Sultan said that the KPC board of Directors last year set the most recent strategic directions until the year 2020 in an ambitious expansion plan that seeks to achieve the following goals:

- In the upstream sector to reach a crude oil production capacity of 4-5 million bpd

- In the downstream, to study the expansion of achieving a refining capacityof 1.5 million bpd by 2010, whilst meeting the local energy demand, and using the future heavy oil availability

- In chemicals, to expand inside Kuwait, into chemical projects integrated with our oil activities and develop the new aromatics and olefins projects, preferablywith joint venture parties, and to focus on the chemicals with high growth potential.

He added that “these three plans alone will require us to spend about 11.6 billion KD or close to 40 billion dollars over the next 20 years. This number would increase by another $5 billion, if we targeted 5 million bpd. This shows that to implement our plans is a major undertaking and will require the active co-operation of the private sector and the international contractors.”

The Main Challenges

Speaking of the challenges that face the oil sector, Sultan said that a primary challenge was how “to maximize employment from these vast sums of money that we anticipate to spend.” He explained that, “ Interestingly, with such a large contribution to the economy that oil plays in financial terms, howeverwith regard to employment in the country the contribution is much less. Whilst the total working population of Kuwait in 2003 was 1.4 million, in the oil sector, we employed 13,700 directly, and another 17,000 indirectly through our contractors for a total of 30,700. So although we contribute some 50% of the GDP, we employ less than 3% of the total workforce.

This job issue must be considered in the context of the number of young people who will be entering the job market in Kuwait. We expect 18,000 this year, 19,000 next years - rising by one thousand per year. This needs to be compared with our average recruitment of 500 new candidates per year. Notwithstanding this, we have a clear objective to increase the number of jobs through our projects, both directly and indirectly” he pointed.

Exploration and Production

Kuwait Oil Companyʼs Chairman and Managing Director, Ahmed Al-Arbeed, talked about oil exploration and production projects in Kuwait. “According to a study released by the International Energy Agency, Oil companies will have to invest up to $5.3 trillion over the next 30 years to supply the worldʼs increasing demand for oil and natural gas”, he said, and added “that would include $2.2 trillion in investment for new oil production, as worldwide demand for oil surges to 120 million bpd by 2030 from 77 million bpd in 2002.”

He emphasized that this expansion is to be achieved in such a way as to maximum return on the invested capital, while observing ecological factors and preserving the environment, and finally, improvingcontractual relations with our partners, both financiers and contractors.

Al-Arbeed said that Kuwait Oil

Company has identified ambitious goals.“The targets that we have set for

ourselves are quite challenging. This has been attend to be our employees and advisors, but we are determined to carry them out, as we have proven on several occasions that where there is a will, there is a way! Hopefully the approaches we are taking, the change management initiative we are adopting and the general change in attitudes and values being observed will help us transform KOC into a leading national oil company.”

He stressed that the programs for development, drilling and exploration for the current year are bigger than any program implemented during past years. “The success that was recently achieved in the area of exploration, accompanied by good results in growth and development, has encouraged us to adopt further serious activities for developing our infrastructure” he said.

Large Advances in Petrochemicals

Saad Al-Shuaib, Chairman and Managing Director of Petrochemical Industries Company, presented a paper titled “Growth in the Kuwaiti Petrochemicals Sector”. He said that the strategic trends of the company are based on increasing its involvement in the overall operations of KPC and diversifying its sources of income through achieving a considerable growth in the petrochemicals sector. “The companyʼs vision”, he continued, “may be summarized as building a lasting position for the company

in the world in the field of producing basicpetrochemicals and commodities, and achieving further international expansion in order to become a leader among our peers in the region and succeed in achieving the expectations of our shareholders”. He added that the future expansion would be at both the local and external levels in order to attract international investments.

At the end of the conference, KPC and its subsidiary oil companies emphasized their determination to continue to implement their strategic plans and enter, with great self-confidence, a new phase in the life of thesector - a phase full of tremendous challenges on the one side and a great determination to succeed on the other.

Promising Signs for New Gas Finds in Kuwait

Kuwait National Petroleum Company (KNPC) hosted, for the first time, the 12thGCC Technical Conference of the Gas Processors Association. The conference discussed new developments in the gas industry in the region, the capabilities available to meet the increasing demand for gas and the requirements of the local and international markets.

During the conference, nine working papers on the technical aspects of gas production were discussed. Sheikh Dr. Hamad Khalifa Al-Khalifa, the Chairman of the Association, inaugurated the conference with an opening speech. He stressed the fact that world demand for gas is increasing at 4.2 per cent every year. It is expected that this percentage will increase up to the year 2030, according to the predictions of the International Energy Agency. He pointed out that despite the decrease in the demand for liquid natural gas during the last year, gas remained the fastest growing sector in the field of energy. There are goodexpectations for its continuous growth, with plans to increase the production capacity of

liquefied gas more than ever, particularlyin Asia.

“The manufacturers of liquefiednatural gas are competing to meet the increasing demand in the local markets and the opportunities appearing in the emerging markets such as China and India.” He added that the global demand for gas continues to increase since it is a cleaner source of energy. He mentioned that the gas demand of the international energy market increased from 23% in 2002 to 28% 2003.

He pointed out that due to the expectations of further demand increase for gas, particularly in GCC countries and of increasing needs in Asia and the Pacific,recent years witnessed the launch of large developments and investment projects in natural gas production. Moreover, several Gulf countries have signed gas supply agreements with key gas producing countries.

Major Gulf Projects

Dr. Hamad presented the most important projects in GCC countries related

to the gas industry, including the Dolphin Line project, with a total cost of US$ 10 billion. It is the largest gas project of its kind in the world. It will supply the United Arab Emirates with Qatari gas at the rate of 2 billion cubic feet per day. He pointed out that the other large gas project in the area is the one carried out by the Kingdom of Saudi Arabia, the costs of which are estimated at US$ 25 billion. Its execution will require ten years.

Al-Khalifa also pointed out that these large investments clearly indicate the exceeding importance of the gas industry for the economy of the Arab world in general and the GCC states in particular. He stressed the fact that for this industry to develop, state of the art technology should be applied. Additionally, industry officialsshould exert effort and care to develop the workforce and ensure the safety of our gas manufacturing processes.

“As members in the Association of Gas Manufacturers, GCC Branch, and in accordance with the mission and vision of our association, we have a responsibility to develop interaction and exchange of knowledge and experience for the interests of our industry. This mission has been fundamental centre of balance and the major source of gas industry information in the GCC countries”, he added.

Gas: the Fuel of the FutureMr. Nader Sultan, Deputy Chairman

and Chief Executive Officer saidinterestingly that “crude oil fuelled the 20th century, with its enormous economic growth. Now, natural gas will be the fuel of the first decades of the 21st century”. Hepointed out that “God Almighty has blessed the countries in the Gulf with large reserves of hydrocarbons. However, with regard to gas reserves in particular, in relative terms, some countries such as Qatar are gas “rich” while others, like Kuwait and Bahrain are gas “poor”. There are very ambitions projects for LNG and GTL, geared for export to far away markets but there is also a deficit in the very backyard of the gasrich countries, which I believe should be exploited first.”

Sultan mentioned that the gas produced in Kuwait is currently an associated gas produced with crude oil. He pointed out that “as an example, in 1972 our crude production was some 3.2 million bpd, but today we are close to 2 million bpd. Naturally this reduction in crude production has had a major impact on our gas supplies to the point where one of the trains at our LPG plant, built for a gas availability from 3 million bpd of crude production, is currently operating on a standby mode.”

The Deputy Chairman and Chief Executive Officer pointed out that “inKuwait, several different companies are involved in the processing of our gas. At the well head, we have KOC, in charge of upstream activities. Then downstream we have KNPC, which takes the rich gas from KOC, feeds it to the LPG plant and distributes lean gas to the Ministry of Electricity and to our chemicals company. KNPC also supplies ethane to the joint venture Equate. We have three to four groups managing the various gas lines and therefore the responsibilities are fragmented. We recently created a new group to take over the management of the gas pipelines and infra structure. The purpose is to have an integrated centralized management system with three objectives in mind;

to improve the HSE management system, to manage the gas and condensate network more efficiently and to improvethe reliability and quality of the gas service. At the same time we are thinking of establishing an SBU to oversee all our gas activities.”

For his part, Mr. Hani Hussein, Managing Director for Refining and theChairman of Kuwait National Petroleum Company, reiterated that gas is the fuel of the future. It will have an increasing importance, particularly because of environment factors. It is used in the petrochemical industry or, more importantly, as fuel for power stations. “The importance of gas for GCC countries is that some countries largely rely on gas exports, while others such as Kuwait and Bahrain consume gas and they need to

import large quantities of it” he added.

He also pointed out that the conference gave an opportunity for the countries of the GCC to share experiences of this rapidly developing industry and to discuss the possibilities to exchange and export quantities of gas between the countries.

Mr. Hussein mentioned that comprehensive studies of the gas network were being conducted to fully put it under one management in order to maintain safety, environment and occupational health. One party only shall be responsible for this. The network has to be improved and there has to be coordination among the various bodies, particularly as there are more than at least seven parties producing and consuming gas.

He indicted that the need for more

gas compels Kuwait, at present, to make

more contracts to import gas. “The gas available in Kuwait is accompanying gas. It is produced with the crude oil. The results of gas explorations show there is light oil and Kuwait Oil Company found encouraging quantities in areas expected to produce gas, in addition to Dorrah field,which is located between Saudi Arabia and Iran.” He stated that if these quantities were produced, they will satisfy the Kuwaiti market needs in the future.

Gas Import AgreementAs for the agreements between Qatar,

Iraq and Iran to provide Kuwait with gas, he said that talks are under way with Iran and there is agreement in principle. Iran has ample reserves of gas and the quantity is available. However, negotiations were on the basis and quality of gas to be imported. As for Iraq, it has various gas production sites and large quantities of gas which are not exploited.

KNPC: 2004’s Best Arab State

Owned Company

Naturally, there is a sense of jubilation and pride amongst the employees of the company that refuses to subside. KPC World met the officials who weredirectly involved in the preparations run up to the competition to obtain an up-close and personal account of all the behind the scenes efforts.

Ahmad Al Mudhaf- Manager Public Relations- enthuses “we are very happy and excited. In fact, we are very proud of this achievement.” His pride is apparent as all visitors of his office are shown a video ofthe prize giving ceremony, which took place at the Dubai Chamber of Commerce. Al Mudhaf quickly points that the competition was not easy by any standards as KNPC was competing against the most distinguished and prominent companies in the Middle

In recognition of its efforts to become a regional leader, Kuwait National Petroleum Company (KNPC), a KPC subsidiary, won the coveted ʻBest Arab State Owned Companyʼ award for the year 2004. The award was presented by H.E. Sheikh Mohamed Bin Rashed Al-Maktoum, the Crown Prince of Dubai and Minister of Defence of the United Arab Emirates. This achievement is a luminous landmark in the history of KNPC and a recognition of the highest level.

East. “Competing against the best made victory even sweeter.” Al Mudhaf recalls that the most poignant memory was climbing the steps leading to the stage along with Mr. Hani Hussein -KNPC Chairman & Managing Director- to receive the award from Sheikh Mohammed Bin Maktoum.

With regards to the nomination process Al Mudhaf elaborates that KNPC became aware of the competition in late 2002 and took great steps to participate. However, KNPC delayed its participation till the year 2004 so as to be fully prepared. “We were informed by the Dubai Prize Secretariat, and just being nominated filled us withan overwhelming sense of jubilation and pride.” Al Mudhaf points out that the glory must be shared by all since the nomination was the result of collective efforts by the entire staff and management of KNPC. “Our 5,500 employees are the real contributors to this achievement. As the news resonated we were inundated with remarkable responses from all around. Afterwards, I travelled

with Mr. Hani Hussein to receive the prize during the special ceremony. The attendance was beyond description and more than expected.”

Far Reaching SignificanceWinning the award holds deep

significance and has far reaching effectsopines Al Mudhaf. “The prize has special significance to KNPC in particular andKuwaitʼs Oil Sector in general. It means that we have reached a high standard of excellence in the criteria set forth by the prize organizers. Among these criteria are health, safety and environment. It affirms that we have reached internationalstandards in these areas. It also proves to all detractors that KPC and its subsidiaries have successfully rectified the weak points whichcaused the devastating accidents that plagued us in the past, and we are firmly placed onour path of change and improvement. The unfortunate incidents only strengthened our resolve to become a regional leader, particularly in HSE. Improving our health, safety and environment performance has

become an unyielding priority. Our ultimate goal is to reach a level of zero accidents” hopes Al Mudhaf.

“The resolve to become a leader is an objective envisioned by KNPC Upper Management”, affirms Al Mudhaf. “AfterMr. Hani Hussein took over his duties as KNPCʼs Chairman, there was a determined interest in making that vision a reality. We had clear and specific objectives andstrategies, the results of which can be easily measured. This has made the work process easier for the management and the staff in general. When KNPC was subjected to severe criticism we worked quietly as we believe actions speaks louder than words. Since that time, various new projects have been launched with well defined goals. These projects have beenfruitful. Another factor in our success is the clear attention to the wellbeing of our staff. We believe that our strength stems from our people. Hence KNPC provides the necessary encouragement and training to develop work skills. Moreover, KNPC

is a company that encourages and fosters creativity. Our achievements surfaced and our performance became widely talked about by industry specialists.”

To win the award, KNPC simply had to work harder. “We worked very hard to present all information needed in the most ideal manner to reflect the stature of thecompany. This entailed considerable time and effort. Our presentation materials had to be ready by the end of 2003. In May 2003, a team was formed for the nomination of KNPC for the prize. The period from May to December was allocated to gathering the information, classifying it and making it presentable. We were very careful to include accurate and authentic information about KNPC to ensure that we would reach our main objective and win the prize. Our decision was to concentrate on one category of the prizes, and we were fortunate to attain that award.”

Upon wining the award, KNPC received several congratulatory letters from oil officials such as Sheikh Ahmed Al-Fahad Al-Sabah, the Minister of Energy and Chairman of KPCʼs Board of Directors, Mr. Nader Sultan, Deputy Chairman and Chief Executive Officer of KPC and Chairmenof the subsidiary companies as well as Members of the Kuwaiti Parliament. “His Excellency the Minister Sheikh Ahmed Al-Fahad, confirmed the importance of the this

award to the oil sector as a whole.”

"Success is sweet, but to remain at the top is the real test.”, says Al Mudhaf realistically. “The important thing is to maintain that level and improve performance. The prize gave more momentum to the staff on all levels to exert more efforts and to look for creative initiatives to develop their work. We have several new ideas and ambitions to obtain other prizes at Asian and World levels. Prizes are a scale against which we measure our success and it is important to evaluate ourselves and our resources against other companies. It is important to set high standards for ourselves and compete with the best regardless of whether we win or not” adds Mr . Al-Mudhaf.

KPC World also met Mr. Bader Saud Al-Sumait who said that to win the award, KNPC had to fulfil 10 criteria which were:leadership, strategic planning, creative initiatives, electronic management of works, human resources management, dealers and customers services, work procedures, HRD, community commitment and the results of institutional performance.”

KNPC easily displayed outstanding performance which resulted from a well planned and supportive work environment, Al-Sumait explains. “According to our work strategy, we set forth a plan to upgrade the level of performance on all levels. The

plan covered all aspects and there was a new vision that charts the direction of the company. The vision was translated into result-oriented programs that had tangible results reflected by figures. Each item of theplan had a target level, a clear work schedule and a follow up chart to show the execution and evaluation of results.”

The execution of all company plans was marked with clear enthusiasm from all staff at all levels KNPC provided all necessary means to ensure a smooth execution of strategic projects and all efforts were appreciated and rewarded to boost morale.

Prior to winning the award Al Sumait stresses that KNPC should continue on its path of progress and enhance its efforts to execute the current initiatives. “We are now half way in our journey to complete success. What we have achieved is just one stage of accomplishment. Therefore, we have to invest all our resources to move to the other stages.”

Optimism and a positive outlook are the overriding qualities. Al Sumait feels that the reputation of KNPC was diminished in the past, but has been restored now thanks to teamwork to attain a common goal. Bad publicity and incorrect portrayal of facts had negatively affected the reputation of the company. “Large efforts are being

exerted in the oil sector. There are gigantic efforts being made that remain unseen and away from the publicʼs eye. The truth is not publicized. However, what is blown out of proportion are the small and sporadic incidents, which affect the peopleʼs perception of the companyʼs performance. But all those feelings were altered with winning this award. It swayed the publicʼs opinion favourably and restored trust.”

Attaining the award, Al Sumait says, has presented a brighter image of Kuwaitʼs oil sector. “We have been commended by all and the positive responses we received were very supportive of our efforts.”

International CriteriaIbrahim Saqer, the Information

Official and another team member, underlines the importance of winning the award since it is the first prize on theArab level. He says that the award “has opened new horizons for KNPC and won it accolades from the international as well as the regional oil industry. KNPC is the firstcompany in Kuwait to obtain this prize.”

Human Resources: The Secret of Success

There is no denying the role of Human Resources in attaining the success of any plan. Mrs. Hanaa Abdul-Rahman Al-Sumaie, Personnel Manager, views

the award as “a source of pride for Kuwait and Arabs in general. I believe that KNPC deserved this prize, because it is actually distinguished as a state company, in all its sectors. This is due to the efforts of all the companyʼs management and staff I personally participated in the team and in preparing the prize file, as representativefor the Human Resource Department in the Company”, she adds.

KNPC is careful to ensure the right work atmosphere, one which encourages creativity. Al Sumaie sheds further light into this by saying “In the past, we had only one system for bonus and rewards, which was the incentive scheme. Now, we have seven bonus and reward systems. In that way, KNPC is unique amongst the subsidiary companies. We also have several incentive systems that reward individual and team outstanding performance, either monetarily or morally. We honour the best employee, the best leader, the best team, and the best department.”

At the same time, KNPC is very keen to provide all necessary training tools. The company organizes various training courses in collaboration with international institutions.

Ambition has no limits. “If you achieve something, you will look for another objective. Currently, we are in the process

of contracting with a consultant to apply the best world practices in the oil industry to our Human Resources Department. If Allah wills, we will move to new measures and systems for administration and training. We hope that we can start in August to make HRD a distinguished department in KNPC both within the oil sector in Kuwait and in the wider Arab world.”

“The selection of a woman to take over the responsibility of the Personnel Department reflects the companyʼs supportand encouragement for ladies to take over many jobs and to play their role in the company”commented Mrs . Al-Sumaei.

About her role in making the successful team for the nomination of the prize, Mrs Al-Sumaie stresses her admiration of this new experiment. “We have tried our best to translate the efforts of the company and the management properly in the report submitted with the nomination. By presenting facts the committee supervising the prize asks each department for an additional explanation. Our file was complete and full and selfexplanatory.”

This is another example of successful teamwork and organizational methodology with clear aims and objectives moved by a well planned ambition for KNPC.

KUFPEC’s Clear Direction for Growth

The rapid evolution of, Kuwait Foreign Petroleum Exploration Company (KUFPEC), a KPC subsidiary, is truly remarkable. KUFPEC is a local company operating internationally and is engaged in exploration, development and production of crude oil and natural gas outside Kuwait.

The 1980s saw a vast expansion of KPCʼs operations abroad. The Corporation founded KUFPEC and Kuwait Petroleum International (KPI) and had a strong presence in all key markets. However, until a few years back KUFPEC suffered a shaky position caused by the volatility of oil markets and was embroiled in losses that prompted its detractors to label it KPCʼs losing horse. However, KPCʼs trust in it was strong and believed that there was unexploited potential in KUFPEC. KPCʼs faith proved to be well founded and, remarkably, KUFPEC turned all its losses into profits and moreover, continues to increaseits profits. The net profits for the year 2003 are $88 million and are expected to grow next year when KUFPEC embarks onnew strategic ventures.

The KUFPEC portfolio includes investments in seven countries on three continents and is evenly balanced between gas and oil in terms of reserves. In exploration, the company enjoys notable successes offshore of Egypt and Australia, has re-entered both Algeria and Malaysia and continues to consider new ventures in its core areas wherever good opportunities, consistent with our strategic direction, can be identified.

Bader Al Khashti- Chairman and Managing Director- asserts that KUFPEC is in expansion mode. The company has a comprehensive strategy to ensure the fulfilment of all strategic objectives andis resolved to ensure its execution. “By combining development of properties already in our portfolio, new exploration, and aggressive acquisition of existing production, KUFPEC is transforming itself into a substantial international upstream player. And in the process, we will provide our shareholders with a return on investment they can be proud of.”

Al Khashti, attributes this success to three key factors: the effective and wise management decisions to enter into profitable and feasible projects, the teamefforts exerted by the company staff and the well-defined strategy approved by KPCʼsBoard of Directors, which has shaped KUFPECʼs future and set well-definedobjectives.

When looking at the huge profitsKUFPEC made last year, one assumes that the sharp increase in oil prices had contributed to those profits. Al-Khashtiagrees. However, he is quick to point that profits made from the escalating oil pricesshould not diminish the role of KUFPECʼs strategic planning and the efforts of the staff and management. “If we entered into non-profitable projects, we would not achievethese profits” Al Khashti reasons.

In addition to expanding KPCʼs operations worldwide and increasing profits for shareholders, Al Khashticontinues, KUFPEC afforded KPC a golden opportunity to develop the capabilities of

the Kuwaiti engineers through working in its international operations and being exposed to different work environments.

Ever since its inception, KUFPEC has made steady progress says Al-Khashti firmly. “The progress can be seen in thelevel of oil production and the large oil reserves of KUFPEC. In the year 2000, the production was 33 thousand bpd. Since applying our new strategy and establishing clear objectives, we have reached, within 3 years, about 43 thousand bpd, an increase of 10 thousand bpd. Three years ago, the exact oil reserve of KUFPEC was 210 million barrels. Now it has increased to 269 million barrels.”

New VenturesThe company has plans to venture into

the promising markets of Iraq and Russia. Al Khashti explains that KUFPEC is planning its entry carefully and deliberately. It is currently studying the market situation thoroughly and weighing all available options. It makes complete sense to enter Russia and Iraq despite the apparent risks involved. “Russia is one of the leading oil producing and exporting countries. KUFPEC may have some promising investment opportunities, particularly in the light of the cooperation between the two countries fostered by the Kuwaiti - Russian Committee. The Kuwaiti side is headed by Sheikh Ahmed Al-Fahad Al-Ahmed Al-Sabah the Minister of Energy and Chairman of KPCʼs Board of Directors. The Committee was formed to explore for venues for joint oil investment in Russia. Two areas were identified in East Russia. Currently,we are conducting a feasibility study and discussing the machinery of entering into partnership with the Russian National Oil Company, RUSOIL. We have discussed many projects and opportunities there. We are hoping to sign an agreement before the end of this year. At the same time, we are cooperating with several of international companies already operating in the Russian market to discuss joint investment there.”

While international majors are clamoring to enter Iraq once the situation

there calms down, it follows that neighboring Kuwait should also consider exploring available investment opportunities. KUFPECʼs entry into the Iraqi market has been approved by the Higher Kuwaiti-Iraqi Committee, the Kuwaiti side of which is headed by Sheikh Ahmed Al-Fahad. Through this committee, the means of cooperation to upgrade the Iraqi oil industry, particularly in this critical period have been discussed. “We have looked into various projects, and eventually came to agreement about Seeba oil field, locatedin the south east of Iraq along the borders with Iran. A cooperation committee has been formed with the Iraqi side to discuss the feasibility and technicality of the Seeba oil field. Three meetings have been held tooutline the respective roles of KUFPEC and the Iraqi side and to reach an agreement to permit KUFPEC to work and develop this oil field. In the near future, we will havegood results. “We have completed some special studies. Still there are some items to be studied. Through these studies, an agreement will be made” he points out.

Calculated Risks The selection of the best places for

foreign explorations has always been a subject of debate, especially when there are evident risks involved. Notwithstanding these risks, the Chairman of KUFPEC feels that the pros outweigh the cons. “Regarding Russia, it was previously considered as an isolated area. However, that isolation ended with the demise of the Soviet Union. Now they are much more open to the world than before. Russia is in need of foreign

exploration companies to collaborate with local companies to develop its oil resources. The local Russian companies also need to explore outside Russia. They have recently entered into a gas project in the Kingdom of Saudi Arabia with the Saudi government. The national Russian companies have expressed readiness to participate with both foreign national companies such as KUFPEC, and other international companies in oil exploration and development.”

As for the risks, Al Khashti, clearly the optimist, says “undoubtedly, risks exist everywhere. However those risks are economically calculated. Before entering into any project, all possibilities are set forth, including the estimation of the revenues. Then the decision is made whether to enter into the project or not. As for Iraq, agreed, it is passing through a critical period. However, we are confidentthat the Iraqi problems will be solved in the near future and we are optimistic that the unfavorable conditions in Iraq will not last for long. We have found the Iraqis to be extremely cooperative. Moreover, Iraq is a neighboring country with which we have strong historical relations. It is therefore appropriate for a company such as KUFPEC to work in Iraq.”

Since KUFPEC works in international

fields it has to contend with the high cost ofproducing oil compared to the Gulf region where the cost of extracting a barrel of oil is considerably lower. The recent high oil prices have yielded profits to all oilcompanies. “Owing to the high oil prices most of the oil fields are feasible now, evenwhen producing oil from difficult reservoirs. It is true that the cost of Gulf oil is very low compared to other areas in the world and thankfully our area is rich in both oil and natural gas. World oil and gas demand is on the rise and we can expect high oil demand until the year 2030. There is also great demand from China. This giant emerging economy is becoming the second largest consumer of oil after the USA. Indian demand is also increasing. When the future expectations of energy were studied, we considered all these factors. When you compare the current production with the expected consumption in the future, you will see that exploration and development is required in many areas. Even in the Gulf, there are many areas which are not exploited up to now. The same situation exists in Africa and other parts of the world, which need either exploration or development.”

Another promising KUFPEC market is the African continent. Currently, Egypt is one of the primary areas of KUFPEC explorations there. KUFPEC is involved

in the following four projects in Egypt:- Raas Kanaes Project.- North Bardaweel Project, with the

Italian Company I.T.O.C.- Block 24 Project in a muddy area.- Block 2 Project in the north of the

Red Sea.

Al Kashti sheds more light on African investments “Egypt is one of the African countries seeing a development in the percentage of natural gas exploration. Many international companies are starting to explore in Egypt and we have to compete with those companies. Again we are optimistic that we will get a share in major projects during this year.”

The new strategic directions for KUFPECʼs international operations have widened the horizons of the company. Al Khashti adds “after the approval of the new strategic directions by KPCʼs Board of Directors, KUFPEC has opened up new activities all over the world. Recently, as mentioned earlier, we began exploring areas that we never considered before such as China, USA and even Canada. We are yet to reach anything concrete but we are optimistic that we will gain a foothold in those new areas. I would like to seize this opportunity to thank Sheikh Ahmad Al Fahad Al Sabah- the Minister of Energy and Chairman of KPCʼs Board of Directors-for the infinite trust and support has given usand the new avenues he has opened up for us” enthuses Al-Khashti.

KUFPECʼs Social Responsibility

There is more to KUFPEC than meets the eye. The company has nurtured a deep responsibility to ensure the social wellbeing of people wherever it operates. KUFPEC believes in leaving its imprints and improving the life of people whenever needed.

In many countries, KUFPEC is the sole presence of Kuwait and hence endeavours to represent Kuwait as best it can. Al Khashti says that the company has developed several humanitarian projects in host countries to enhance the image of Kuwait and the company. “We have substantial investments in Pakistan in remote areas of the country such as Kerthar where basic necessities are scarce. Therefore, in the year 2001 we set up two medical clinics to provide medical care for the local people and we fully finance

these clinics. We also trained the tribal women in Kerthar to work in these clinics. Recently, when Al Sind River flooded, wedonated funds to the Government to help the people affected and we made several other contributions to the local people. Also in Pakistan, we supported a campaign to raise awareness of the importance of preserving the natural environment. We issued publications that reflected our keen interestin the nature reserves and we catalogued the endangered species of birds that need to be protected. To ensure the availability of clean water, we constructed twelve water basins in various areas for wild habitat in Kerthar area. KUFPEC also provides study grants to Pakistani tribal students”

KUFPECʼs humanitarian side is also visible in Indonesia, where it works in Seram and Poula fields. “To reduceilliteracy and to provide free education for the poor, we built, equipped and staffed schools there. All these efforts reflect ourdesire to serve the interests of the host state in collaboration with the citizens. These

projects also provide job opportunities for citizens of these countries” he explains.

In Tunisia, KUFPEC is proud of some distinctive achievements. It contributed to the construction of the large mosque in the capital. “It is a sublime building and one of the most distinctive mosques in modern architecture. This has resulted in a very positive reaction from the Tunisian government and people” explains Al Khashti.

In conclusion, Al-Khashti says “our objective behind all these initiatives is to enhance KUFPECʼs image wherever we operate and cause a positive improvement to the life of people. It follows that by creating a good name for KUFPEC we are creating a brighter image of Kuwait. This is clearly noticed when we carry out development operations in these countries, where citizens appreciate our efforts.”

This may be one of KUFPEC secrets of success or one of the indicators for the blooming future for KUFPEC.

Success to Success Against all Odds

Despite the increasing competition in the world oil market and the challenges brought about by the new world order, the International Marketing Sector continues to implement its strategy of strengthening its presence in the major markets and diversifying crude oil and petroleum products export destinations. In a special study of the recent developments in the Marketing Sector, KPC WORLD highlights the latest developments and activities of this sector.

International Marketing Enhances Customer Confidence in India

Within the framework of its strategy aiming at enhancing its position in the major markets and obtaining long-term contracts that yield a fixed income forthe Corporation, KPC has succeeded in renewing the trust of its key customers in India. This success was achieved through the renewal of the annual contracts with the state owned India Oil Company (IOC), and Bharat Petroleum, to purchase Kuwaiti crude oil, and underlined the success of KPCʼs efforts to strengthen its presence in promising markets. The renewal of the two contracts adds another point to the credit of the International Marketing Sector whose success must be seen in the light of strong competition from other oil companies seeking to increase sales in the Indian sub-continent, regarded by all as a highly promising market.

KPC was represented at the contract signing ceremony by Mr. Abdullah Al-Roumi, Acting Managing Director for International Marketing. In an interview with KPC World, Mr. Al-Roumi said he was very pleased with the contractsʼ renewal which can be attributed, first andforemost, to the good relations between the two countries and the attention given to customers in India by the management of the Marketing Sector. He described India as “one of the major markets.” He said “IOC is one of our oldest customers, with relations established as early as 1978. Since that time, relations have grown year after year. Initially, India imported mainly petroleum products. However, following the change in Indiaʼs industrial structure and the building of commercial refineries,demand shifted to crude oil for feeding the refineries. Thanks to the good relations wehave with the Indian companies KPC has become the crude oil supplier to the Indian sub-continent.”

On the occasion of the contract signing, Mr. P. Sujavanam, Finance Director of the Company, praised the historic trade relations between Kuwait and India in general and the close cooperation between

IOC and KPC, in particular. He expressed admiration of the Corporationʼs dealing with customers on the basis of cooperation and mutual respect as well as its flexibilityof dealing and prompt response to customer requirements. He added that the Indian oil industry is booming, with high growth rates which mean more demand for crude and petroleum products. He went on to say that the huge population and high demand, together with the flexible new laws passedby the Indian Government, which give the foreign investor a wide range of privileges and trade facilities, have created a great deal of competition among the oil companies for market share.

Mr. Abdullah Al-Roumi also signed a contract for the supply of liquefiedpetroleum gas (LPG) to cover the period

from July to December of this year, as an extension of last yearʼs contract with the same state-owned company. In this connection, Mr. P. Sujavanam said that India is a promising market for liquefiedpetroleum gas, given the Governmentʼs environment conservation policy of maintaining the level of pollution at the lowest possible level.

Renewal of Bharat Petroleum Contract

In another development, the International Marketing Sector renewed the contract to supply 40,000 bpd of Kuwaiti crude oil to Bharat Petroleum, one of the Sub-continentʼs leading oil companies.

On the subject of KPCʼs expansion plans in India, Mr. Yousef Al-Qabandi,

Manager Crude Oil Sales Department, said “the present plan is to maintain the existing contracts at increased quantities and, for the future, to coordinate with the concerned departments to explore investment opportunities in the Indian market to support the marketing of Kuwaiti oil there.

Of course, there is continuous coordination between us and the International Business Development at KPC, through the visits we make to our customers, when we provide them with information about investment opportunities that may further the marketing of Kuwaiti crude in India. As you know, India is a promising market, with high growth rates, and it is our strategy to increase our share in that market.”

“At present”, he added, “we have been dealing with three companies. A contract has recently been signed with a fourth company for the supply, initially and as a trial period, of relatively small quantities. During this period, the Company will study the Kuwaiti crude and the extent to which it is compatible with its refineries. Weexpect larger exports to this company over the coming few months. Indeed, India is one of the worldʼs most promising markets, and

it is our strategy to increase investments in this market in the light of the increasing demand for oil.”

KPCʼs delegation to the signing of the contract included Faisal Al-Mudhaf, Executive Assistant to the Managing Director Sales 1, Yousef Al-Qabandi, Manager Crude Oil, Hani Al-Awadhi, Coordinator Crude Oil Sales, Sheikh Abdullah Al-Sabah, Sales Executive at the Crude Oil Department, and Shahad Al-Essa, Sales Representative.

A Unique Marketing PolicyBased on Strong Customer Relations

Years of working in the field of crudeoil marketing have given the sales team both experience and shrewdness in the art of marketing and achieving the highest levels of customer satisfaction. The objective of KPC is not only to sell crude oil and achieve revenues but also to build a wide customer base over many years to come. The art of marketing has become part of the heritage that veteran marketing executives at KPC pass on to new personnel, and a system followed by everyone in order to achieve the desired goals.

Given the fact that India is a market of strategic importance to KPC, the Crude Oil Sales Department is keen upon strengthening its presence in the Indian market by furthering relations with its key customers there. “Our marketing policy” emphasizes Hani Al-Awadhi, Crude Oil Sales Coordinator, who has had a vital role in renewing the Indian contracts, “hinges upon building strong, sound relations with our customers. Basically, our job is to market crude oil to the main markets that give the highest return to the Corporation. The marketing policy is based on diversification as opposed to relying on onemarket and a specific customer. Geographicdiversification is another important elementof the policy. Nevertheless, we always focus on the markets that give us the highest returns. For us, India is a promising market that gives us rates of return higher than those obtainable in such other regions as Europe and the USA. In its strategy, KPC focuses

on building up a strong presence in India so as to benefit from the expected continuousincrease in demand for crude oil there. It is the worldʼs second most populated country, with an impressive industrial growth driven by an ambition to become one of the worldʼs main industrial countries. According to the latest studies, India has become KPCʼs second largest consumer of crude oil after Japan, making it a truly promising market for Kuwaiti crude.” Other factors that put India in a class of its own are its “geographic proximity to Kuwait, traditional trade relations between the two countries and KPCʼs marketing policy of identifying attractive opportunities, given the atmosphere of strong competition prevailing at present”.

The challenges to the marketing of crude oil are increasing by the day, and market conditions are not what they were only a few years ago. This state of affairs calls for more intensive efforts and alertness to identify promising opportunities for Kuwaiti crude exports. We regard the customer as a very special person and deal with him with a view to establishing a long-term relationship, and, in doing so we seek to overcome all obstacles that stand in the way of developing this relationship. This means that we employ a wide range of flexibility in dealing with customers.Indeed, we are proud to receive high praise from our customers for the excellent and flexible treatment they receive fromKPC”.

Thanks to all these factors, KPCʼs efforts have been rewarded with success in achieving its strategic objectives of strengthening its presence in the Indian sub-continent. “At present”, Al-Awadhi says, “we have large contracts in India, with the grace of God and thanks to the support we receive from Senior Management and the top executives in the Sector. Our contracts with major customers are renewed year after year with larger and larger quantities, a shining testimony to our effective strategic policy”.

Sheikh Abdullah Al-Sabah, Sales Representative at the Crude Oil Department, believes in the importance of building good relations with customers as a basic condition for achieving the desired goals of developing long-term markets for the Corporation. Al-Sabah says: “The successful salesman is, basically, a successful PR man, for public relations play a vital role in gaining customers”. “Like any other commodity,” he adds, “crude oil faces numerous challenges. In fact, I do not agree with the statement one often hears that crude oil is a commodity that sells itself. I think this statement is wrong because the oil market witnesses strong competition, particularly as a result of growing demand for natural gas which is environmentally cleaner, and because of the new crude and oil product standards we must observe to meet environmental requirements; while, at the same time, oil companies compete to establish footholds in promising markets. For this reason we

have to step up efforts to attract customers by offering competitive prices and various facilities to them, and, most important, by paying attention to the way we deal with our customers”.

Al Sabah reiterated this last point by saying “KPC enjoys a high degree of flexibility in dealing with customers. Weadapt to the way the customer prefers, and because we deal with difference cultures and nationalities, we have to study the way every nation deals. We have to educate ourselves in their culture, trading and customs. For example, we cannot deal with an Indian customer in the way we deal with a Japanese. Indeed, the art of dealing with people came as a result of experience and study, for as we study a market and the best approach to enter that market, we familiarize ourselves with the customs and traditions of that market and the way the prospective customer thinks and goes about his business. For example, one of the ways we deal with a customer is to remember all the occasions that mean something to him, with an occasional message or greeting card. This small gesture can have a great effect as it serves to tell the customer that we care and that we think he is an important person. We make it a point to contact the customer occasionally during our various business trips to the country. In our experience, this gesture is highly appreciated by customers who reciprocate with a great deal of respect, reflected in the renewal of their annualcontracts”.

The decision to stop dealing with intermediaries increased the determination of the International Marketing Sector to intensify efforts to achieve a stronger presence in KPCʼs key markets and enter new markets that hold promising potentials.

Some of the notable efforts are those undertaken by Sales Sector II, under the

Enormous Challenges Met with Strong Will

leadership of Mr. Mohammed Al-Qassem, Executive Assistant Managing Director Sales II and Mr. Nasser Al Mudhaf, Manager Middle Distillates. Undaunted by the enormity of the challenges of venturing into new markets, Al-Qassem supports the efforts of the sales team in looking for non-traditional business opportunities in new markets. Now KPC has expanded operations in markets such as Singapore,

Hong Kong, Bangladesh, Indonesia, Pakistan and India. Most notably, it succeeded in entering the Spanish market as a stepping stone to entering the European markets in a stronger way.

Despite the difficulty of enteringthose new markets, several factors helped KPC in its quest, as Al-Qassem explains. “Fortunately, following the decision to discontinue dealings with intermediaries, several elements have contributed to the success of our efforts to further our presence in certain markets where we had long held ambitions to be present in, such as Singapore and Hong Kong. We have tried in the past to enter those markets but the competition was severe as the presence of international majors such as British Petroleum was quite strong and they covered the market needs of petroleum products. We had a small contract with BP to supply them with petroleum products. However, a new window of opportunity presented itself when BP sold its share in one of the refineries there and was no longerable to cover all the market needs. This has provided KPC with guaranteed outlets for marketing its petroleum products in the Singapore market. We have signed a new contract with BP in Singapore for supplying around 1 million tons of diesel and kerosene, to be added to our previous contract with them for one million tons. Our total exports for consumption in Singapore and Hong Kong now amounts to 2 million tons.”

As for Hong Kong Al Qassem adds “we have several contracts with Shell to supply jet fuel at Hong Kong Airport. In the past, it was difficult to increase ourexports because the market was saturated with petroleum products as the refinerieswere working at higher capacity than they are today. However that changed at present so there is a need to import.”

Asian markets are traditionally the key

Negotiations are under way at present with national companies to supply them with jet fuel. Concerning our plans, KPC will be the main supplier to Kuwait Petroleum International Aviation Fuelling Company at European, Thai and Hong Kong airports. The primary challenge to KPCʼs efforts in the European market, and which stands in the way of an immediate implementation of our expansion plans, is the customs regulations applicable at present. We now have to pay the customs duties that we were exempted from in the past. As a result, we have had to look for companies that use jet fuel as input to industries rather than as direct fuel for airplanes, because if our product is used as fuel, we have to pay customs duties which may be as high as 7 or 10 Dollars a ton. However, according to latest reports, the European Union has decided to exempt Kuwait from those taxes, which means we can enter the European markets en force.”

Challenges to Entering the African Markets

The International Marketing Sector previously announced that it had plans to enter the African markets. These attempts, however, are still in the discussion phase because of the inability to provide documentary credits. “Until now, we have been unable to find local banks ready toprovide documentary credits. It is worth mentioning that demand is high in African markets and we have the ability and quantities needed. However, the matter is quite risky unless appropriate documentary credits are received. Indeed, KPC implements a strict policy in this regard in order to preserve its rights. This, on the other hand, does not apply to commercial companies, which usually make special arrangements with the banks or provide the African markets with the required quantities on a barter basis rather than cash. Because

KPC cannot be involved in such practices, this state of affairs poses a tough challenge to our entry to the African countries.”

Concerted Efforts to Ensure Success

In the face of the various challenges facing the operations team, there are vital elements that provide the required support to overcome all challenges. The main factor is the concerted efforts of all the departments of the International Marketing Sector to support the sale teamʼs efforts to sell the various petroleum products. About these efforts, Al-Qassem says “We are proud of having a strong marketing team which possesses the ability and full knowledge of the market conditions, consumer needs and the best methods of catering for those needs. KPC also has an excellent tanker fleet of various sizes, whether owned byKOTC (a subsidiary of KPC) or chartered in the international markets. In view of the huge size of the operations, we charter a large number of tankers in the market. In this regard, I would like to add that we have a very efficient fleet managementteam to cater for the consumerʼs needs. We also have a large measure of flexibilityin catering for changes in these needs, by increase or decrease, in a timely manner.”

markets for KPC. Bangladesh is a market the International Marketing Sector had been focusing on for some time. KPC succeeded in increasing exports to Bangladesh where it is now the main supplier, providing 80% of the total market needs. Commenting on the success of the operations in Bangladesh, Al-Qassem says “the efforts to increase exports to Bangladesh continued for more than two years. Fortunately, once again, the entry of the Islamic Bank there helped us to iron out the difficulties and ensured the availabilityof cash flows to cover the sold quantities.”

The success of operations in Bangladesh was not devoid of challenges. Ironically, competition came from one of KPCʼs key customers, namely, India. Al-Qassem explains “India is both an importer of crude oil and exporter of kerosene and diesel. It was one of our strong competitors in the Bangladesh markets. Currently, India exports 400,000 tons of petroleum products monthly to Bangladesh. Its presence there is a challenge we have to deal with. Therefore, our focus is now changing towards increasing our presence in importer and consumer countries such as Indonesia, to which we supply around 2,900,000 tons, representing around 40% of that countryʼs consumption.” There is a possibility to increase those quantities. “However”, he adds, “Indonesia implements a strict diversification strategy which compel it toimport from several sources to minimize risks. You see Kuwait is located in what is considered a high-risk region, which is reason enough for the countries we deal with to adopt precautionary measures.”

Strengthening our Presence in Spain

One of the major market breakthroughs of the year was the entry to the Spanish markets. Al Qassem says proudly “we were fortunate on the first trip made by thesales team to Spain in concluding contracts with the CEPSA and REPSOL companies.

KPC Sweeps the Competition in Bangladesh

What is the background of this agreement?

I would like to point out that Bangladesh is a major strategic market, which the International Marketing Sector has been attempting to access since the eighties and throughout the nineties. The policy of Bangladesh was to offer its requirements in the international tenders. We continuously participated in these tenders. However, in late 2002, we decided to take a major step by opening a direct communication channel with the government of Bangladesh. We contacted the Minister of Energy and Mining, and the chairman of the Bangladesh Petroleum Corporation. Then we made an initial visit and expressed our wish to sign a long-term direct contract. We received a positive response from them and support for our idea. This was due to two major factors. Firstly, we provide absolute transparency. The principle of transparency was a determining factor as they were wary of direct dealing. Secondly, we provide them with competitive prices; even lower than the tendered price.

There is no doubt that the major assets in our ability to provide competitive prices

In the face of the fiercely competitive international oil market, each company hastwo choices: either to wait for the big opportunities or to take the initiative, look for the opportunities and seize them. Such choices can either make them part of the big league or one that stays on the fringes of competition. There is no guessing which path KPC always follows in its relentless pursuit for new windows of opportunity and to attain a foothold in strategic markets.

Notably, The Middle Distillates Department of the International Marketing Sector has swept the competition in Bangladesh, one of Asiaʼs key markets, and become the countryʼs major supplier of petroleum products. It has signed a major contract with the Bangladesh Petroleum Corporation; an event described by industry observers as “pulling the carpet from underneath the competition and intermediaries.”

KPC has for years eyed Bangladesh, which enjoys large demand for petroleum products, as a strategic market. However, increasing market share there was challenging because, historically, Bangladesh Petroleum Corporation was accustomed to getting its supplies of oil products through the world purchase tenders, which restricted KPCʼs chances. To overcome that challenge, KPC took a positive and bold step by contacting Bangladesh Petroleum Corporation directly and convincing them to sign a long term contract under which KPC provides Bangladesh Petroleum Corporation with almost all its diesel and jet fuel needs. KPC was thus was able to boost its position in the Bangladesh market without using intermediate companies.

To know more about the details of this agreement, KPC World met Mr. Abdallah Al-Arbash, Middle Distillates Coordinator, who played an instrumental role in clinching this agreement.

are the strong capabilities of KPC, its tanker fleet, its refining capacity, and its marketingskills.

To allay the fears of the Bangladeshi side, they were given assurances that they will be dealing with the government of Kuwait and with a major strong and long rooted corporation in the oil market. One important point, we explained, was that KPC is not willing to take over all the needs of Bangladesh, but rather a portion of its needs amounting to one million tons of diesel and jet fuel. This will give more opportunity for the Bangladesh party to compare the prices of KPC with competitors.

There is another factor we relied upon. We used the Islamic Development Bank in carrying out the financial dealings.Kuwait is a member of the Islamic Conference Organization. It has the priority to provide Bangladesh with petroleum products through funds provided by the Islamic Development Bank. Through our knowledge that the Islamic Development Bank provides credit facilities to Bangladesh to purchase oil products, we took advantage of the favourable conditions as long as we have the priority. We also have the ability to transport the products by our fleet. TheBank provides credit facilities only to companies that transport their products.

All these factors contributed effectively in dispelling their fears and helping to build trust in our initiative.

When was the first contract signedwith Bangladesh Petroleum Corporation and what are the quantities involved?

The first contract covered the periodfrom February 2003 to January 2004. Under the contract, we had to provide Bangladesh with 510 thousand tons of diesel and 90 thousand tons of jet fuel. These quantities were transported by our tankers. It is worth mentioning that during the initial period of the contract, Bangladesh Petroleum Corporation made an urgent request to increase the diesel quantity. We could not fulfil that request because we did not havethe product with the specifications required(0 .25% sulphur). Bangladesh Petroleum Corporation was therefore compelled to purchase that quantity through international

tender.

As a strategic and important development in our marketing policy, we were able to produce low sulphur diesel (containing only 0.2 % sulphur) at the end of last year in order to meet world market needs and international specifications. Hence, from the beginning of 2004, a new agreement was made with Bangladesh to increase the quantity of diesel to 800 thousand tons, in addition to 200 thousand tons of jet fuel and kerosene. During February of this year, they requested to increase the diesel quantity to 1.2 million tons. We have also increased the kerosene and aircraft fuel quantities. Kuwait has now become the main supplier of these products and discussions are in progress to supply car fuel in the near future.

Interestingly, India is a major KPC client and a competitor at the same time? Could you explain this point to us?

With the completion of their refiningcapacity, India has become an exporter country with major ports on the east and west coasts and has been seeking access to the Bangladesh markets for a long time. India seized the opportunity when we could not provide Bangladesh with the additional quantities of diesel during February and March of this year. They succeeded in selling shipments by spot tenders. Then India used political pressure on the Bangladesh government and obtained a contract that covers 200 thousand tons of

diesel for the period from April until the end of this year and offered to provide Bangladesh with additional quantities. This puts India in a competitive position with KPC in the Bangladesh market.

What are the sources of KPC power by which it will overcome the competition it faces?

As a fact, the most important investment factor of KPC is the good and strong relationships with our customers in general and with Bangladesh in particular. Personal relationships have a major role in concluding any contract or agreement. They contribute to the provision of distinguished services to our strategic customers. This was manifested during the first quarter of 2004,when Bangladesh requested the supply of additional and urgent quantities. Actually, we did override all the obstacles and we fulfilled all their needs. This assistancewas highly appreciated by the Chairman of Bangladesh Petroleum Corporation. The Bangladesh Ambassador in Kuwait sent a thank-you letter to His Excellency the Minister of Energy. We received promises that Kuwaitʼs stand will not be neglected in future contracts. KPC is looking forward to covering all Bangladesh requirements next year. The other points of strength are based upon our marketing strategy. We are forever on the lookout for new business opportunities and instead of adopting the wait and see approach we seize any chances that we come across. Furthermore, the marketing sector has strong staffs that gives support to all our projects and operations.

What are the future plans after this outstanding success in Bangladesh?

Our ambition has no limits. We look forward to more success and more achievements for KPC. We will endeavour to access the promising Chinese and African markets. A delegation from the Middle Distillates Department had a positive meeting with China Airways Corporation. We also have ambitions to enter the Indo-Chinese markets, which include Laos, Cambodia and Burma. We hope that we can have our ambitions come true.

Improving HSE performance is one of the priorities of KPC and its subsidiaries. To this end, the group continues to implement its strategy which aims at developing its HSE systems in cooperation with the leading company, Dupont.

Ecological studies have conclusively shown that the upstream activities of the oil sector affect the environment of Kuwait, a country of less than 18,000 square kilometres.

Health, Safety, Environment

Determined Efforts Considerable Results

The results of those studies and of research conducted by the oil sector have led to the implementation of strict measures to curb environmental pollution and lay a well-defined strategy to control emissions produced by theoil industry that are harmful to human health and to the environment,

KPCʼs strategy to preserve the environment and enhance HSE performance are visible in its intensive efforts to improve awareness of HSE issues and a number of achievements by KPC and its oil subsidiaries. This report highlights the main achievements of the Kuwait oil sector and the efforts made in protecting the environment against pollution and preserving the health of the personnel who work at the production sites, in cooperation and coordination with various local and international bodies concerned with environmental issues.

Intensive Efforts and Tangible Results

In the aftermath of the unfortunate events experienced by the sector in the year 2000, KPC formed a higher committee for control, supervision and follow up, whose function is to supervise the development and implementation of new safety systems at oil installations and prevent the occurrence of similar accidents in the future. HSE awareness campaigns were intensified in allparts of the oil sector to increase awareness by all personnel of the safety by-laws and systems and continuing training in modern security and safety procedures and emergency drills were conducted.

Another major HSE initiative was the establishment of an information management centre to collect information from the oil companies, merge them into one data base and issue uniform reports in line with the systems followed by global companies.

Kuwait Oil Company Activities

Kuwait Oil Company has adopted a number

programs designed to implement its HSE plan and policy. These include:

Reducing the flaring of gas that associates productionoperations, air quality control, HSE awareness campaigns and seminars for employees, waste management, establishing an emissions data base, creating a GIS data base, analyzing gaps in the HSE system, exercising strict control over the activities of contractors, participation in oil pollution control plans, underground water control, disposal of asbestos, occupational health programs, environmental return evaluation, development activities after the invasion and the pressure maintenance station project.

Kuwait Oil Company has taken great steps toward achieving its objectives of operating the working environment at the facilities and installations with the minimum number accidents and with minimum effect on the environment.

For example, the company improved its HSE systems and concluded contracts with many consultants and contractors for updating its by-laws and regulations and reviewing its practices. It has also made effective

contributions to the drafting of operating systems and by-laws in the field of HSE.

KOC has spent around a billion US dollars on HSE and security related projects at the company facilities and installations. Indeed, the HSE budge represents some 10% of the total annual capital budget of KOC.

The Divided Zone

In the divided area, at Joint Operations in the Wafra region, the Group has given considerable attention to the problem of disposal of produced water, in particular, reducing the quantity of water dumped in surface evaporation pits. It has adopted a multi-phase project for limiting this problem.

Under the Water Disposal Phase 1, water is disposed of in 9 excavated disposal pits (including two wells in the South Um Qadir Field) with a disposal capacity of 227,000 bpd. This project was completed in September 2001.

Phase 2 involved the drilling of two disposal wells at Al-Zubair and Shuaibah reservoirs. Quantities of water exceeding the capacity of the pressure maintenance unit is dumped into the wells.

Phase 3 involved raising the level of the water drains at the main gathering centre to accommodate the surplus and released water and re-process and re-cycle the fluids inorder to prevent their reaching the evaporation pits.

The final phase of the project, Phase 4, seeks toeliminate the use of the present evaporation pits.

In the South of Um Qader, at Site -11 disposal of the water underground started in mid-1997 at the rate of 7000 bpd and it was thus possible to reduce the overall load of the main evaporation pit located near the main gathering centre. In addition, work is being carried out to manage

more wells within the framework of the project, applying state-of-the-art technologies to control the environmental pollution risks resulting from disposal of water in pits. The expected draining capacity for the two drainage wells at the Zubair and Shuaibah reservoirs amounts to 40,000 bpd.

With regard to removing the oil accumulated in the existing evaporation pits at the Divided Area fields, a short-term contract was signed, for the first time, to scrape the oilfrom the pits. Through this process, the Joint Operations Group gained valuable experience in preventing harmful effects on the environment and contamination hazards, in addition to the economic revenue from the average of 1500 bpd oil extracted from the pits during the period of the contract. Moreover, the water evaporation rate in the existing pits have been improved, and, as a result, the level of accumulated water has fallen.

With regard to treating the soil of the surface evaporation pits, an agreement to remove the pits in the Joint Operations area was reached between KOC and Texaco Saudi Arabia at the beginning of 2001. A joint team from Texaco Saudi Arabia and Joint Operations conducted a study and drew up a four phase plan starting in 2002 to eliminate the pits by the year 2005.

Joint operations specified its goal of attaining a zerorate of water dumped in the evaporation pits by the end of 2002. It is worth mentioning that the budget for the four phase project for eliminating the evaporation pits and building drainage tanks and for emergencies.

With regard to gas and flare management, smokeless

flares are used at all the sub-gathering centres and maingathering centres in order to reduce damage and protect the environment. A team from KOC is currently conducting studies on the gas. As a short term aim, it has already recommended an early reduction of the quantity of burnt gas. As a long-term aim, the study is expected to result in radical solutions to prevent the burning of gas.

Joint Operations at Khafji

Environmental pollution control operations focus on air pollution resulting from the oil operations and emissions from chimneys. The pollutants art mainly suspended particles and gases consisting of Nitrogen Oxides, Sulphur Dioxide, Carbon Monoxide, Ozone and volatile organic materials.

As soon as three air quality control stations are commissioned, monthly reports will be issued to the Saudi Meteorological and Environment Protection Authority. These stations will be developed to enable them to cover a larger number of pollutants more accurately and without having to use daily manual operations. These devices, once developed, will use digital technology.

A project which is currently in progress is the linking of the Saudi Meteorological and Environment Protection Authority to the air pollutants measuring devices in order to measure the quality of the air automatically

Another project in the process of being awarded is for measuring the pollutants emitted by the chimneys of

the company in order to build an arithmetical model for determining the appropriate places for placing measuring devices.

Kuwait National Petroleum Company Activities

KNPC is keen upon observing the environmental standards and giving priority to protecting the environment from the effects of the output of the refining processes aswell as ensuring achievement of this objective at all phases of production through its intensive development projects. KNPC has recently shut down the catalyst storage site after the stored quantities had been sold to a specialized company and after the moving and cleaning of the site had been effected at the end of April, this year.

The Company has emphasized its insistence upon completing this project by stating: “The wasted catalysts used in refining processes at the three refineries of thecompany are one of the main outputs that are given special attention by the company in order to achieve the goals of safety, both in the transport and storage thereof after usage, with strict observance of the environment laws and rules in force”.

KNPC has said that it has set up a wasted catalyst storage yard, with an area of 40,000 square meters, on the Wafra road at the Mina Abdullah Industrial Area, designed to provide all the needs, satisfy the conditions of safety in general and prevent the stored materials from polluting the storage area.

It added that, pursuant to the Companyʼs commitment

to achieving the highest safety standards and preserving the environment and public health, a plan was drawn up in October 2003 for disposal of all the stored wasted catalysts. 200,000 barrels of this waste were sold to a company specialized in dealing with these materials. The company, in turn, moved these materials outside the State of Kuwait in order to recycle and dispose of them in accordance with the international conventions and procedures in force and recognized by the Environment Public Authority, and under its direct supervision. All transport and clearing operations at the open yard was carried out, throughout the period of this process, under the supervision of KNPC and EPA, in strict observance of the HSE laws.

The company emphasized that it has carried out the planned disposal of these materials in accordance with the safety procedure and integrated safety system in force at the company, particularly the fifth element which relates tothe environmental system, and that the process of removing those materials from initial moving to export was closely monitored in conjunction with the contractor who provided the required certificates and in accordance with the BaselConvention. The materials were carried by sea.

The company stated that, in accordance with the companyʼs absolute commitment to preserving the Kuwaiti environment, it has adopted a new strategy for disposing of the wasted catalysts from the three refineries, estimatedat 5000 tons per year. In future, they will be transported directly from the refinery unit, subject to strict observanceof the laws and conditions of the Environment Public Authority.

In addition, KNPC has introduced several projects

for maintaining air quality. It has introduced a number of units to the oil refineries which actually control the quantityof pollutants emitted into the air. They are designed and built according to international specifications and standardsand guarantee achieving the minimum pollution levels allowed inside the work site and the surrounding areas.

Several projects have been completed and commissioned, while others are still in progress or yet to be commissioned. They include a project for producing unleaded car fuel, the acid gas removal unit and the H2S gas removal from the basins of separating the oils at the Ahmadi Refinery, in addition to improving the quality ofpetroleum products and developing the Sulphur Extracting Unit at the Shuaibah Refinery to suit the refinery conditions.This project will increase the Sulphur production capacity at the unit from 450 tons per day using internationally approved modern technology.

A pioneering project is the “No Benzene” unit at the Shuaibah refinery in response to the international campaignto reduce the use of Benzene, a cancerous material, in Gasoline fuel. A catalyst unit is being developed for this purpose. This unit will reduce the quantity of Benzene to less than 1%, thereby reducing the quantity of such emissions to the atmosphere and thus limiting the effect of this material on public health.

The company seeks to establish systems for disaster management and controlling emergencies, providing personnel and resources that can contain the long-term environmental effects, conducting environmental return studies, drawing an environment management strategy, establishing a self-control system and mechanism for

reporting environmental information, a system for handling the environment audit and inspection results inside Kuwait, plants for managing accidents in coordination with the competent bodies, implementing accident prevention programs and clean environment friendly technology applications.

Petrochemical Industries Company Activities

As part of the increasing attention to the environment, Petrochemical Industries Company focuses on monitoring the sources of pollution and provides all the requirements for controlling it. It also provides a clean working environment that safeguards the health and safety of its employees. Through the intensive efforts of its national personnel, the company has executed and is in the process of executing several projects and has achieved considerable success in achieving an optimum exploitation of the Kuwaiti oil wealth according to the best available technologies. PIC recently organized the Second Safety Day, under the auspices and in the presence of Saad Ali Al-Shuaib, Chairman and Managing Director, who gave a speech in which he emphasized that the continuity of industrial activity in the country depends on the attention it gives to the safety of its personnel and society and the extent to which it cares for its properties. He outlined a number of achievements that PIC has made in the field of safety.

The companyʼs efforts in the field of HSE wererewarded by its receiving the ISO 14001 certificate formanaging environmental performance in the production and export of Ammonia and Urea and associated services. The Chairman and Managing Director, Saad Al-Shuaib, said that this international certification is granted to those

companies that strictly observe the ISO certificationrequirements. He emphasized that the company was given this certification following a thorough and far reachingaudit of its environment performance management system by Lloyds LRQA.

He added that this achievement underlines PICʼs commitment to its environmental policy and its adoption of sound practices that lead to a better environmental performance through pollution control both inside and outside the company and observing all the environmental laws and regulations related to the activities of the company.

Al-Shuaib went on to say that the certificationreflects the fact that the company implements effectiveenvironmental management in line with the ISO 14001 certification requirements and has specific objectives whoseresults are measurable, that conform to the companyʼs environment-related policy and which underline its readiness to continue to improve performance and spread awareness and understanding of the environmental instructions among PIC employees.

He stated that PIC is a leading company in the fieldof HSE in the region and the first company to receive theISO 14001 certificate in the Kuwaiti oil sector.

Kuwait Oil Tankers Company Activities

Kuwait Oil Tankers Company follows a wide range of sound environmental procedures in many areas of its activities, including

( Periodical maintenance of the tankers and renewal and replacement of parts.

( Periodical inspection of the tanks and gas lines in order to ensure their safety and that there is no leakage of pollutants.

The Companyʼs gas plant plays a strategic and vital role in the national economy, mainly in the filling of liquefied petroleum gas cylinders and distributing themto the distribution centres for serving all households and institutions in the country, and the service of distributing gas by means of gas tanker trucks to the various plants and institutions.

Kuwait Aviation Fuelling Company Activities

KAFCO is keen to develop HSE performance through training and increasing employee awareness. The company regularly upgrades and develops its safety systems in cooperation with reputable world-class companies in this field. Indeed, KAFCOʼs expenditure on safety and theenvironment accounts for 6.7% of its annual budget.

The company obtained the ISO 9001 certificationfollowing inspections and visits by ISO officials whoconduct an annual inspection and audit of the companyʼs practices, and who have approved KAFCOʼs procedures. Furthermore, seven international companies have inspected KAFCOʼs performance, its equipment, systems and methods in order to verify the safety of its fuelling operations. We are proud of the results of those inspections

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