Date(s) - 16 May 2011
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Petrochemical (petchem) products play a role in human consumption, thus current petchem price hikes did not affect demand, which has kept increasing and made petchem prices rise in parallel with oil prices. The impact of oil prices on petchems is relevant to naphtha, which is a major element in producing ethylene along with gas. Hikes in naphtha price lead to increasing ethylene price, that in turn takes up the price of PE, EG and others. Elements leading to increasing petchem prices support long-term investments in this field, it is solid proof due to high demand and human consumption of petchem-based products, such as plastics. Although petchem prices went up, demand has not decreased. All petchem companies without exception, even in Europe and the US, have realized higher than expected profits in 2010.
There are two factors governing the future of petchem industry. First, it is based on supply and demand, which is growing and expected to reach 5-6% on petchems directly related to consumption, especially in light of urban growth. There are no new capacities to supply this demand even in the Gulf, as well as the US and Europe which will have to import their needs to operate plants. The second factor is relevant to having very few projects that will come online in Saudi Arabia, Qatar and UAE, while no new ones in Kuwait and Oman due to feedstock limitations, which also applies to SABIC. Limited upcoming supply and high demand will affect prices that will be higher than now, such as the current cost of Ethylene being USD 1300-1400 per ton and is expected to exceed USD 2000 by 2012-2013. Such hikes are called “Super Cycles” as prices continue increasing for consecutive years without any decrease.
Investing in petchems is either through constructing which takes between 3-5 years or acquiring running plants which are currently available at worthy to consider cost.
It is hoped that new Oil Minister Dr. Mohammad Al-Busairi examines the feasibility of the petchem industry in Kuwait and how it has benefited Kuwait by reviewing Kuwait’s trade scale in terms of non-oil exports as petchems form over 80% of such exports. Any economic scale between Kuwait and every world country will show Kuwait benefitting from petchem exports, such as most of Kuwaiti exports to Turkey being petchems.
This industry holds considerable added-value relevant to diversifying income sources, developing manpower with ours including over 600 highly competent Kuwaitis capable of dealing with state of the art petchem technology, as well as increasing the growth of local petchem related downstream industries by over 200% in less than 13 years. Such Kuwaiti industries used to consume less than 13,000 MTA before EQUATE was established, now they consume over 40,000 MTA.
In addition to diversifying income sources, KPC should evaluate its petchem industry investments. No doubt that the Oil Minister’s knowledge of its benefits to Kuwait’s economy (financially, commercially and manpower) are positive factors pushing for petchem sector’s growth, especially the professional experience gained by manpower who can run any similar petchem plants at any part of the world. This is an added-value to any petchem investment whether in technical issues or marketing affairs.
It is a priority for the Oil Minister to examine the possibility of launching ventures similar to EQUATE, which means expediting the launch of similar projects such as Olefins III that is worth proper consideration.
Is EQUATE’s business model worth replicating? Based on a comprehensive report regarding EQUATE’s performance for the past 15 years proving its success in forming great added-value for this industry in Kuwait. What we are saying is that if EQUATE has been a success, then we encourage establishing similar ventures.
Annually, EQUATE contributes over USD 1 billion to Kuwait’s economy, such as feedstock charges, energy sources and contractors. Having a second and third EQUATE will serve national economy as profits gained by KPC and EQUATE’s shareholders have had a full return on capital in no more than 10 years of inception and net profits have been achieved since then.
I urge the minister to encourage bigger petchem ventures as they are aligned with KPC’s strategy. Also, investing in petchem plants outside Kuwait by acquiring existing plants in Chiana, Indonesia, Vietnam and others is worthy of consideration as we possess necessary funding, business knowledge and technical understanding, as well as our shareholders’ desire to expand into the petchem industry which we trust will bring great returns to Kuwait.
The petchem industry is successful and profitable with good returns to Kuwaiti economy as a whole, we hope the minister would view this industry as a priority as its success is witnessed by Gulf states expanding into it, such as Saudi Arabia and the UAE that have struck major deals in Canada, Europe and Asia. One has the right to wonder: why isn’t Kuwait investing in the petchem industry abroad? That is a puzzling question as we have the funds and budget surplus, not to mention substantial international expertise.
Our plants are not running at fully capacity. Nameplate capacities exceed current operating rates. Once additional feedstock is available, production will rise and more profits will be realized. In light of the current gas deal we have, we hope to have extra quantities. Our plants were designed to produce 20-25% more than current capacity, if we run full capacity then profits will increase 20-25%.
During its first eight years of operations, EQUATE received a preferential rate on the cost of gas. Right now, we are paying a price close to rates in North America, that is solid proof that even without subsidizing feedstock prices, the petchem industry is making profits. That is an added-value on its own.
In general, local and international petchem investments are needed for Kuwait. Local investments have their factors relevant to an evaluation criteria and feedstock availability, while international ventures are calculated differently based on feasibility. However, nowadays we have financial capacity and budget surplus making petchem investments possible. We are not calling for acquiring oil and non- petchem plants, what matters is closely examining such ventures through specialized global companies and international banks. How could a petchem company in the US or Asia realize profit without gas? This is based on market performance.
EQUATE having such four distinguished shareholders is part of it being a perfect fit international joint-venture benefiting from valuable infrastructure and premium feedstock offered by Kuwait, as well as the state’s strategic vision as highlighted by PIC. It also enjoys innovative technology and industrial pioneering offered by Dow, in addition to the contribution of Kuwait’s emerging private sector represented by BPC and QPIC. A main factor in EQUATE’s success is that electing its board and strategy are decided by the board representing all partners, with that including the majority shareholders, PIC and Dow that do not have an exclusive or direct role in EQUATE’s day-to-day business, which is managed by the CEO and other EMT members who are mostly Kuwaitis handling all executive matters. EQUATE benefits from each shareholder and it expertise. For example, seconding a person from Dow is based on their competencies that benefit EQUATE that has the right to accept or reject them based on its HR policies governed by Kuwait’s private sector employment law which has EQUATE as one of the first companies to apply it and amend its policies accordingly, except for articles that still require clarification by the Ministry of Social Affairs and Labor.
EQUATE’s employees are the main reason for its success, growth and development in all fields, especially Kuwaiti employees who along with their colleagues receive numerous year-round opportunities for training and development. We have clear guidelines for rewarding distinguished employees and developing low performers who receive a 24-month opportunity to develop their performance, something that is not applied by the vast majority of Kuwaiti private sector companies. This stems from EQUATE’s care and attention to its employees to ensure developing low performers through all possible means.
EQUATE’s strategic vision does not support having low performing employees, yet it grants them opportunities to develop in line with the competencies of their colleagues. Any employee rewarded or dismissed from EQUATE is due to distinguished or low performance, not to mention that our HR policies are clear on such matters and governed by the private sector employment law. Any person who thinks there is unfairness in those policies should direct the matter to Kuwaiti legal authorities and we are willing to support this person, as we fully trust all our administrative conduct.
Lack of career growth and employees leaving due to lack of professional satisfaction do not exist at EQUATE, which is one of the top preferred employers, and that is proven by the great number of applications received during career fairs from fresh graduates and experienced professionals holding various majors. As EQUATE cannot recruit all of them, the crème de la crème of applicants are chosen. At the same time, EQUATE does its best to achieve a win-win situation for itself and its employees as overall sustainability requires absolute balance. Also, all employees who have resigned from EQUATE was due to seizing what they believed to be a better career opportunity, yet we cannot disregard that many of these employees have expressed desire to re-join EQUATE due to its professional work environment allowing an employee to speak their minds and enjoying empowerment. Being all about attracting, hiring and developing highly qualified Kuwaiti professionals, EQUATE’s high percentage of national manpower is above 55% and far exceeds the set quota. Kuwaitization at some departments is more than 75% with nationals holding over 95% of leadership positions. EQUATE has also earned a number of prestigious local and regional awards in recognition of its role in developing manpower and achieving overall sustainability in all relevant sectors.
Regarding the recent demonstration by EQUATE labor union, EQUATE affirms the accuracy and validity of all its proceedings and steps. EQUATE’s management believes and adopts absolute transparency and whoever thinks there’s any type of misconduct, then they should approach the legal system to present whatever evidence they possess to prove such violations.
The Arabic interview can be reviewed through the below links:-