REFINED OPINION

Kuwait 2017 | ENERGY | VIP INTERVIEW

TBY talks to HE Issam Abdulmohsen Almarzooq, Minister of Oil & Minister of Electricity and Water, on building a new strategy, the PPP model, and the Paris Agreement on Climate Change.

What defines the strategy you intend to bring to these ministries?

I envision bringing my private sector experience to this position, and the priority for me now is governance. In the oil sector, I feel confident, as there has been strong leadership in our industries. Over the past 35 years the oil sector has developed to an acceptable level of governance, performance, achievements, and leadership, so I intend to emulate this success into the electricity and water industry. Prior to my arrival, there was already a law to be presented to the parliament to establish the Electricity and Water Corporation as a vehicle to commercialize the power operations that are currently under the ministry. We believe these activities should be under a commercialized entity rather than a public service. This process of implementation should take around two to three years, and we will leverage the GCC's experience in incorporating these activities.

An important step in this direction is the new power plant, Az-Zour North, that was constructed using the PPP model. Does the involvement of the private sector in this project represent more opportunities for the private sector to assist Kuwait in meeting its future energy needs?

Part of the Kuwaiti vision for the future is to encourage the private sector to become the primary creator of jobs, and we need this social security for our people. By having an active and engaged public sector, we can absorb the excess manpower that the government has, which is hindering us from achieving the best services for the people. Creating more jobs in the private sector and encouraging people to work in this sector will ultimately build a more sustainable society for future generations. Our first and foremost priority for these PPP projects is to create social security. Secondly, we will be enhancing the diversification of income of our country and to moving away from a near-total reliance on oil revenues. The private sector should be a larger contributor to our GDP. We have already pinpointed the future projects, including the second, third and fourth phase of the Az-Zour project. The PPP model can be emulated in other governmental sectors like health and aviation. In the Ministry of Oil, however, we are bound by the constitution. We do not have any privatization except for gas stations. We are taking another look at the program that has been established for the privatization of the petrol stations, and we have another model that we will be adopting in the future for the remaining petrol stations. Other projects have not yet been specifically determined, but we do for example have plans for the petrochemical section of the Az-Zour refinery for which we are inviting the private sector to participate.

What effects will the forthcoming implementation of new tariffs have on water and electricity? What price regimes may consumers and industries expect?

Halfway through January, we had the first inaugural meeting of the Tariff Committee, after the parliament approved the law for increasing the tariff of electricity and water. The current tariffs do not even represent 1/20th of the actual cost of electricity and water. Our objective is not simply to increase our revenues, but rather to encourage people to conserve energy. Unless they have some sense of the reflection of their usage on their disposable income, there will be very limited motives to reduce consumption. A conventional light bulb in Kuwait costs 60 fulus, a LED or saving bulb around KWD1, which is around 20 times the price. A conventional light bulb uses seven times the amount of energy as a LED bulb. We want to increase awareness about conserving energy. The tariff committee consists of representatives from the Ministry of Electricity and Water, the Ministry of Finance, the Ministry of Commerce, and the Legal Bureau of Kuwait. We are combining all these entities because we want to have a balance between increasing the income with the effect of the raise on the inflation and increasing the prices of goods in the market.

With the OPEC deal in December 2016, producing countries agreed to cut production across the board and for Kuwait this meant to reduce output with 130,000 bopd under the 3 million bopd target. How do you expect this to affect Kuwait?

The main reason for the cuts was not to tie prices. I tend to agree with the former Saudi Minister of Oil, Zaki Yamani, when he said that there is a fair price for producers and consumers, which was 40 dollars at that time, and currently a bit above that. By cutting the oil production, we are hoping to come to a balance between supply and demand. When there is an excess of goods, not only do consumer prices go down, it also has an adverse effect on investments in the industry. Ultimately, the quality of the commodity will deteriorate because of a lack of investment, and the commodity itself could diminish, as the incentives to produce are gone. We noticed that when there was a flood of supply in the oil market, investments diminished. Investment decreased almost 60% in the past two years. This has repercussions for the oil industry. It affects future exploration and investments in maintenance. The reason behind the cuts was to bring a balance to the market, and the prices are ultimately a matter of supply and demand. OPEC's oil price-controlling power has diminished, as there are now many other players in the market. The US is now a net-exporter, especially because of the large amounts of shale oil it produces for sale at above USD60-70 USD per barrel. Also, global demand in the world is growing, which is taking the heat away from the suppliers. The production cuts are aimed at lowering the amount of oil in storage.

How do you expect the commitments Prime Minister Sheikh Jaber Al-Mubarak Al-Hamad Al-Sabah made at the Paris Agreement on Climate Change to influence and govern your policies and projects?

One aspect of our objectives for the oil and electricity sector is to care for the environment, and we never enter projects without putting the environment at the top of our list of priorities. We have set goals in KPC and we have set a goal of reaching 15% renewables by 2030. Thus far we have achieved 2-3%, so we are on the right path. MEW is dependent on fuel from the Oil Ministry, so we have to unify our goals to be coherent so that we move toward 2050 with our renewable options in place. When speaking with Dr. Adnan Shihab Eldin, the Director of the Kuwait Foundation for the Advancement of Sciences (KFAS), we discussed nuclear energy, and I was hoping to re-open this subject. The technology has become much safer and more efficient, and could be worth looking into, especially now that the UAE is constructing four nuclear plants, and Saudi is developing plans as well. Kuwait has a limited coastal area, which is needed for cooling and safety, but we will certainly consider our options.

What are your primary ambitions for the year ahead?

I committed to two key priorities when I took this position. My priority for the oil sector was to maintain the current drive and passion in the sector, and I have confidence in the people that are running this sector. The second priority is the conversion of MEW from a governmental institution to a regulator. We need to build cooperation to jointly oversee electricity and water, with the same structure and KPIs of the private sector. If we can achieve these two objectives in my first term, then I will have achieved my goal.