April 3, 2021 [Bloomberg] The state oil company of Kuwait plans to borrow as much as $20 billion over the next five years to make up for an expected shortfall in funding, a person familiar with the matter said.
Kuwait Petroleum Corp. will need the money to maintain the petrostate’s crude-production levels, said the person, who asked not to be named because the information is private.
The borrowing plan underscores how badly Persian Gulf countries were impacted by the drop in crude prices last year as the coronavirus pandemic spread and energy demand plunged.
The company remits almost everything it generates from crude sales to the OPEC member’s government. It then gets reimbursed in installments to fund capital expenditure, mainly for upstream operations and investments in oil fields. The firm may face a deficit of 6 billion dinars ($19.9 billion) over five years, though it hopes to minimize the gap by becoming more efficient, the person said.
KPC plans to cover the shortfall by issuing debt, including on international markets. The situation will be reviewed every six months to assess the company’s needs and borrowing costs, the person said.
Pandemic Hit
Kuwait’s financial position — like that of almost all major oil producers — took a hit last year when the virus grounded planes and shut down businesses across the world. The government faced a cashflow crisis and it instructed KPC to transfer more than 7.5 billion dinars in dividends to the Treasury, but which the Supreme Petroleum Council had previously said could be retained.
KPC has since reached a preliminary agreement to repay the sum over 15 years. That helps but won’t solve the company’s problem, the person said.
The firm’s media office couldn’t be reached for comment.
Wealth Fund
Oil accounts for 90% of Kuwait’s revenue. The nation pumps around 2.4 million barrels of crude a day, making it the fourth-biggest member of the Organization of Petroleum Exporting Countries.
Kuwait is trying to cut spending to contain its economic slump. KPC has slashed capital-expenditure projections for the next five years by more than 30%. The company has hired a consultant to help merge eight subsidiaries into four to streamline operations. That’s expected to be completed by the end of 2022, the person said.
Last month, the government sought permission from parliament to withdraw money from the sovereign wealth fund for the first time since the aftermath of the Gulf War in 1990.
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