KUWAIT - Part 5 - The Decision Makers.

Decision making for the petroleum sector in Kuwait involves a few members of the ruling Al-Sabah family and some non-Sabah associates. In the government they are represented by Shaikh Ahmad Al-Fahd Al-Sabah in his capacity as energy minister and chairman of state-owned Kuwait Petroleum Corp. (KPC).

Final say in this sector rests in the National Assembly (parliament). But the Emir of Kuwait, Shaikh Jabir Al-Ahmad Al-Jabir Al-Sabah, who has the power to dissolve parliament as he has done before. He would then rule by decree.

Officially, the Supreme Petroleum Council (SPC) is the highest decision-making body for the petroleum sector. But SPC's decisions have to be approved by the National Assembly, after endorsement and submission by the Council of Ministers. In practice power lies only in the person of the Emir (see Gas Market Trends of this week).

The SPC was established in 1974. The SPC law was amended on Jan. 18, 1987, with the stipulation that it should be headed by the prime minister. Now it is headed by Shaikh Sabah Al-Ahmad Al-Sabah, the prime minister. Under Shaikh Sabah on this council are nine members holding office for a three-year term. They include former deputy oil ministers and a businessman. There are also five ex-officio members: the ministers of energy, finance and planning, commerce and industry, and electricity and water, and the governor of the Central Bank.

The SPC should meet at least four times a year, or more often in case of emergency. The energy ministry formulates policy decisions for the petroleum sector which have to be approved by the SPC and parliament. Execution of decisions is done by the energy ministry and their commercial and technical aspects are executed by KPC's operating subsidiaries.

Shaikh Sabah Al Ahmad Al Jabir Al Sabah: A brother of the old and ailing Emir Shaikh Jabir Al-Ahmad, Shaikh Sabah might become the next emir. This is because Crown Prince Shaikh Sa'd Al Abdullah Al Salem is in poor health and often has to undergo medical check-ups, having heart problems and has undergone a major heart surgery; he is also said to be diabetic (see the political leadership in Gas Market Trends).

Shaikh Sabah rarely gets involved in the petroleum sector, leaving this to Shaikh Ahmad Al-Fahd, who is his nephew. Kuwait's energy minister is also OPEC's current president. As such, on June 14 Shaikh Ahmad Al-Fahd said in Vienna that OPEC will be producing over 31m b/d during the fourth quarter of the year in order to meet world demand in winter. But his Saudi counterpart, Ali Al-Naimi, said world crude oil prices were high because of a shortage of refining capacity.

OPEC's ministerial meeting in Vienna on June 15 adopted a two-pronged plan to tackle high crude oil prices and supply problems. It raise OPEC's formal oil production ceiling by 500,000 b/d to 28m b/d from July 1 and gave OPEC President Shaikh Ahmad Al-Fahd a mandate to raise it to 28.5m b/d before it meets again in September if he determines that such a move is what the market needs. The move was motivated by "expectations of strong global oil demand during the remainder of the year, in particular in the fourth quarter" of 2005 and "the resumption of price increases". OPEC insisted that the market was "well supplied".

July WTI on NYMEX jumped $1.30 to $56.30/barrel in early deals as OPEC's decision was announced. In London, July Brent rose 94 cents to $54.67/barrel. OPEC oil ministers were adamant that their move to stabilise markets must be accompanied by investment in adequate refineries. They repeated a call "on industry and consumer governments to urgently address this challenge, which, if left unresolved, will exacerbate oil price volatility".

As soon as the word started to spread last week that the first tropical storm of the season could impact oil production off the Gulf of Mexico, WTI rose to more than $55/b. The IEA predicts that world oil consumption in 2005 would increase by 2.2% to 84.3m b/d - not an easy situation for the markets to live with. Hence a concern premium of more than 15% of that price.

Naimi told reporters: "If we have customers, we can put 11 million b/d now... We have to convince the governments to build refineries in the US and elsewhere. Everybody is late in building refineries". Naimi said if Saudi Arabia boosted its crude oil output above the current level of 9.5m b/d it would only bring more medium and heavy crudes onto the market. Those are exactly the types of crudes for which refining capacity is lacking to turn them into clean fuels.

Shaikh Sabah on June 13 appointed Ma'ssouma Al-Mubarak as minister of planning and as minister of state for administrative development, making good on a long-standing promise to appoint a woman to the cabinet once women got the vote. Ms Mubarak, a political science professor at Kuwait University, has been a long-standing women's rights activist. She replaced Shaikh Ahmad Al-Abdullah Al-Sabah in both posts.

Ms Mubarak, 54, told The Associated Press: "This honor is not bestowed on my person but on every woman who fought to prove that Kuwaiti women are capable". Her appointment was confirmed by the Emir, who had to issue a decree appointing her. The step was largely a formality, though, as the Emir had long been a proponent of women's right to take part in politics.

Shaikh Ahmad Al-Fahd Al-Ahmad Al-Sabah: The Energy Minister, Shaikh Ahmad Al-Fahd was relieved on June 8 as the parliamentary Economic and Finance Committee finally recommended to the National Assembly a draft enabling law for the state's landmark upstream oil initiative, Project Kuwait. Legislators have until June 29 to vote on the bill before the summer recess.

The enabling law, however, had been sent to the house committee with a number of changes to the original draft, which was first submitted to parliament in January. The bill now only covers the northern oilfields - Raudhatain, Sabriya, Ratqa and Abdali - and the use of agents or brokers in bidding for the project is prohibited. In addition, investment by international oil companies (IOCs) will be subject to local and not international law. Project Kuwait calls for the help of IOCs in boosting production by 350,000 b/d to more than 900,000 b/d over a 20-year period.

Shaikh Ahmad wants parliament to hold a special session before it breaks for the summer to pass the draft law. He says a tender for the $8.5 bn 20-year development contract based on a service fee would be launched towards end-2005, once parliamentary approval has been obtained.

Shaikh Ahmad on June 8 said the government would strive to put across its viewpoints of the draft law in as clear and transparent a manner as possible, with the emphasis that all is being done regarding the project for the benefit of Kuwait and its economic future. Three consortia led by BP, Chevron and ExxonMobil are competing for the project.

Project Kuwait has been bogged down since 1992 because of parliamentary opposition to allowing IOCs into Kuwait's petroleum sector. But a decision last year to draw up technical service contracts to develop the fields swept away earlier opposition.

This will be the first major foreign investment in Kuwait's oil resources since the emirate nationalised Kuwait Oil Co. (KOC), a concessionaire made up of BP and Gulf Oil (now part of Chevron), in 1975.

Whether the three competing consortia will go along with the new law as it is remains to be seen. Some companies in the consortia are said to insist on international, rather than local, arbitration; and others are discouraged by the other changes to the original draft law.

Foreign companies now must purchase most raw materials from Kuwait. Under the draft law, Kuwait will have the right to order a production cut at any time without compensation and companies have to pay income tax on profits of up to 25%. Shaikh Ahmad had said returns of foreign companies during the 20-year investment will be around $3.2 bn. The investment aims to use IOCs' advanced technology in developing secondary reservoirs - as part of a strategic plan to boost the emirate's output from 2.7m b/d now to more than 4m b/d by 2020.

Kuwait has set up a new company with a capital of $1.4 bn to manage Project Kuwait and hold deals directly with foreign firms. Independent economic reports, however, say the targeted output of 900,000 b/d could not be sustained for more than six years, making the average at 680,000 b/d, or just 150,000 b/d above the current capacity. This will earn the state some $21.5 billion of additional revenue.

KPC, which holds around 10% of the world's oil reserves, has already pre-qualified some 25 operator and non-operator companies for Project Kuwait, including Shell, ExxonMobil, BP, ENI, Total and Chevron. The companies are expected to make fresh bids for the project, for which cost estimates have risen by $1.5 bn since early 2003 from $7 bn.

Shaikhs Sabah and Ahmad are no oilmen. In their involvement in the petroleum sector they are advised by good experts on the SPC and former KPC executives, like former KOC chairman and CEO Khalid Al Fulaij who since April 1999 has been a personal adviser to Shaikh Sabah. Another key person close to Shaikhs Sabah and Ahmad is Shaikh Saud Al-Nasser Al-Sabah, an outspoken figure who once served as acting oil minister as well as minister of information. Shaikh Saud was the emirate's ambassador to Washington when Iraq invaded Kuwait in August 1990 and played a key role in the US-led liberation of the emirate in February 1991.

When the National Assembly is dissolved, government decisions are issued by decree, with the Emir himself decreeing important decisions for petroleum or for the other sectors. The assembly was dissolved by the Emir on May 4, 1999, and general elections to a new parliament were held on July 3 of that year. The Emir was then seeking to end more than two years of constant crises between parliament and the government.

The elections' outcome then appeared to be in favour of the regime and, despite his health problems, Shaikh Saad Al-Abdullah formed another government. But subsequently the opposition in parliament grew and has since delayed important matters - such as Project Kuwait, which leading MP and former speaker Ahmad Al-Saadoun has called "Project to Sell Kuwait".

(In the period between the dissolution of parliament in 1986 and Iraq's 1990 invasion of Kuwait, decisions in the petroleum sector were taken without transparency or accountability, and so was the situation before. Some decisions were taken for the personal prestige or gain of certain officials close to the ruling family, with related scandals lingering on for years - see background in Vol. 60, No. 25).

One rising star to watch is Shaikh Nasser Al Sabah Al Ahmad Al Sabah, the eldest son of the SPC chairman. It is said that, eventually, he could become energy minister, now being an economic advisor to his father.

The key issue to monitor is that of the succession to the throne. Sabah Al Ahmad and his elder brother, Emir Jabir Al Ahmad, belong to the Bani Jabir branch of the ruling family, whereas Saad Al-Abdullah belongs to the rival branch of Bani Salem. This rivalry has often turned into an angry power struggle, mainly between Saad and Sabah.

According to tradition, the two branches should alternate on the throne. So it is generally understood that, when a Bani Jabir emir dies or is no longer ruling, he should be succeeded by the most senior member of the Bani Salem branch. But, while Sabah wants to be next in line so that he becomes emir when his elder brother dies, it is more likely that Shaikh Saad would die before Shaikh Jabir.

The Energy Ministry was created in 2004 to succeed the ministry of petroleum. In the previous cabinet, Shaikh Ahmad used to be an acting oil minister and minister of information. Shaikh Ahmad's father, Shaikh Fahd Al-Ahmad, was killed while fighting Iraqi invaders at the emiri palace in August 1990. Then Shaikh Ahmad was head of Kuwait's Olympic committee and of the football society.

Shaikh Ahmad was made information minister in the 1990s. He took up the additional petroleum portfolio in February 2002 after the resignation of Adel Khalid Al Subaih following an explosion which seriously damaged the Raudhatain oilfield in the north and killed four people. The blast was triggered by a leak from a crude oil pipeline which spread to a power plant and caused the field's production to be suspended. (Appointed as oil minister on Feb. 14, 2001, Subaih until then was minister of electricity and water. An Islamist now aged 52, Subaih is an engineer educated in the US).

As in the case of Shaikh Saud Al Nasser, who had been brought in to reinforce the oil ministry and KPC in the late 1990s, Shaikh Ahmad was given this portfolio to speed up the process of involving IOCs in Kuwait's upstream oil sector. In December 1998, Shaikh Saud had established a committee to examine recommended options for IOCs to develop Kuwait's oilfields under a 20-year "incentivised buy-back contract" (IBBC). This had been worked out with the help of Coopers & Lybrand and approved by the SPC as an alternative to a production sharing agreement (PSA) or concessions, prohibited by the current constitution's Article 152.