annual report 2013-english

Kuwait National Petroleum Company

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His Highness SheikhNAWAF AL-AHMED AL-JABER AL-SABAH

Crown Prince of the State of Kuwait

His Highness SheikhSABAH AL-AHMED AL-JABER AL-SABAH

Amir of the State of Kuwait


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His Highness SheikhNAWAF AL-AHMED AL-JABER AL-SABAH

Crown Prince of the State of Kuwait

His Highness SheikhSABAH AL-AHMED AL-JABER AL-SABAH

Amir of the State of Kuwait


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Message from the Chairman & Managing Director

Company Highlights

Milestone Achievements during the Fiscal Year - 2012 / 2013

Oil Refining

Gas Liquefaction

Local Marketing

Major Projects

Health, Safety and Environment

Human Resources and Career Development

Corporate Social Responsibility

Financial Report

Independent Auditor’s Report

Statement Of Income

Balance Sheet

Notes to the Financial Statements

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Contents


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BOARD OF DIRECTORS

Mr. Fahed Salem Al-AjmiChairman & Managing Director

Mr. Bakhit Shabeeb Al-Rashidi Deputy Chairman& DMD-Planning & Local Marketing

Sheikha Shatha Al-SabahBoard Member

Mr. Abdullatif Abdulla Al-Houti Board Member

Mrs. Hosnia HashemBoard Member

Mr. Fahed Al-NashmiBoard Member

Mr. Adel Al-JassemBoard Member


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TOP MANAGEMENT

Mr. Fahed Salem Al-AjmiChairman & Managing Director

Mr. Bakhit Shabeeb Al-Rashidi Deputy Chairman& DMD-Planning & Local Marketing

Mr. Mohammad Ghazi Al-MutairiDMD Mina Al-Ahmadi Refinery

Mr. Fahed Fahhad Al-AjmiDMD Finance and Administration

Mr. Hatem Ebrahim Al-AwadiDMD Projects

Mr. Mutlaq Al-AzmiDMD Shuaiba Refinery

Mr. Ahmad Saleh Al-JimazDMD Mina Abdulla Refinery


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Message From The Chairman & Managing Director

At the outset of KNPC Annual Report for the fiscal Year 2012-2013 I feel it is appropriate to review latest world oil market development which is the background against which our company is operating and with which we have to deal as a crude oil refining player at both local and international dimensions.

The world oil market enjoyed during this period a balance between availability and consumption or in other word between supply and demand which led to relative stability at this market. Sufficient supplies were the backbone of the price stability despite the ongoing turmoil in several areas notably the Middle East and North Africa where major oil producers are located.

Though the economies of the industrial countries reflected no significant growth and despite the increase of oil production in Russia and the United States of America, oil prices remained within the range of US$ 100 to 110 per barrel which was in fact the prevailing feature on the market in the past three years.

Demand for oil showed almost the same increase of supplies which prevailed in the fiscal year 2011/2012 which is running at the rate of 820 thousand barrel per day to push the world consumption to around 90 million barrel per day against 89.8 million barrels per day in the previous fiscal year.

With regard to oil refining industry; last year obstacles persisted this year pushing its profitability downward. However added value margin showed a slight improvement in the fourth quarter of the year while crude oil prices showed a downward trend.

KNPC performance was remarkably high this year as it maintained the same high throughput which was a dominant feature of its performance during the past three years. Crude oil throughput in the three refineries reached a record high of 918,000 barrels per day. This unprecedented record throughput was naturally attributed to the dedication of the company employees as well as to the competent maintenance and quality control systems combined with strict adherence to safety standards.

However, despite what we have achieved in HSE domains, we still need more bearing in mind that those who accept to compromise safety for more profits will emerge as losers in the end.


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As regarding the Company projects, they are so vital and the investment in them is so high. On top of those projects come the two mega projects; namely the New Refinery Project (NRP) and the Clean Fuel Project (CFP). Significant measures have been taken for the two projects implementation. Contracts for the Project Management Consultant (PMC) of the two projects have been signed along with contracts for the infrastructure facilities and getting the sites ready for construction. In the meantime the tendering process is about to commence while the delivery of the reactors and vessels have already taken place. On a parallel line the company has embarked on an extensive awareness campaign to explain to the civil society organisations and the publicthe strategic importance of the two projects to the future of energy in Kuwait.

On the other hand Gas Industry continued to enjoy its due importance in the company. This importance is reflected in the current gas manufacturing projects being implemented by the company which will double its yield of LPG to meet the local market demand and to give exports an important edge.

Two local marketing projects are underway, namely expansion of Al-Ahmadi Depot and building Al-Mutlaa depot to supply the northern and western part of the country with fuel. Furthermore four filling stations are currently under construction.

With regard to human resources and career development the company always considers training and raising the employees skills and qualifications as one of the priorities on its goal list. Training programs have been upgraded and contained an ambitious scheme for leadership, in order to be groomed for future management. This attention was translated into reinstating a special department for training and career development in the course of the company restructuring under which a number of new departments were created. 185 employees were recruited this year 173 of them are Kuwaitis. The company net profits amounted to KD 377 million, increasing by 33% over last fiscal year, while the company revenues showed a 6% increase.

Other achievements in which the company employees should be proud of is a number of awards won by KNPC for its outstanding performance in one area or another.

The success and outstanding achievement by the company was in reality the outcome of sound planning, as well as the constructive interaction between the management and the broad base of the company employees. But first and foremost it should be attributed to the dedication, professionalism and team work spirit manifested by the company staff at every level who were always keen on the company advancement while they are delivering their message to Kuwait and its loyal people. To them all on behalf of the board of directors, the higher management and myself, I am pleased to extend my thanks and appreciation as well as my confidence that their coutribution will continue to help KNPC achieve its goal and add value to the national economy and development.

Fahed Salem Al-AjmiChairman & Managing Director


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Milestones in The fiscal Year 2012-2013

A Number of important contracts related to the NRP and CFP implementation were signed

Flare Gas Recovery Unit Project at MAA was registered at UN Clean Development Mechanism to become the first Project by the State of Kuwait in CDM

Oil Refining Throughput hit a record

Four Gas Projects are being implemented including the 4th Gas Train which is nearing completion

The company generated significant profit in excess of KD 377 million

KNPC was awarded with a number of regional and international Awards in recognition of outstanding performance, especially in HSE areas


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Company Highlights

* Sales include petroleum products supplied by KNPC to the local market on behalf of KPC and from its own operations.

2013/2012 2012/2011 2011/2010

Financial Parameters

Company Product Sales (KD Million) 14125.4 13356-6 10745.8

Total Sales of Local Marketing (KD Million) * 333 320 290

Company Net Profit (KD Million) 377.6 283.7 461.9

Total Operating Expense (KD Million) 602 596.8 499.8

Capital Expenses (KD Million) 269.9 184.2 183.9

Change in Fixed Assets (KD Million) 174.2 88.6 81.8

Crude Oil Feed Rate (000bpd)

Shuaiba Refinery 193.9 177.7 198.3

Mina Abdullah Refinery 272 247 262.2

Mina Al-Ahmadi Refinery 451.7 416.9 431.8

Total 917.6 841.6 892.3

Sales

Total Products Exported to World Markets (1000 tons) 35024.7 32885.6 31902

Fuel to Local Market (Million Liters) 5416.4 5236 4863

Fuel to Ministry of E&W (Million Liters) 8093.6 7497.6 8243

Bitumen (Metric Tons) 167.1 180.8 127.5

Manpower

Manpower at the End of the Fiscal Year 5805 5880 5562


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Oil Refining&

gas liquefactiOn

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Oil Refining:

The company three refineries maintained in the fiscal year 2012/2013 their high performance, which was the dominant feature of their productivity in the past three years beside operating as an integrated optimized refining complex. Their integration is better represented in the ongoing inter refinery transfer of products which increases the plants versatility and responsiveness to the international market demand.

The company, in fact, hit a record this year in crude oil manufacturing as the total crude oil feed to the three refineries reached 917.7 thousand barrels a day. This increase especially in Mina Al-Ahmadi Refinery’s daily throughput, is attributed to efficient maintenance as well as to the strict adherence to safety standards. Both factors resulted in a minimum of units unscheduled shutdowns and a record low emergency occurrence cases.

KNPS also celebrated this year its high rating by international insurance companies in risk management. KNPC refineries came on top of all oil sector assets. Performance of the three refineries is detailed in the following pages:

Mina Al-Ahmadi Refinery:MAA performance in the fiscal year 2012/2013 was remarkably high as its daily throughput reached 164.9 million barrels or a daily average rate of 451.7 thousand Bp/d against daily average rate of 416.9 thousand Bp/d in the fiscal year 2011/2012 with 8.3% increase. Total exports of petroleum products from MAA reached during this year around 14.2 million metric tons including 844.3 thousand tons of sulfur, against 12.1 million metric tons in the previous fiscal year.


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Mina Abdulla Refinery Crude oil throughput average rate to Mina Abdulla Refinery was very close to its highest capacity as it reached 99.3 million barrels or a daily average rate of 272 thousand Bp/d against 90.4 million barrels or 247 thousand barrels a day in the previous fiscal year showing a 10% increase. This increase in the refinery throughput is actually attributed to high reliability and adherence to safety measures.

Total exports from MAB Refinery amounted to 9.05 million metric tons exported at the refinery sea island and 574.7 thousand metric tons of coke supplied to local companies and 2778 thousand metric tons of Naphtha provided to another Kuwaiti company and 125.7 thousand metric tons of ATK. Those products supplied by MAB to the Local and international market totaled in this financial year 13.06 million metric tons.

Shuaiba Refinery Shuaiba Refinery continued its operations in an efficient and professional manner as a part of the integrated and optimized refining complex within KPC/KNPC framework. Total throughput to the refinery reached 70.8 million barrels at the average rate of 193.9 thousand barrels per day. Compared to 177.7 thousand barrels per day in the previous year the amount of crude oil processed at Shuaiba Refinery shows a 9% increase.

Exports from the refinery totaled around 6.22 million metric tons exported at Shuaiba oil pier and MAA oil pier beside 2.4 million tons of fuel oil supplied to the local market.


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The following tables monitor growth of crude oil throughput at the three refineries in the past 5 years

Daily average rate of crude oil throughput to the three refineries 2008/2009 to 2012/2013 (000bpd)

Refinery 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013

Shuaiba 197.6 190.3 198.3 177.7 193.9

Mina Abdullah 269.9 270 262.2 247 272

Mina Al-Ahmadi 438.8 401.9 431.8 416.9 451.7

Total 906.3 862.2 892.3 841.6 917.6

Production at the three Refineries

Product

Annual production and products percentage in the

fiscal year 2012/2013

Annual production and products percentage in the

fiscal year 2011/2012

1000 M/T % 1000 M/T %

Naphtha/Mogas/Reformate 9299.9 20 8936.9 20.9

Kerosene/ATK 8668.6 18.7 8045.4 18.8

Gas oil/ Diesel 12894.2 27.7 11729.8 27.4

Fuel Oil/Residue 10981.1 23.6 9604.2 22.5

Other products* 3484.9 7.5 3245.6 7.6

Total products 45328.7 97.5 41561.9 97.2

Consumption/loss 1175.1 2.5 1192.7 2.8

Total 46503.8 100 42754.6 100

*including LPG, Sulfur, Coke, Bitumen and Propylene

The following table shows annual production and products parentage at the three refineries


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gas liquefactiOn

Feedstock to the LPG plant at Mina Al-Ahmadi Refinery during this fiscal year reached 1468.3 million cubic feet per day compared to 1385.4 million cubic feet in the fiscal year 2011/2012 showing a 7.3% increase

The quantity supplied to the LPG plant represented what was available from upstream field and the company refineries.

The following table provides a breakdown of the LPG plant products and their percentage in the past two fiscal years 2011/2012 –2012/2013

2011 / 20122012 / 2013Products

%1000 MT %1000 MT

42.8247741.42538Propane

35.2203735.72188.7Butane

21.9126722.91402Natrual Gasolene

10057811006129.8Total Liquid Products

392.3415Lean Gas (Billion SCF)

Propane exports from the LPG plant totaled 2484.4 thousand metric tons and of Butane 1962.6 metric tons with a total exported products of 4447 thousand metric tons increasing by 5.3% over the total amount of exports last year which amounted to 4224.2 thousand metric tons


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2012/2013

2011/2012

25382477

5781

6129

2189

1402

2037

1267392415

Propane

41.4

Propane

42.8Butane

35.7

Butane

35.2

N.Gasoline

21.9

22.9

2012/2013

2011/2012

Propane Butane Gosoline Total LiquidProducts

Lean/gas (Billion SCF)

percentage of LPG Plant


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lOcalMaRKeting

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FILLING STATIONS

- The number of functioning filling petrol stations still owned and operated by KNPC is 37 stations as two of the company facilities are currently under renovation.

- The Majoraty of the stations previously owned by the company were turned down to the private sector in the course of a privatization process.

- This trend was stopped by KPC pending the activation of the Privatisation Council and the issuance of its new regulations.

- However the Local Marketing Department still exercises supervision and audit on the private sector owned facilities to ensure quality control and compliance with the Health, Safety and Environment rules. KNPC is still running one carwash station.

SALES

- Sales to the local market showed 3.4 % increase over their level in the previous year which is generally the same annual increase of local fuel consumption. However, Gasoline sales were a little higher than this percentage and reached 4.8%. Sales of the The four types of gasoline; super premium, premium, ultra super gasoline and Euro 4 in the local markets totaled 3748 million liters. The only brand which recorded a significant decrease was premium gasoline which was less by 32 million liters.

- Kerosene sales reached 76 million liters growing by 19.2% from last year in which they amounted to 64 million liters.

- Gasoil sales amounted to 1592 million liters compared to 1595 million liters in the previous year with a slight drop.

- Gas oil Euro 4 amounted to 0.01 million liters against 0.017 million liters in the previous year.

- Total fuel sales to the local market reached 5416 million liters compared to 5236 million liters in the previous fiscal year with a 3.4% increase .

- Sales to the Ministry of Electricity &water MEW increased this year by7.9% and amounted to 8094 million liters against 7498 million liters in the financial year 2011/2012.

- Gasoil sales to MEW reached 1765 million liters against 1689 million liters in the previous year. While heavy fuel oil sales to the ministry amounted to 6329 million liters compared to 5809 million liters in the previous financial year

- Bitumen sales showed a significant drop this year and went down from 181 thousand metric tons in the previous year to 167 thousand metric tons in the current financial year.

- Total sales to the local market as well as to MEW reached 13510 million liters compared to 12773 million liters in the previous fiscal year reflecting a 5.8 % increase


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Product Fiscal Year 2012/2013 Fiscal Year 2011/2012 Increase (decrease)%

compared to 2012/2011

Premium gasoline(95oct) 2869.4 2675.1 7.3

Premium Gasoline 804.8 837 (3.8)

Ultra Super Gasoline (98Oct) 74.1 64.4 15.1

Euro 4 Gasoline 0.1 0.097 3.1

Total Gasoline Sales 3748.4 3576.6 4.8

Kerosene 76.2 63.9 19.2

Gas Oil (LM) 1591.8 1595.1 (0.2)

Gas Oil (Euro4) 0.01 0.017 (41.2)

Total Fuel Sales (LM) 5416.4 5235.7 3.4

Gas Oil (ME&W) 1764.6 1688.5 4.5

Heavy Fuel Oil (ME&W) 6329 5809.1 8.9

Total Sales (ME&W) 8093.6 7497.6 7.9

Total Fuel sales 13510 12773.3 5.8

Bitumen (Metric Tons) 167061 180758 (7.6)

The following two tables compare products sales in the local market in the past two years as well as their growth percentage beside an overview of supplies to the local market in the past seven years

Fuel Sales in the Local Market in 2012/2013-2011/2012

(Million Liters)


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Development Of Fuel Sales between 2006/2007-2012/2013 (Million Liters)

Product 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13

Euro4 Gasoline* - - - 0.092 0.082 0.096 0.1

Super Premium Gasoline (95oct) 1949.8 2076.6 2191.9 2333.0 2479.3 2.675 2869.4

Premium Gasoline 1064.5 1046.4 992.8 956.8 891 837 804.7

Ultra Super gasoline (98oct) 22.8 26.4 35.9 46.7 53.5 64.4 74.1

Total Gasoline Sales 3037.1 3149.4 3220.6 3336.5 3423.9 3576.6 3748.4

Kerosene 37.0 45.3 50.0 45.0 49.1 63.9 76.2

Gas Oil (LM) 1118.8 1136.7 1286.5 1400.4 1389.7 1595.1 1591.8

Total Fuel Sales (LM) 4192.9 4331.4 4557.2 4781.9 4862.7 5235.7 5416.4

Gas Oil (ME&W) 810.4 740.9 1230.4 1937.0 1518.2 1688.5 1764.6

Heavy Fuel Oil (ME&W) 7906.0 7278.7 8464.0 6688.0 6724.8 5809.1 6329

Total Sales (ME&W) 8716.4 8019.6 9695.0 8625 8243 7497.6 8093.6

Total Fuel sales 12909.3 12351.0 14252.2 13406.9 13105.7 12773.3 13510

Bitumen (Metric Tons) 153,898 173,171 132,451 137,820 127,523 180,758 167061

Imported and Marketed in 2009 to meet requirements of ultra-modern cars.


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MaJOR pROJects

chapteR 3


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PROJECTS

A total of 26 approved projects are either completed or in progress during the fiscal year 2012/2031. They belong to the three refineries, the Local Marketing and one project at Wafra. Projects Departments 1&2 are assuming the role of the custodian of those projects.

But before capitalizing on these projects, we have to make a brief stopover to review the distance the company covered in the launching of its two mega projects ;namely T the New Refinery Project NRP, and the Clean Fuel Project CFP

CLEAN FUEL PROJECT (CFP)

It is one of the strategic projects of Kuwait National Petroleum Company which aimed at upgrading and expanding the existing KNPC two refineries at Mina Abdulla and Mina Al-Ahmadi. The CFP will transform the two refineries into an integrated merchant refining complex that meets the diversified requirements of the world oil market. carrying out the project will maintain high safety and environment standards in line with KPC directions. Total refining capacity of this complex after the CFP completion will go up to 800,000 barrels a day.

Work progress is going as per the set plan. The Project Management Consultant PMC contract has been signed commissioning an international firm to supervise implementation and prepare tendering documents and technical specifications. Another contract for the site preparation and infrastructure has also been signed and commenced

Contractors qualification process has also been completed. As the company had long time ago received and stored the heavy equipment like the vessels and reactors which need a long time for manufacturing and transportation .The updated and sanctioned budget for CFP is KD 4,680 million. It is set for completion in 2017

one of NRP & CFP Road Show sessions


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The NEW REFINERY PROJECT (NRP)

The project is intended to build a grass root refinery at Al-Zour area ,south of Kuwait City with a total capacity of 615,000 barrels per day. The Refinery has a strategic goal of supplying low sulfur fuel (less than 1% compared to current 4% sulfur fuel) to the local power plants. This will significantly reduce pollutant emissions and in that sense it constitutes a special importance to the environment.

The new refinery which will be one of the largest oil refining plant worldwide, will fulfill the downstream strategy of Kuwait Petroleum Corporation. In addition to its domestic benefits as the prime supplier of feedstock to the power plants, the New Refinery will enhance competitiveness of Kuwait petroleum products on the world markets on the account of its ability to meet the stringent requirements of those markets

The project implementation is proceeding according to set plans and covered the following steps:

- The Supreme Petroleum Council gave KPC and KNPC the green light to go ahead with the project implementation in February 2012

Project Management Consultant contract was signed in December 2012.The contract provides for PMC supervision of implementation, preparation of Scope of Work and technical specification beside tendering procedures and conditions

Central Control Systems consultant contract has been tendered. Site preparations have commenced. The project was approved by Kuwait-Environment Public Authority (K-EPA).

1- Fourth Gas Plant Train at MAA

Project objective is to install a 4th Gas Plant Train at Mina Al-Ahmadi Refinery for processing additional associated gas & condensates produced in the fields by KOC and KNPC various refineries. The projected capacity of the new gas plant train will be 805 million cubic feet a day in addition to 106 thousand barrels of condensates. This will increase the LPG amount available to the company to approximately 2,270 cubic Ft. per day2.

2- FIFTH LPG TRAIN at MAA

The project envisages adding a 5th LPG train for processing additional gases from fields, and refining plants. FEED has already been evaluated while the company embarked on appraisal of the project’s economics in light of the changes in the amount of gases from KOC fields with a futuristic perspective


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3- NEW NORTH LPG TANK FARM

The Project aims at fulfilling the following objectives:

Increase the LPG tankage in light of the 4th and5th gas train projects requirement.

Allow simultaneous loading of two gas tankers with the same product.

Allow simultaneous bunkering and loading of the same tanker.

Reduce emissions from existing KNG tanks on the South LPG tank farm by adding Geodesic domes and replacing floating roofs.

According to this project the current 10 north gas tanks will be replaced by another 10 tanks, each with the capacity of 72,350 cubic meters to provide the company with much larger tankage capability. Implementation of the project commenced in April 2011 and its completion is planned in June 2015.

4- NEW AGRP and REVAMP of EXISTING AGRP

According to this project a new Acid Gas Removal Unit will be installed at Mina Al-Ahmadi Refinery with a total capacity of 146MMSCF/D of gas feed (with 5%H2S) and condensate feed of 39 B/PSD.The project also envisages revamp of the existing AGRP to reach similar capacity based on the projected feed availability from KOC facilities and the existing AGRP capacity/reliability.

The project is based on the directives of KPC to cut down flaring at West Kuwait to 1%. It will also generate economic benefits beside reducing pollution. Project implementation is set to complete in November 2015.

LPG Plant at MAA


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5- LONG TERM LNG IMPORT FACILITIES

The project’s purpose is to provide long term facilities for receiving supplies of LNG to supply feed to the power generation plants in the country during period of peak electricity demand. Al-Zour area was selected as the most appropriate site for the LNG receiving, re-gassation and storage in tanks.

6- SULPHUR HANDLING FACILITIES PROJECT AT MAA REFINERY

The objective of this project is to:

- Revamp the facilities so as to increase available capacity.

- Increase the transfer rate and thereby reduce the ship loading time.

- Utilize larger ships for sulphur loading.

- Meet K-EPA requirements and enhance the safety aspects.

FEED work has been completed, while preparations are underway for the tendering phase as the whole project is set for completion in November2016.

7- NEW TGT UNIT at MAA REFINERYThis project envisages building a New Tail Gas Treatment unit parallel to the existing facility along with new Sour Gas Absorber and new regenerator in the Further Upgrading Area (FUP) at the refinery to process the entire Tail Gas produced by the Upstream Sulphur Recovery Units and meet the requirements of K-EPA.

The project’s capacity will reach 460 tons per day of sulphur.

It will increase sulphur recovery capacity at the sulphur recovery units and thereby reduce gas emissions. The project is set for completion in March 2015.

Contract Sighing Ceremony for EPC of TGTU-99


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8- FLARE GAS RECOVERY UNIT at MAA REFINERYThe project objective is to install a Flare Gas Recovery Unit, designed for handling hydrocarbon flare load from the RMP&FUP areas in the refinery. Gas flaring will be stopped significantly and pollution to the environment as a result of this flaring will be substantially reduced. The project has its economic benefits beside its impact on pollution reduction.

The FGRU project is nearing completion as work progress reached around 95%.The whole project is set for commissioning in August 2013

FGRU project has been recorded in the Clean Development Mechanism of the UN Framework Convention on Climate Change UNFCCC, as the first project by the State of Kuwait under Kyoto protocol.

Debate on Flare Gas Recovery Project

9- REVAMP OF EFFLUENT TREATMENT FACILITIES AT THREE REFINERIES

This project is intended to upgrade the existing waste water treatment facilities at the three refineries. In order to meet mandatory Industrial Water Discharge Standards stipulated by K-EPA by installing the following facilities:

- Tertiary water treatment facilities as one single combined plant for processing of combined oily streams and surplus stripped Sour Water from MAB, & SHUAIBA refineries at MAB location.

- Upgraded and debottlenecked centralized waste water treatment facilities at MAA old refinery.

- Additional facilities at Shuaiba Refinery for segregation and collection of effluent.

- Inter connection between those facilities at SHU,MAB Refineries at MAB location.

- Overall project is set for completion by March 2014.


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10- CONSTRUCTION OF FOUR NEW FILLING STATIONS

The new filling stations are expected to complete by April 2014 as work is intensively progressing. They are located at the following locations: Um-Alaish in northern Kuwait, Waha in Jahra governorate, Jaber Stadium, Ardiya and Saddique area

The filling facilities will naturally ease pressure on other stations in the indicated areas and provide fuel supplies to increasing the number of cars.

11- EXPANSION AND REVAMP OF AHMADI DEPOT

Based on recommendations for short term augmentation of the supply of Mogas, Gas Oil, Kerosene and other products, the expansion and revamp of Ahmadi depot project is now underway to increase the depot’s storage capacity of different petroleum products for the local market. The project envisages installation of 11 additional tanks and 7 new loading arms.

12- CONSTRUCTION OF A NEW DEPOT AT MATLAA

Based on the long term (2030) recommendations for future energy demand forecast, a feasibility study has been prepared to establish a new Depot at Matlaa area in the North of Kuwait. The project main goal is to meet the growing demand of petroleum products in the local market as well as to maintain the maximum strategic stock in depots as per KPC recommendations and to cut down products transportation costs. The study has been completed and ready for the PRC (Projects Review Committee) review and appropriate action


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Waste Water Treatment Project - MAB


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health, safetY anD

enViROnMent

chapteR 4


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Awareness Campaigns

KNPC Focus on Health, Safety and Environment is a cornerstone in its best practice policy. HSE performance is closely linked with progress potentials as no progress can even be conceived unless the safety of employees and assets is maintained and guaranteed.This genuine interest in HSE performance is reflected in the priority being given to the implementation of the HSE standards and the commitment to uplift HSE image and behavior across the company sites. It is also shown in the unstoppable efforts to raise awareness among the company staff as well as among the contractor employees. More than 15 campaigns were carried out during this period including a dozen of schools of different stages.

The Company held a special ceremony in May2012 for the C&MD Annual HSE Performance Award Scheme which focuses on recognition of outstanding performance, innovation and achievements at all company installations, associated contractors and other stakeholders with a view to promoting interest in the HSE practice. The awards handing over ceremony became an annual happening to which leaderships of the oil sector are invited and in which those individuals, teams or departments that made distinguished accomplishments in the Health, Safety and Environment protection areas are recognised and honoured for their outstanding performance. This experience was expanded this year to include the public where prizes were awarded to several schools or individuals.

Teams from the company, comprising some employees from HSE department also paid regular visits to 10 schools during this year for talk on health, safety and environment to the student who showed deep interest for being shared with this information about KNPC and the oil sector business as well as on safety precaution and standards.

The company also conducted a campaign to promote the culture of safe driving and safety roads which covered all company sites. The campaign coincided with the Gulf Traffic Day.

In February 2013, the company organized a workshop for contractors under the title of “Safety for Contractors” which was joined by a large number of the contractor employees and included an extensive debate on safety on KNPC working sites and underlined the importance of being committed to the company health, safety and environment regulations and standards.

In the field of health awareness, the company implemented a number of awareness campaigns to address the preventive measures against common diseases and the best methods to live with the permanent diseases such as diabetes, hyper blood pressure and others. On the other hand the Ministry of Health honoured KNPC for the third consecutive year for winning the first place in blood donation.

Blood Donation Campaign

KNPC employees provided the Blood Bank with 1372 units through several blood donation campaigns arranged at all company sites. The ministry hailed the company employees spirit of generously providing it with this precious life saving staff.


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With regard to environment initiatives, the company sponsored several activities intended to raise awareness of environment protection such as participation in the world Earth Day celebration on 26 April 2012. A special function was conducted at Kuwait Scientific Centre in which a number of students at Engineering & Petroleum Faculty at Kuwait University presented their graduation projects which concentrated on reduction of gas emissions. The event also included screening a number of documentary films about KNPC and especially its contribution to Kuwait environment protection.

KNPC also observed the International Water Day which was held at the Kuwait Scientific Center to which leaderships of the oil sector were invited and consisted of lectures and related exhibition reflecting the company efforts to combat pollution with special emphasis on its Waste Water Treatment facilities project, wastes management and other environmental achievements.

Training Programs

Safety centre at MAA continued to conduct programs, sessions and workshops for the benefits of thousands of employees from the company and the contracting firms. The center received this year 58144 employees who were enlisted in 4614 training programs. A large part of the attendees were in fact from the contractor employees. A special workshop was also arranged for a selected group of major contractors, in view of the special attention being given to Health, Safety and Environment performance in the company

Emergency Response Plan ERP

The company has successfully started implementing the Emergency Response Plan (ERP) which replaced the previous scheme of Major Incidents Prevention Procedures (MIPP) which is stillvalid until now. Under the new ERP, the oil refineries, the Local Marketing and other KNPC sites continued to conduct elaborate drills tailored to face crises in case of their occurrence.


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Environmental Projects

With regard to environment, the company continued to implement a wide range of projects intended for combating pollution from its source. Among those project are the following:

- Odor Management Project, This project is based on leak detection and repair in the refineries. This process will improve the work environment which will become much safer and more favourable to the employees. Beside that, leak detection and repair generates profit. As an example the saved products as a result to emission reduction in the refineries reached, during the current fiscal year, to 3644 tons which otherwise would have been totally wasted.

- Upgrade of Obsolete Fire Detection ,Alarm Suppression Systems Including the Phase - Out of Halon System:

- The objective of this project is to replace the Halon system along with fire alarm systems in the three refineries as well as the Local Marketing facilities including tanks, process areas, substations and other buildings. Sanctioned budget for the project totaled KD 83.7 million.

- New Tail Gas Treatment Unit at MAA: The new unit that will be installed at Mina Ahmadi Refinery will have an equivalent capacity to the existing one. It will fulfill the requirement of the K-EPA in cutting down the tail gas emissions to no more than 250 part per million

- Revamp of Effluent Treatment Facilities at the Three Refineries

- The project was basically designed to upgrade the existing facilities for treatment of the waste water at the three refineries through an integrated treatment system. In order to meet the mandatory industrial water discharge stipulated by K-EPA, the two phase project was completed as two phases were combined in one project.

- Flare Gas Recovery Unit at MAA

- Flare Gas Recovery Unit at MAB

- The second phase of Vapour Recovery Project which comprises the local marketing filling stations after the project proved to be feasible following its installation at Sabhan and Ahmadi depots.

- Acid Gas Removal unit (AGRP) at MAA and rehabilitation of the existing one.


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CERTIFICATES & AWARDS

KNPC won during this year four out of five KPC CEO awards for HSE performance. Four teams from KNPC were selected to win awards for their outstanding performance in the HSE areas which deserved the recognition; Recording the Flare Gas Recovery Project in the Clean Development Mechanism of the UN Framework convention for Climate Change was among those recognized projects.

The company sites won the merit award of the British Safety Council for outstanding HSE performance.

The company three refineries, the Local Marketing and The Projects Department were also awarded the RoSPA prize for HSE performance.

KNPC Obtains the 1st place Award of CEO Competition for HSE


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huMan ResOuRces anD caReeR

DeVelOpMent

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The manpower total number in the company showed, by end of the fiscal year 2012/2013, a drop by 75 employees, going down from 5880 employees in the previous fiscal year to 5805 employees in the current year.

However the company continued its endeavors to attract new Kuwaiti graduates especially from the engineering and technical faculties.180 new employees were recruited this year 173 of them are Kuwaitis. The number of Kuwaiti labour force in the company reached by end of the financial year 4856 employees at the rate of 83.6% compared to 82.7% in the previous fiscal year.

The following tables provide a breakdown of the company employees by nationality as well their distribution in the company various work sites:

Manpower Distribution by Nationality

NationalityNumber Of Employees Percentage of total

Manpower % Increase

(Decrease)1/4/2012 31/3/2013 change 1/4/2012 31/3/2013

Kuwaitis 4865 4856 (9) 82.74% 83.65% (0.18)%

Other Arab Nationals 308 278 (30) 5.24% 4.79% (9.74)%

Sub-Total 5173 5134 (39) 88.0% 88.44% (0.75)%

Non-Arab Nationalities 707 671 (36) 12.0% 11.56% (5.09)%

Total 5880 5805 (75) 100% 100.00% (1.28)%


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Breakdown of the company employees by department and changes in this period

Department

01/04/2012 31/03/2013

Employees Number

Kuwaiti ManpowerEmployees Number

Kuwaiti Manpower

No % No %

Head Office* 1019 856 84 1042 887 85.1

Local Marketing 378 348 92.1 375 345 92.0

Health Safety & Environment 356 250 70.2 336 232 69.0

Shuaiba Refinery 866 689 79.6 901 739 82.0

Mina-Abdullah Refinery 1118 936 83.7 1135 967 85.2

Mina-Al-Ahmadi Refinery 1667 1310 78.6 1797 1467 81.6

Sub-Total 5404 4389 81.2 5586 4638 83.0

Pows 4 4 100 4 4 100

Employees Prequalification’s 0 0 0 0 0 0

Sub-Total 4 4 100 4 4 100.0

Pre-Employment Qualifications Programs 472 472 100 215 215 100

Grand Total of KNPC Staff 5880 4865 82.7 5805 4856 83.7

* Including the Higher Management, Legal Department, Corporate Planning, Corporate Communication, IT, Human Resources, Finance, General Services Projects Departments, New Refinery Project, Clean Fuels Project, Commercial Department, and MOG.


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2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13

5613 5441 5187 5235 5324 5447 5562 5880 5805

Total Manpower

TRAINING AND CAREER DEVELOPMENT

The Company reinstated the Career Development department in a move that reflected the importance it attaches to training and upgrading the employees skills in various business domains. The company also asked the new department to make sure that every employee is guaranteed the opportunity to join internal and external courses and programs in which he/she fulfills a minimum of training hours. Those courses are usually conducted by experienced and renowned international firms both at the internal or external scenes. Some programs were designed for the upgrading of leadership skills.

The company organized or joined during this year 1032 courses 66 of which were conducted locally and joined by 452 employees while the external courses and programs totaled 966 courses joined by 1994 employees. In the meantime KNPC employees attended a large number of training activities at the Petroleum Training Centre (PTC) of Kuwait Petroleum Corporation. The number of KNPC employees who were recruited in those courses reached this year 3681 employees. PTC usually uses the services of internatioal experts in its training programs.

As regarding Scholarships and study leaves, 2 employees are currently on scholarships for bacholer degrees in engineering increasing the total number of the company employees who benefitted from the unified scholars hips scheme to study for university degree in engineering to 25.


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cORpORate sOcial

RespOnsibilitY

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KNPC maintained during this year its usual cooperation with the governmental and nongovernmental organizations out of its belief in the importance of this partnership to the welfare of the society.This responsibility should be shared with the local companies as their contribution to the community development is extremely important.

Sponsorship of Educational Activities

Collaboration with Kuwait University, the colleges of the Public Authority for Applied Education &Training continued during this year in the course of which the company sponsored a number of their activities including graduation projects and other programs. In the meantime, the company continued its program of active engagement with the public schools in different stages. In the course of that program teams from the KNPC HSE, Corporate Communications and Corporate Planning departments visited more than 15 schools to conduct presentations and lectures on the basics of the oil industry, environment protection responsibility and safety at home and elsewhere. Those lectures were received with interest on the part of the students and their teachers

The company also provided club equipment and publications to a school that takes care of the children suffering from Dawn syndrome.

The Corporate Communication department, as usual, organized a summer program, after school, for the education and entertainment of the company employees children. The program consisted of site visits to several places in Kuwait of historic importance and some recreational facilities.

Honoring Outstanding Students of Employees Sons


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Opening Anti-Bullying Program at Schools

The company also kept its tradition of hosting an annual function or festival at the company Club for the students of Special Needs under the slogan of” Celebrate Your Ability.” With the participation of the higher management and a group of volunteers, dozens of handicapped school girls and boys perform on stage some of their artistic hobbies and exhibit their abilities especially in drawing and handwork .The company sponsors this festival and purchase the paintings drawn by the students as an encouragement for them to continue their practices.

The company also sponsored and financed a number of sport activities by the public schools such as the Marathon organized by a girls school in Ahmadi educational district .

The company celebrates every year the holy month of Ramadan by installing a huge tent to accommodate nearly one thousand people to whom free break- the- fast meals are provided at sunset every day during the month. It should be noted that this charity work is co-financed by the employees who make significant donations

The CC Department employees also pay visits to hospitals in Kuwait, to comfort ,and present gifts and give away items to sick children.

Environmental Activities

The company maintained its efforts to foster environmental awareness across the country. Two lectures were conducted this year at two girl schools on pollution and how to combat it at its original sources in order to protect Kuwait environment. They were attended not only by students but also by parents and the school’s staff.

The company also distributed thousands of

plants to the employees on the Earth Day which KNPC observed with different activities.

Desert and beach cleaning campaigns also became an annual tradition for KNPC. Several campaigns were conducted this year, the biggest of which came after the end of the camping season.

Anti –Bullying Project Program

In a joint effort, KNPC, Kuwait Red Crescent Society and the UN Development Program (UNDP), completed the first workshop in which 30 volunteers received special training to implement the Anti-Bullying program at schools. The training included a series of workshops designed to provide the volunteers with basic knowledge for handling violence among the students and how to boost the youth resilience and rational thinking and behaviour

The Anti –Bullying program or Youth Resiliency Project is financed by KNPC and implemented in collaboration with the UNDP and the Kuwait Red Crescent Society. Selected Education experts and pedagogues prepared plans to deliver several lectures and presentations at various schools intended to defeat violent bahaviour not only at schools but also on streets and everywhere. The campaign


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also envisages producing a number of anti- bullying publications and distributing them at schools and universities.

KNPC NATURE RESERVE

The company reserves special attention to its Nature Reserve Project at Wafra area, south of Kuwait city which aims at saving endangered wild plants from extinction and to propagate this wild plants in general. That is why the Nature Reserve is called KNPC Center for Development & Propagation of Native Plants.The first phase of the project, fencing one million square meters, has been completed and the company started implementing the second phase in the course of which thousands of plants will be planted.

Care for the Company Staff

The company continued to look after its employees and arranged during this year two trips to the holy lands to perform Omra. More than 200 employees and members of their families took part in those trips. The company also arranged a trip to the Spanish city of Barcelona in which 140 employees and their families were involved. The usual fishing journey to the Sultanate of Oman also took place this winter, beside several one day shopping visits to Dubai, UAE.

Activities at the company spring camp


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KNPC Wins Arabia Award for Social Responsibility

Several hundreds of the employees children were also honoured by the higher management on January 7th and 8th for their excellence.

In the meantime the CC Department continued to organize entertainment parties and celebrations on several occasions such as the National Day anniversary, Eid Alfitr ..etc at the Company Spring camp or the Company club to the benefit of the employees and their families.

Conferences & Exhibitions

KNPC joined a number of exhibitions and conferences throughout this year. including The Asian Technology Conterencein Thailand in which a large number of international oil companies including KPC and subsidiaries had taken part.

The company also participated in MEED Conference and Exhibition which was held in Kuwait under the slogan of “Energy & Infrastructure Projects”.

A number of KNPC engineers presented working papers at the Corrosion Conference and Exhibition in Bahrain in February 2012.

KNPC also joined the Oil Refining week in Dubai, UAE.


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The company was also a major contributor to the Oil & Gas Conference and Exhibition which took place in the state of Kuwait which focused on the prospects of integration among those industries in the GGC member states.

KNPC also took part in Petro-tech exhibition and conference in the Kingdom of Bahrain.

AWARDS AND CERTIFICATES

KNPC was awarded during this year the KPC CEO award for Social Responsibility in recognition of its remarkable performance in this area and its unique CSR audited report .

The company earlier this year was awarded the CSR Arabia Award for winning the first place in the competition for governmental organisations. The award was handed over to KNPC Chairman and Managing Director in October 2012 in Dubai. 60 companies participated in the competition from North Africa and the Middle East

The company won unanimous nomination for the first place by the prize committee.

KNPC at a local pxhition


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financial RepORt


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2011/20122012/2013Description

10,311,878,72710٫822٫975٫611Oil Refining revenues

3,044,403,8443٫302٫410٫941Gas Liquefaction revenues

274,449291٫150Lube Oil & Carwash revenues

158,329,453183٫814٫395Other revenues

13٫514٫886٫47314٫309٫492٫097Total revenues

1000 K.D.Description193٫664٫805Profits (Losses) resulting from Oil Refining & Gas Liquefaction

146٫323Profits (Losses) resulting from Local Marketing activities

183٫812٫395Other Revenues

-Allocation for obsolete material

)44٫541(Directors remuneration

377٫578٫983Total Profits (Losses)

It covers revenues from interests on deposits of foreign currencies, sales of spent catalysts and obsolete materials and assets, rents, compensations from an insurance company as well as KD 171,157,448 in compensation from the United Nations.

*

The consolidated statements incorporated in this report presents fairly the position of the company in the fiscal year ending on 31/ 3 /2013 compared to the previous fiscal year ending on 31/ 3/ 2012.The company assets shown in the balance sheet totaled KD 3,143,354,738 against KD 283,180,750 in the fiscal year ending on 31/ 3 /2012 showing an incaese of KD 305,173,988.

The company also continued to market petroleum products on behalf of Kuwait Petroleum Corporation which amounted during the year to KD 332,678,568 compared to the products marketed in the previous fiscal year and totaled KD 319,306,101.

Profits And Losses

The company operations in the fiscal year 2012 / 2013 revealed a net profit of KD 377,578,983 compared to a net profit in the previous fiscal year of 283,719,096 .

The following is a breakdown of the company profits/losses in accordance with its various activities:

Revenues

The company revenues totaled KD 14,309,492,097 showing an incease of KD 794,605,624 from previous year’ s total figure as represented in the following breakdown


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FinancialStatements And IndependentAuditor’s Report For The Year Ended31 March 2012


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Independent auditor’s report

Statement of income for the year ended 31 March 2011

Statement of comprehensive income for the year ended 31 March 2011

Statement of cash flows for the year ended 31 March 2011

Statement of changes in equity for the year ended 31 March 2011

Notes to the financial statements

50

52

53

54

55


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Report on the Financial Statements

We have audited the accompanying financial statements of Kuwait National Petroleum Company K.S.C. (the “Company”), which comprise the statement of financial position as at 31 March 2013, and the statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

INDEPENDENTAUDITOR’S REPORT


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We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as at 31 March 2013, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.

Report on Other Legal and Regulatory Requirements

Furthermore, in our opinion proper books of account have been kept by the Company and the financial statements, together with the contents of the report of the Board of Directors relating to these financial statements, are in accordance therewith. We further report that we obtained all the information and explanations that we required for the purpose of our audit and that the financial statements incorporate all information that is required by the Companies Law No. 25 of 2012, as amended, and by the Company>s Articles of Association, that an inventory was duly carried out and that, to the best of our knowledge and belief, no violations of the Companies Law No. 25 of 2012, as amended, nor of the articles of association have occurred during the year ended 31 March 2013 that might have had a material effect on the business of the Company or on its financial position.

WALEED A. AL OSAIMILICENCE NO. 68 A OF ERNST & YOUNG

23 April 2013 Kuwait


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STATEMENT OF FINANCIAL POSITION At 31 March 20132013 2012

ASSETS Notes KD ‘000 KD ‘000

Non-current assets

Property, plant and equipment 9 1,607,853 1,433,690

receivable due from the Parent Company 10 130,000 130,000

Investment in an associate 11 77,402 74,229

Deferred expenses 12 18,921 25,548

1,834,176 1,663,467

Current assets

Inventories 13 822,395 743,371

Trade receivables 14 26,812 25,941

Due from related parties 15 343,266 259,296

Other receivables and prepayments 16 103,451 121,557

Bank balances and cash 17 13,255 24,549

1,309,179 1,174,714

TOTAL ASSETS 3,143,355 2,838,181

Equity And Liabilities

Equity

Share capital 18 260,000 260,000

Statutory reserve 19 130,000 130,000

Foreign currency translation reserve 574 1,412

Total equity 390,574 391,412

Non-current liabilities

Financing advances due to the Parent 20 2,007,893 1,755,694

Employees’ end of service benefits 21 178,408 175,364

2,186,301 1,931,058

Current liabilities

Trade payables 1,642 503

Other payables and accruals 22 164,151 208,145

Dividends payable 23 377,579 283,719

Due to related party 15 23,108 23,344

566,480 515,711

Total liabilities 2,752,781 2,446,769

Total Equity And Liabilities 3,143,355 2,838,181

Fahed Salem Al-AjmiChairman & Managing Director

The notes set out on pages 52 to 85 form an integral part of these financial statements.


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2013 2012

Notes KD ‘000 KD ‘000

Revenue 5 14,125,678 13,356,557

Cost of sales 6 (13,773,502) (13,087,633)

GROSS PROFIT 352,176 268,924

General and administrative expenses 7 (158,364) (143,492)

Other income 8 179,303 153,560

Share of results of an associate 11 4,011 4,545

Interest income 167 275

Foreign exchange gain (loss) 331 (51)PROFIT BEFORE BOARD OF DIRECTORS’ REMUNERATION 377,624 283,761

Board of directors’ remuneration 22 (45) (42)

PROFIT FOR THE YEAR 377,579 283,719

2013 2012

KD ‘000 KD ‘000

Profit for the year 377,579 283,719

Other comprehensive income:

Foreign currency translation adjustment (Note 11) (838) (1,154)

Other comprehensive loss for the year (838) (1,154)

Total comprehensive income for the year 376,741 282,565

Kuwait National Petroleum Company K.S.C.STATEMENT OF INCOME For the year ended 31 March 2013

Kuwait National Petroleum Company K.S.C. statement of COMPREHENSIVE INCOMEFor the year ended 31 March 2013



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Kuwait National Petroleum Company K.S.C. STATEMENT of CASH FLOWSFor the year ended 31 March 2013

2013 2012Notes KD ‘000 KD ‘000

OPERATING ACTIVITIESProfit before board of directors’ remuneration 377,624 283,761Adjustments for:Depreciation 9 73,905 71,598Amortisation of deferred expenses 12 17,865 17,174Share of results of an associate 11 (4,011) (4,545)Loss (gain) on sale of property, plant and equipment 17 (603)Gain on sale of amortised catalysts 8 (1,189) (1,361)Reversal of allowance for obsolete and slow moving items 13 (4,872) - Provision for employees’ end of service benefits 21 14,127 50,022Interest income (167) (275)Foreign exchange (gain) loss (331) 51

472,968 415,822Changes in operating assets and liabilities:Inventories (85,390) (65,200)Trade receivables (871) (1,557)Due from related parties (431,414) (437,550)Other receivables and prepayments 18,106 (41,152)Trade payables 1,139 72Other payables and accruals (43,666) 45,394Due to related parties 19,658 10,751Cash used in operations (49,470) (73,420) Employees’ end of service benefits paid 21 (11,083) (5,761) Board of directors’ remuneration paid (42) (38)Net cash used in operating activities (60,595) (79,219)

Investing ActivitiesPurchase of property, plant and equipment 9 (270,157) (184,257)Proceeds from sale of property, plant and equipment 124 1,910Proceeds from sale of amortised catalysts 1,189 1,361Interest received 167 275Net cash used in investing activities (268,677) (180,711)Financing ActivitiesFinancing advances received from the Parent Company 20 317,978 273,991Net cash from financing activities 317,978 273,991(Decrease) Increase In Cash And Cash Equivalents (11,294) 14,061Cash and cash equivalents at the beginning of the year 24,549 10,488Cash And Cash Equivalents At The End Of The Year 17 13,255 24,549



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Kuwait National Petroleum Company K.S.C. STATEMENT of CHANGES IN EQUITYFor the year ended 31 March 2013

Share capital

Statutory reserve

Foreign currency

translation reserve

Retained earnings

Total

equity

KD ‘000 KD ‘000 KD ‘000 KD ‘000 KD ‘000

At 1 April 2012 260,000 130,000 1,412 - 391,412

Profit for the year - - - 377,579 377,579

Other comprehensive loss - - (838) - (838)

Total comprehensive (loss) income for the year

- - (838) 377,579 376,741

Dividends (Note 23) - - - (377,579) (377,579)

At 31 March 2013 260,000 130,000 574 - 390,574

At 1 April 2011 260,000 130,000 2,566 - 392,566

Profit for the year - - - 283,719 283,719

Other comprehensive loss - - (1,154) - (1,154) Total comprehensive (loss) income

for the year- - (1,154) 283,719 282,565

Dividends (Note 23) - - - (283,719) (283,719)

At 31 March 2012 260,000 130,000 1,412 - 391,412



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STATEMENT of CHANGES IN EQUITY - For the year ended 31 March 2013

1 CORPORATE INFORMATION

Kuwait National Petroleum Company K.S.C. (the “Company” or “KNPC”) is a Kuwaiti shareholding company established in 1960 engaged in oil refining activities including the manufacture of liquid petroleum gas. The address of the Company’s registered office is P.O. Box 70, Safat 13001, Kuwait.

The Company is a wholly owned subsidiary of Kuwait Petroleum Corporation (the “Parent Company”), a company wholly owned by the State of Kuwait.

The Company buys crude oil and feedstock from the Parent Company for refining and sells the refined products primarily to the Parent Company. Prices for these transactions are determined in accordance with a supply agreement between the Company and the Parent Company.

The Company also distributes petroleum products within the State of Kuwait on behalf of the Parent Company in addition to providing other fuel station ancillary services. Approximately 99% (2012: 99%) of the Company’s revenue is earned from the Parent Company.

The financial statements of the Company for the year ended 31 March 2013 were authorised for issue in accordance with a resolution of the Board of Directors on 23 April 2013. The Parent Company has the power to amend these financial statements after issuance at the Company’s Annual General Assembly.

The Companies Law issued on 26 November 2012 by Decree Law no 25 of 2012 (the “Companies Law”), which was published in the Official Gazette on 29 November 2012, cancelled the Commercial Companies Law No 15 of 1960. The Companies Law was subsequently amended on 27 March 2013 by Decree Law no 97 of 2013 (the “Decree”).

According to article 2 and 3 of the Decree, Executive Regulations which shall be issued by the Ministry of Commerce and Industry by 26 September 2013 will determine the basis and rules which the company shall adopt to regularise its affairs with the Companies Law, as amended.

2.1 BASIS OF PREPARATION

The financial statements of the Company are prepared under the historical cost basis and are presented in Kuwaiti Dinars (“KD”), which is the functional currency of the Company. All values are rounded to the nearest thousand except when otherwise indicated.

2.2 STATEMENT OF COMPLIANCE

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).



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2.3 CHANGES IN ACCOUNTING POLICIES

The accounting policies used in the preparation of these financial statements are consistent with those used in the previous year, except for the adoption of the following amended IASB Standard:

∑ IFRS 7 Financial Instruments: Disclosures effective 1 July 2011

2.3 CHANGES IN ACCOUNTING POLICIES

IFRS 7 Financial Instruments: Disclosures

The amendment requires additional disclosure about financial assets that have been transferred but not derecognised to enable the user of the Company’s financial statements to understand the relationship with those assets that have not been derecognised and their associated liabilities. In addition, the amendment requires disclosures about the entity’s continuing involvement in derecognised assets to enable the users to evaluate the nature of, and risks associated with, such involvement. The amendment is effective for annual periods beginning on or after 1 July 2011. The Company does not have any assets with these characteristics so there has been no effect on the presentation of its financial statements.

2.4 STANDARDS ISSUED BUT NOT YET EFFECTIVE

Standards issued but not yet effective up to the date of issuance of the Company’s financial statements are listed below. This listing of standards issued is those that the Company reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The Company intends to adopt these standards when they become effective.

IAS 1 Presentation of Items of Other Comprehensive Income – Amendments to IAS 1

The amendments to IAS 1 change the grouping of items presented in other comprehensive income (OCI). Items that could be reclassified (or ‘recycled’) to profit or loss at a future point in time (for example, net gain on hedge of net investment, exchange differences on translation of foreign operations, net movement on cash flow hedges and net loss or gain on available-for-sale financial assets) would be presented separately from items that will never be reclassified (for example, actuarial gains and losses on defined benefit plans and revaluation of land and buildings). The amendment affects presentation only and has no impact on the Company’s financial position or performance. The amendment becomes effective for annual periods beginning on or after 1 July 2012, and will therefore be applied in the Company’s first annual report after becoming effective.

IAS 28 Investments in Associates and Joint Ventures (as revised in 2011)

As a consequence of the new IFRS 11 Joint Arrangements, and IFRS 12 Disclosure of Interests in Other Entities, IAS 28 Investments in Associates, has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. These amendments are not expected to impact the Company’s financial position or performance and become effective for annual periods beginning on or after 1 January 2013.



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IAS 32 Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32

These amendments clarify the meaning of “currently has a legally enforceable right to set-off”. The amendments also clarify the application of the IAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. These amendments are not expected to impact the Company’s financial position or performance and become effective for annual periods beginning on or after 1 January 2014.

IFRS 7 Disclosures - Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7

These amendments require an entity to disclose information about rights to set-off and related arrangements (e.g., collateral agreements). The disclosures would provide users with information that is useful in evaluating the effect of netting arrangements on an entity’s financial position. The new disclosures are required for all recognised financial instruments that are set off in accordance with IAS 32 Financial Instruments: Presentation.

The disclosures also apply to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set off in accordance with IAS 32. These amendments will not impact the Company’s financial position or performance and become effective for annual periods beginning on or after 1 January 2013.

IFRS 9 Financial Instruments: Classification and Measurement

IFRS 9, as issued, reflects the first phase of the IASB’s work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard was initially effective for annual periods beginning on or after 1 January 2013, but Amendments to IFRS 9 Mandatory Effective Date of IFRS 9 and Transition Disclosures, issued in December 2011, moved the mandatory effective date to 1 January 2015. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the Company’s financial assets, but will not have an impact on classification and measurements of financial liabilities.

The Company will quantify the effect in conjunction with the other phases, when the final standard including all phases is issued.

IFRS 12 Disclosure of Interests in Other Entities

IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required, but has no impact on the Company’s financial position or performance. This standard becomes effective for annual periods beginning on or after 1 January 2013.

IFRS 13 Fair Value Measurement

IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The Company is currently assessing the impact that this standard will have on the financial position and performance, but based on the preliminary analyses, no material impact is expected. This standard becomes effective for annual periods beginning on or after 1 January 2013.




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3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue recognition

Revenue is measured at the fair value of consideration received or receivable. Revenue from sale of refined products and liquefied petroleum gas is recognised in the statement of income when the significant risks and rewards of ownership have been transferred to the buyer. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

Property, plant and equipment

Property, plant and equipment is stated at cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Such cost includes the expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately and is capitalised with the carrying amount of the property, plant and equipment being written off. Other subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of property, plant and equipment. All other expenditure is recognised in the statement of income when the expense is incurred. Freehold land and assets under construction are not depreciated. Depreciation is calculated on a straight-line basis over the estimated useful life of the applicable asset as follows:

Tanks, pipelines and jetties - over 15 years

Plant and machinery - over 4 to 15 years

Buildings and facilities - over 10 years

Vehicles and transportation equipment - over 4 to 5 years

Insurance spares - over 4 to 15 years

Other completed assets - over 4 to 15 years

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Property, plant and equipment (continued)

Items of property, plant and equipment in the course of construction for production, or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognised impairment loss. Depreciation of these assets, on the same basis as other property, plant and equipment, commences when the assets are ready for their intended use.

An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of income when the asset is derecognised.

The assets residual values, useful lives and methods of depreciation are reviewed at each financial year end, and adjusted prospectively, if appropriate.



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Investment in associates

The Company’s investment in its associate is accounted for using the equity method. An associate is an entity in which the Company has significant influence.

Under the equity method, the investment in the associate is carried in the statement of financial position at cost plus post acquisition changes in the Company’s share of net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment.

The statement of income reflects the share of the results of operations of the associate. Where there has been a change recognised directly in the statement of income of the associate, the Company recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Company and the associate are eliminated to the extent of the interest in the associate.

The Company’s share of profit of an associate is shown on the face of the statement of income. This is the profit/loss attributable to equity holders of the associate and therefore is profit after tax and non controlling interest in the subsidiaries of the associate.

The financial statements of the associate are prepared for the year ended 31 December, accordingly, adjustments are made for the effects of significant transactions or events that occur between that date and the date of the Company’s financial statements. Where necessary, adjustments are made to bring the accounting policies in line with those of the Company.

Distributions received from an associate reduce the carrying amount of the investment.

After application of the equity method, the Company determines whether it is necessary to recognise an impairment loss on the Company’s investment in its associate. The Company determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case the Company calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in the statement of income.

Upon loss of significant influence over the associate, the Company measures and recognises any retaining investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retaining investment and proceeds from disposal is recognised in the statement of income.

Financial instruments – initial recognition and subsequent measurement Financial assetsInitial recognition and measurement

Financial assets are recognised initially at fair value plus directly attributable transaction costs.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset. The Company’s financial assets include long term receivable due from the Parent Company, trade receivables, due from related parties, other receivables, and bank balances and cash.



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Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in the statement of income. The losses arising from impairment are recognised in the statement of income.

The Company classifies its loans and receivables as long term receivable due from the Parent Company, trade receivables, due from related parties, other receivables and bank balances and cash.

Cash and cash equivalents

For purposes of the statement of cash flows, cash and cash equivalents includes bank balances and cash.

Derecognition

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

- The rights to receive cash flows from the asset have expired

- The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Company’s continuing involvement in the asset.

In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.

Impairment of financial assets

The Company assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or



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more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrowers or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial liabilities

Initial recognition and measurement

All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs.

The Company classifies its financial liabilities other than at fair value through profit or loss as trade payables and other payables.

Subsequent measurement

The measurement of financial liabilities depends on their classification as follows:

Trade payable and other payables

Liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not.

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the statement of income.

Offsetting

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

Deferred expenses

Deferred expenses primarily comprise catalysts and are amortised on a straight line basis over their estimated useful lives.



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Inventories

Refined products are valued at the lower of cost and net realisable value. Cost is calculated on an individual product basis, using the cost of crude oil and natural gas supplied with an allocation of processing costs and overheads to each product based on their relative market values. Net realisable value represents selling prices in accordance with the supply agreement with the Parent Company (See note 1) less all estimated costs of completion and costs necessary to make the sale.

Inventories (continued)

Maintenance and spare parts are not intended for resale and are valued at cost after making allowance for any obsolete or slow moving items. Cost is determined on a weighted average basis.

Crude oil, catalysts, chemicals and other inventories are valued at the lower of cost and net realisable value after making due allowance for obsolete or slow moving items. Net realisable value is based on estimated replacement cost.

Impairment of non-financial assets

The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.

The Company bases its impairment calculation on detailed budgets and forecast calculations which are prepared separately for each of the Company’s cash-generating units to which the individual assets are allocated. These budgets and forecast calculations are generally covering a period of five years. For longer periods, a long term growth rate is calculated and applied to project future cash flows after the fifth year.

Impairment losses of continuing operations are recognised in the statement of income in those expense categories consistent with the function of the impaired asset, except for a property previously revalued where the revaluation was taken to other comprehensive income. In this case, the impairment is also recognised in other comprehensive income up to the amount of any previous revaluation.

Leases

The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.



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Company as a lessee

Finance leases, which transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainly that the Company will obtain ownership by the end of the lease term.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the statement of income on a straight-line basis over the lease term.

The Company as a lessor

Leases where the Company does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

Employees’ end of service benefits

Provision is made for employees’ indemnity in accordance with the Kuwait Labour Law based on employees’ salaries and accumulated periods of service or on the basis of employment contracts, where such contracts provide extra benefits. The provision, which is unfunded, is determined as the amount payable to employees as a result of involuntary termination of employment at the reporting date.

Pensions and other social benefits for Kuwaiti employees are covered by the Public Institution for Social Security Scheme, to which employees and employers contribute monthly on a fixed-percentage-of-salaries basis.

The Company’s share of contributions to this scheme, which is a defined contribution scheme under International Accounting Standard (IAS) 19 – Employee Benefits is charged to statement of income in the year to which it relates.

Provisions

Provisions are recognised when the Company has an obligation (legal or constructive) arising from a past event, and the costs to settle the obligation are both probable and able to be reliably measured.

Foreign currencies

Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to KD at rates of exchange prevailing on that date. Any resultant gains or losses are recognised in the statement of income.




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Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to KD at the foreign exchange rates prevailing at the dates that the values were determined. In case of non-monetary assets whose change in fair values are recognised directly through other comprehensive income, foreign exchange differences are recognised directly in other comprehensive income and for non-monetary assets whose change in fair value are recognised in the statement of income are recognised in the statement of income.

4 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of the Company’s financial statements require management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about the assumptions and estimates could result in outcomes that require a material adjustment to the amount of the asset or liability affected in the future.

Judgements

In the process of applying the Company’s accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognised in the financial statements:

Classification of assets as loans and receivables depends on the nature of the asset. If the Company is unable to trade these financial assets due to inactive market and the intention is to receive fixed or determinable payments the financial asset is classified as loans and receivables.

Estimation uncertainty and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

Impairment provision of inventories

Inventories are held at the lower of cost and net realisable value. When inventories become old or obsolete, an estimate is made of their net realisable value. For individually significant amounts this estimation is performed on an individual basis. Amounts which are not individually significant, but which are old or obsolete, are assessed collectively and a provision applied according to the inventory and the degree of ageing or obsolescence, based on historical experience.

At the reporting date, gross inventories were KD 843,418 thousand (2012: KD 769,266 thousand).Their related provisions for slow moving and obsolete items relating to spare parts and catalyst were KD 21,023 thousand (2012: KD 25,895 thousand). Any difference between the amounts actually realised in future periods and the amounts expected will be recognised in the statement of income.



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Impairment provision of receivables

An estimate of the collectible amount of receivables is made when collection of the full amount is no longer probable. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but which are past due, are assessed collectively and a provision applied according to the length of time past due, based on historical recovery rates.

At the reporting date, gross trade receivables and other receivable were KD 26,999 thousand (2012: KD 26,128 thousand) and KD 103,451 thousand (2012: 121,557 thousand) respectively, and the allowance for doubtful debts was KD 187 thousand (2012: KD 187 thousand). Any difference between the amounts actually collected in future periods and the amounts expected will be recognised in the statement of income.

Impairment of associates

After application of the equity method, the Company determines whether it is necessary to recognise any impairment loss on the Company’s investment in its associated companies, at each reporting date based on existence of any objective evidence that the investment in the associate is impaired. If this is the case the Company calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in the statement of income.

Estimation of useful lives

The Company determines the estimated economical useful life of property, plant and equipment which requires considerable judgment.

5 REVENUE

2013 2012KD ‘000 KD ‘000

Refined products 10,822,976 10,311,879Liquefied petroleum gas 3,302,411 3,044,404Local marketing sales 291 274

14,125,678 13,356,557

The Company’s local marketing sales represent sale of ancillary services and products at service stations.



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6 COST OF SALES

2013 2012KD ‘000 KD ‘000

Cost of crude oil and gas 13,329,888 12,634,332Staff costs 223,076 215,499Other costs 136,894 155,871Amortisation (Note 12) 17,865 17,174Depreciation (Note 9) 65,779 64,757

13,773,502 13,087,633

Included in the cost of sales is KD 145 thousand (2012: KD 134 thousand) which represents the cost of ancillary services and products relating to local marketing.

7 GENERAL AND ADMINISTRATIVE EXPENSES

2013 2012KD ‘000 KD ‘000

Staff costs 96,102 93,508Other costs 64,702 51,523Depreciation (Note 9) 8,101 6,816Recovery of local marketing overheads from the Parent Company (Note 15)

(10,541) (8,355)

158,364 143,492

8 OTHER INCOME

2013 2012KD ‘000 KD ‘000

Gain on disposal of scrap materials 2,574 2,496Gain on sale of amortised catalysts 1,189 1,361Receipt of UNCC compensation claim (Note 30) 171,157 141,430Others 4,383 8,273

179,303 153,560



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9 PROPERTY, PLANT AND EQUIPMENTTa

nks,

pi

pelin

es a

nd

jetti

es

Plan

t an

d m

achi

nery

Free

hold

lan

d,

build

ings

and

fa

cilit

ies

Vehi

cles

and

tr

ansp

orta

tion

equi

pmen

t

Insu

ranc

e

spar

es

Oth

er

com

plet

ed

asse

ts

Ass

ets

unde

r co

nstr

uctio

nTo

tal

KD

‘000

KD

‘000

KD

‘000

KD

‘000

KD

‘000

KD

‘000

KD

‘000

KD

‘000

Cos

t

At 1

Apr

il 20

1274

0,95

21,

769,

031

197,

013

4,63

427

,015

-

884,

821

3,62

3,46

6

Add

ition

s-

-

-

-

4,23

0-

265,

927

270,

157

Tran

sfer

s21

,145

70,1

6911

,167

(19)

-

(102

,462

)-

Dis

posa

ls-

(1,4

86)

(15)

-

-

-

-

(1,5

01)

At 31

Mar

ch 2

013

762,

097

1,83

7,71

420

8,16

54,

615

31,2

45-

1,04

8,28

63,

892,

122

Dep

reci

atio

n

At 1

Apr

il 20

1265

1,15

31,

352,

349

173,

484

4,27

98,

511

-

-

2,18

9,77

6

Cha

rge

for

the

year

28,8

2958

,633

6,65

315

81,

580

-

-

95,8

53

Tran

sfer

s-

43-

(43)

-

-

-

-

Rel

atin

g to

dis

posa

ls-

(1,3

45)

(15)

-

-

-

-

(1,3

60)

At 31

Mar

ch 2

013

679,

982

1,40

9,68

018

0,12

24,

394

10,0

91-

-

2,28

4,26

9

Net

car

ryin

g am

ount

:

At 31

Mar

ch 2

013

82,1

1542

8,03

428

,043

221

21,1

54-

1,04

8,28

61,

607,

853



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Incl

uded

in

prop

erty

, pl

ant

and

equi

pmen

t is

an

amou

nt o

f K

D 1

8,30

9 th

ousa

nd (

2012

: K

D 3

3,83

3 th

ousa

nd)

whi

ch r

epre

sent

s th

e C

ompa

ny’s

fixe

d as

sets

at So

uth

Pier

in

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a A

l A

hmad

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finer

y (N

ote

24).

Incl

uded

in

asse

ts u

nder

con

stru

ctio

n ar

e am

ount

s of

KD

324

,453

tho

usan

d an

d K

D 2

68,4

97 t

hous

and

(201

2: K

D 3

19,2

54

thou

sand

and

KD

265

,054

tho

usan

d) r

elat

ing

to t

he C

ompa

ny’s

new

refi

nery

pro

ject

and

the

cle

an f

uels

pro

ject

res

pect

ivel

y.

Dur

ing

the

curr

ent

year

, th

e Su

prem

e Pe

trol

eum

Cou

ncil

appr

oved

the

Com

pany

’s p

lan

to g

o ah

ead

with

the

im

plem

enta

tion

of

the

four

th r

efine

ry p

roje

ct a

nd c

lean

fuel

s pr

ojec

t.

Tank

s,

pipe

lines

and

je

tties

Plan

t an

d m

achi

nery

Free

hold

lan

d,

build

ings

and

fa

cilit

ies

Vehi

cles

and

tr

ansp

orta

tion

equi

pmen

tIn

sura

nce

sp

ares

Oth

er

com

plet

ed

asse

ts

Ass

ets

unde

r co

nstr

uctio

nTo

tal

KD

‘000

KD

‘000

KD

‘000

KD

‘000

KD

‘000

KD

‘000

KD

‘000

KD

‘000

Cos

t

At 1

Apr

il 20

1173

2,66

41,

739,

521

194,

730

4,63

424

,044

7,34

474

0,21

13,

443,

148

Add

ition

s-

1,16

2-

-

4,38

3-

178,

712

184,

257

Tran

sfer

s8,

288

30,8

602,

298

-

-

(7,3

44)

(34,

102)

-

Dis

posa

ls -

(2,5

12)

(15)

-

(1,4

12)

-

-

(3,9

39)

At 31

Mar

ch

2012

740,

952

1,76

9,03

119

7,01

34,

634

27,0

15-

884,

821

3,62

3,46

6

Dep

reci

atio

n

At 1

Apr

il 20

1162

3,81

61,

289,

872

167,

461

4,12

36,

981

5,79

7-

2,09

8,05

0C

harg

e fo

r th

e ye

ar27

,337

59,1

616,

032

156

1,67

2-

-

94,3

58

Tran

sfer

s-

5,79

7-

-

-

(5,7

97)

-

-

Rel

atin

g to

di

spos

als

-

(2,4

81)

(9)

-

(142

)-

-

(2,6

32)

At 31

Mar

ch

2012

651,

153

1,35

2,34

917

3,48

44,

279

8,51

1-

-

2,18

9,77

6

Net

car

ryin

g am

ount

:

At 31

Mar

ch

2012

89,7

99

416,

682

23,5

2935

518

,504

-

884,

821

1,43

3,69

0



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9 PROPERTY, PLANT AND EQUIPMENT (continued)

The depreciation charge has been allocated as follows:

2013 2012KD ‘000 KD ‘000

Cost of sales of refined products (Note 6) 65,779 64,757General and administrative expenses (Note 7) 8,101 6,816Local marketing costs 25 25

Charged to the Company’s statement of income 73,905 71,598Charged to the Parent Company in respect of local marketing (Note 15) 2,054 1,886Charged to Kuwait Oil Company and other related parties (Note 15) 19,894 20,874

95,853 94,358

10 Long term receivable due from the Parent Company

In accordance with the Company’s Articles of Association, an amount equal to statutory reserve was transferred to the Parent Company. This advance is interest free and has been classified as non-current because management does not intend to request repayment of this amount within the next year.

11 investment in AN associate

Name of the company Country ofIncorporation Percentage of ownership

2013 2012

Kuwait Aromatics Company K.S.C.C. (“KARO”) Kuwait 40% 40%

The movement in the carrying amount of investment in KARO during the year is as follows:




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2013 2012KD ‘000 KD ‘000

At the beginning of the year 74,229 70,838Share of results 4,011 4,545

Foreign currency translation adjustment (838) (1,154)

At the end of the year 77,402 74,229

The following table illustrates summarised financial information of KARO:

2013 2012KD ‘000 KD ‘000

Share of the associate’s statement of financial position:Total assets 515,221 466,416Total liabilities (437,819) (392,187)

Net assets 77,402 74,229

Share of the associate’s revenue and results:Revenue 332,116 263,473

Results 4,011 4,545




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12 DEFERRED EXPENSES

2013 2012KD ‘000 KD ‘000

At the beginning of the year 25,548 33,883Additions 11,238 8,839Amortisation charge (17,865) (17,174)


13 INVENTORIES

2013 2012KD ‘000 KD ‘000

Crude oil 28,159 27,707Refined products 715,339 643,504Catalysts and chemicals 8,225 3,984Maintenance and spare parts 90,509 92,695Goods in transit 1,186 1,376

843,418 769,266Allowance for obsolete and slow moving inventories (21,023) (25,895)

822,395 743,371

The movement in the allowance for obsolete and slow moving inventories during the year is as follows:

2013 2012KD ‘000 KD ‘000

At the beginning of the year 25,895 25,895Reversal of provision (4,872) -





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14 Trade receivables

2013 2012KD ‘000 KD ‘000

Trade receivables 26,999 26,128Allowance for doubtful debt (187) (187)

26,812 25,941

Trade receivables are non-interest bearing and are generally on 30-90 day terms. As at 31 March 2013, trade receivables at nominal value of KD 187 thousand (2012: KD 187 thousand) were impaired and fully provided for.

Analysis of receivables at 31 March is as follows:

Past due but not impairedNeither past due nor

impairedKD ‘000

< 30 daysKD ‘000

TotalKD ‘000

2013 25,647 1,165 26,8122012 25,411 530 25,941

In determining the recoverability of a trade receivable, the Company performs a risk analysis considering the type and age of the outstanding receivable and the credit worthiness of the counterparties. The Company’s management believe that there is no further credit provision required in excess of the allowance for doubtful debts.




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15 RELATED PARTIES

Related parties represent the Parent Company, entities under the Parent Company’s common control, directors and key management personnel of the Company and entities controlled, jointly controlled or significantly influenced by such parties. Pricing policies and terms of these transactions are approved by the Parent Company’s management.

Balances with related parties included in the statement of financial position are as follows:

Due from related parties

2013 2012KD ‘000 KD ‘000

Kuwait Petroleum Corporation (the “Parent Company”) 339,109 256,228Kuwait Paraxylene Production Company K.S.C. 534 1,036Kuwait Aviation Fuelling Company K.S.C. 24 700Kuwait Oil Tanker Company K.S.C. 34 36Kuwait Gulf Oil Company K.S.C. 2,992 846Petrochemical Industries Company K.S.C. 51 88Oil Sector Services Company K.S.C. 480 356Kuwait Foreign Petroleum Exploration Company K.S.C. 9 6Kuwait Petroleum International 31 - Oil Development Company 2 -

343,266 259,296

No bad or doubtful debt provision is considered necessary in respect of the amounts due from related parties.

Due to related party

2013 2012KD ‘000 KD ‘000

Kuwait Oil Company K.S.C. 23,108 23,344

Transactions and balances with the Parent Company




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During the year, the Company had the following transactions and balances with the Parent Company:

2013 2012KD ‘000 KD ‘000

Sales 14,125,387 13,356,283

Purchases 13,402,175 12,697,071

Long term receivable from the Parent Company (Note 10) 130,000 130,000

Financing advances due to the Parent Company (Note 20) 2,007,893 1,755,694

The Company is engaged in carrying out local marketing sales on behalf of the Parent Company which are not reflected in the statement of income of the Company as the risks and rewards associated with the local marketing sales are with the Parent Company. Local marketing sales represent sale of gasoline and other related products amounting to KD 332,679 thousand (2012: KD 319,306 thousand). The direct operating cost relating to local marketing operations incurred by the Company on behalf of the Parent Company amounting to KD 35,073 thousand (2012: KD 31,965 thousand) is also not reflected in the statement of income of the Company. General and administrative costs relating to local marketing amounting to KD 10,541 thousand (2012: KD 8,355 thousand) are also charged to the Parent Company (Note 7). The Company also charged a portion of the depreciation charge relating to certain property, plant and equipment to the Parent Company, Kuwait Oil Company and related parties (Note 9).

Compensation of key management personnel:

2013 2012KD ‘000 KD ’000

Salaries and short-term benefits 1,110 928Employees’ end of service benefits 49 149

1,159 1,077

Included in compensation of key management personnel is an amount of KD 187 thousand (2012: KD 130 thousand) relating to one of the key management personnel of the Company which is charged to the Parent Company.




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16 OTHER RECEIVABLES AND PREPAYMENTS

2013 2012KD ‘000 KD ‘000

Prepayments and deposits 10,147 11,359Advances against projects 54,538 79,479Other receivables 38,766 30,719

103,451 121,557

Advances against projects represents amounts paid to the various contractors involved in the construction of certain fixed assets.

17 BANK BALANCES AND CASH

2013 2012KD ‘000 KD ‘000

Bank balances 13,255 24,549

Included in bank balances is an amount of KD 739 thousand (2012: KD 1,313 thousand) denominated in foreign currency, principally US Dollars. All bank balances of the Company are held with a local bank.

18 share capital

Authorised, issued and paid-up capital consists of 260 million shares (2012: 260 million shares) of KD 1 (2012: KD 1) per share.

19 STATUTORY RESERVE

As required by the Companies Law and the Company’s articles of association, 10% of the profit for the year before directors’ remuneration should be transferred to statutory reserve. The Parent Company may resolve to discontinue such annual transfers when the reserve totals 50% of paid up share capital. The transfer to statutory reserve has been discontinued as it reached 50% of the Company’s paid up share capital.




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Distribution of the reserve is limited to the amount required to enable the payment of a dividend of 5% of paid up share capital to be made in years when accumulated profits are not sufficient for the payment of a dividend of that amount.

20 FINANCING ADVANCES DUE TO THE PARENT COMPANY

2013 2012KD ‘000 KD ‘000

At the beginning of the year 1,755,694 1,546,497Advances received 317,978 273,991Advances credited to the Parent Company’s current account (65,779) (64,794)

At the end of the year 2,007,893 1,755,694

Financing advances due to the Parent Company represent amounts received to finance capital projects and are to be repaid in line with the related depreciation charge for capital projects. No interest is charged on the outstanding amounts (Note 15).

21 EMPLOYEES’ END OF SERVICE BENEFITS

2013 2012KD ‘000 KD ‘000

At the beginning of the year 175,364 131,103Provided during the year 14,127 50,022End of service benefits paid (11,083) (5,761)





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22 OTHER PAYABLES AND ACCRUALS

2013 2012KD ‘000 KD ‘000

Accrued expenses 40,422 74,862Accrued utilities 14,082 40,782Payables against projects 14,133 13,556Contract retentions 34,775 23,219Other payables 41,072 37,857Leave provision 19,667 17,869

164,151 208,145

Included in accrued expenses is KD 45 thousand (2012: KD 42 thousand) which represents board of directors> remuneration for the year ended 31 March 2013, which is subject to the approval of Annual General Assembly the Parent Company.

23 DIVIDENDS PAYABLE

As per the article 12 of Law Decree No. 6 of 1980, profit for the year (net of any transfers to the statutory reserve) is required to be paid to the Parent Company as dividend.

2013 2012KD ‘000 KD ‘000

At the beginning of the year 283,719 423,420Profit for the year 377,579 283,719Amounts transferred to the Parent Company (283,719) (423,420)

At the end of year 377,579 283,719




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24 Operating lease arrangements

The Company as lessee

The Company has entered into leases for motor vehicles and certain equipments. These leases have an average life of not more than five years with renewal terms at the option of the lessee whereby they can extend the lease terms based on market prices at the time of renewal. There are no restrictions placed upon the lessee as a result of entering into these leases.

2013 2012KD ‘000 KD ‘000

Minimum lease payments recognised as an expense in the current year 5,956 4,903

Future minimum lease payments under non-cancellable operating leases as at 31 March are as follows:

2013 2012KD ‘000 KD ‘000

Within one year 7,185 6,092After one year but not more than five years 14,370 12,184

21,555 18,276

24 Operating lease arrangements (continued)

The Company as lessor

During the year ended 31 March 2010, the Company reconstructed facilities at South Pier in order to import liquefied natural gas for the Ministry of Electricity and Water (“MEW”). Based on the directive from the Parent Company, no gain or loss is to be recognised on this arrangement between the Parent Company and MEW. The cost incurred by the Company amounting to KD 30,642 thousand (2012: KD 28,925 thousand) is recharged by the Company.




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25 RISK MANAGEMENT

25.1 Introduction

Risk is inherent in the Company’s activities but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Company’s continuing profitability and each individual within the Company is accountable for the risk exposures relating to his or her responsibilities. The Company is exposed to credit risk, liquidity risk and market risk, the latter being subdivided into commodity price risk, foreign currency risk and interest rate risk. It is also subject to operational and prepayment risk. The independent risk control process does not include business risks such as changes in the environment, technology and industry. They are monitored through the Company’s strategic planning process.

25.2 Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial assets subject to credit risk consist principally of bank balances, trade receivables, other receivable, due from related parties and long term receivable from the Parent Company.

The Company has policies and procedures in place to limit the amount of credit exposure to any counter party and to monitor the collection of receivables on an ongoing basis. The Company limits its credit risk with regard to bank balances by only dealing with reputable banks. In addition, receivable balances are monitored on an ongoing basis with the result that the Company’s exposure to bad debts is not significant.

Gross maximum exposure to credit risk

The Company’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. Where financial instruments are recorded at fair value, it represents the current maximum credit risk exposure but not the maximum risk exposure that could arise in the future as a result of changes in values. The Company bears credit risk on trade receivables, other receivable, due from related parties and long term receivable from the Parent Company which is a government owned entity.

The table below shows the gross maximum exposure to credit risk across financial assets before taking into consideration the effect of credit risk mitigation.




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2013 2012KD ‘000 KD ‘000

Long term receivable from the Parent Company 130,000 130,000Trade receivables 26,812 25,941Other receivable 38,766 30,719Due from related parties 343,266 259,296Bank balances and cash 13,255 24,549

Gross maximum credit risk exposure before credit risk mitigation 552,099 470,505

The exposures set above are based on net carrying amounts as reported in the statement of financial position.

The table below shows the carrying amounts of major counterparties at the reporting date:

2013 2012KD ‘000 KD ‘000

First Fuel Marketing Company K.S.C. Kuwait 10,509 9,009Al-Sour Fuel Marketing Company K.S.C. Kuwait 10,347 9,341Robin Corp K.S.C. Kuwait - 1,250Ministry of Defence, Kuwait Kuwait 1,259 975Ministry of Interior, Kuwait Kuwait 646 765

Collateral and other credit enhancements

The Company does not have any collateral or other credit enhancements against any of the financial assets at 31 March 2013 and 31 March 2012.

Credit quality of financial assets

The Company manages credit quality by reference to external credit ratings (if available) or to historical information about counterparty default rates. Majority of the Company’s receivables represent amounts due from governmental institutions.




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25.3 Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may result from an inability to sell a financial asset quickly at close to its fair value. The Company manages liquidity risk by maintaining adequate funds and reserve borrowing facilities from the Parent Company, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

The table below summarises the maturity profile of the Company’s liabilities based on contractual undiscounted repayment obligations:

31 March 2013Within

3 months

3 to 12 months

1 to 5

years/ undated

Total

KD ‘000 KD ‘000 KD ‘000 KD ‘000

Financing advances due to the Parent Company

- - 2,007,893 2,007,893

Employees’ end of service benefits - - 178,408 178,408Trade payables 1,642 - - 1,642Other payables and accruals - 164,151 - 164,151Dividends payable - 377,579 - 377,579Due to related party - 23,108 - 23,108

TOTAL 1,642 564,838 2,186,301 2,752,781

31 March 2012

Financing advances due to the Parent Company

- - 1,755,694 1,755,694

Employees’ end of service benefits - - 175,364 175,364Trade payables 503 - - 503Other payables and accruals - 208,145 - 208,145Dividends payable - 283,719 - 283,719Due to related party - 23,344 - 23,344

TOTAL 503 515,208 1,931,058 2,446,769




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25.4 Market risk

Market risk is the risk that changes in market prices, such as commodity prices and foreign exchange rates will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

The Company’s activities expose it primarily to the financial risks of changes in commodity prices and foreign currency exchange rates.

25.4.1 Commodity price risk

Volatility in oil and refined products prices is a pervasive element of the Company’s business environment as the Company’s purchases of crude oil and sales of refined products from/to the Parent Company are based on international commodity prices in accordance with a commercial supply agreement.

The Company’s refining margin is affected by disproportionate fluctuations in the prices of crude oil and refined products. The Company does not use derivative instruments either to manage risks or for speculative purposes.

25.4.2 Foreign currency risk management

The Company undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Exchange rates exposures are managed within approved policy parameters.

However, the Company’s exposure and sensitivity to foreign exchange risk is insignificant.

25.5 Operational risk

Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. The Company cannot expect to eliminate all operational risks, but through a control framework and by monitoring and responding to potential risks, the Company is able to manage the risks. Controls include effective segregation of duties, access, authorisation and reconciliation procedures, staff education and assessment processes.

Management has implemented health and safety policies and procedures addition to an adequate insurance coverage to mitigate operational risk.




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25.6 Prepayment risk

Prepayment risk is the risk that the Company will incur a financial loss because its customers and counterparties repay or request repayment earlier or later than expected. The Company is not significantly exposed to prepayment risk.

26 FAIR VALUE OF FINANCIAL INSTRUMENTS

Management believes that the fair value of all financial instruments at the reporting date is not materially different from their respective carrying value, except for the ‘long term receivable due from the Parent Company’ and ‘financing advances due to the Parent Company’, the fair value of which cannot be reasonably determined as these amounts do not have fixed maturity terms.

27 CAPITAL MANAGEMENT

The primary objective of the Company’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximise shareholder value. The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Company may issues new shares.

No changes were made in the objectives, policies or processes during the years ended 31 March 2013 and 31 March 2012.

The Company monitors capital using a gearing ratio, which is net debt divided by total equity. The Company includes within net debt financing advances due to the Parent Company, trade payables, other payables and accruals, dividends payable and due to related parties less bank balances and cash. Capital includes equity attributable to the equity holder of the Company.




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2013 2012KD ‘000 KD ‘000

Financing advances due to the Parent Company 2,007,893 1,755,694Trade payables 1,642 503Other payables and accruals 164,151 208,145Dividends payable 377,579 283,719Due to related parties 23,108 23,344Less: Bank balances and cash (13,255) (24,549)

Net debt 2,561,118 2,246,856

Total capital 390,574 391,412

Capital and net debt 2,951,692 2,638,268

Gearing ratio 86.77% 85.16%

28 CAPITAL COMMITMENTS

As at the reporting date, the Company had commitments in respect of future capital expenditure amounting to KD 273,013 thousand (2012: KD 484,011 thousand). Commitments will be financed by the Parent Company (Note 20).

29 CONTINGENT LIABILITIES

The Company is involved in a number of legal proceedings and claims with contractors, vendors and employees of the Company. Also, the Parent Company and the Company are involved in certain claims arising in the normal course of business. In some of these legal proceedings and claims, the cost of remedies that may be sought or damages claimed are substantial.

It is not possible to determine with certainty the ultimate outcome of the legal proceedings and claims referred to in this note. The management is of the opinion that the ultimate outcome will not have a material effect on the results of operations for the year.

30 COMPENSATION CLAIM

The Company submitted a claim of KD 679,866 thousand to the United Nations Compensation Commission (“UNCC”) through the Public Authority for the Assessment of Compensation for losses suffered as a result of the Iraqi invasion and occupation of Kuwait. The total amount of the claim approved by the UNCC was KD 460,893 thousand and the Company received KD 171,157 thousand (2012: KD 141,430 thousand) during the year as final instalment (Note 8) resulting in total receipts against the claim amounting to KD 429,415 thousand net of bank discounting charges.




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التقـــــريــر السـنـــــوي

نحـــــــوأفقجـديـــــد

7

12



12



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Acknowledgement

KNPC Board of Directors wish to express sincere appreciation and gratitude to H.H. Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah, Amir of the State of Kuwait for his patronage to the Company and to H.H. Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah, Crown Prince, And H.H. Sheikh Jaber Al-Mubarak Al-Hamad Al-Sabah the Prime Minister, for their continuous support for KNPC growth and development. The board also wish to thank all Ministers, Chairman and Board Members of Kuwait Petroleum Corporation as well as officials of the government ministries and institutions, who continued to assist KNPC to undertake its mission and fulfill its objectives. The Board of Directors hope that this patronage and support will continue to the best interest of the national economy and the country’s welfare.

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7

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annual report 2013-english

Documents