With plans to invest KD34bn ($112.4bn) in strategic projects by 2019, Kuwait wants to raise a third of that capital from the private sector. One of the key vehicles geared up for delivering that aim is the public-private partnership (PPP) model, a relatively new concept in the country, but one that has been growing in popularity across the GCC for decades. Proof of concept has been established with a health insurance company, but also with the successful construction on budget and on time of an independent water and power project (IWPP) in November 2016. There are at least 10 other PPP projects at the tendering or pre-tendering stage in Kuwait in early 2017, suggesting private firms may have a role to play in KD10bn ($33.1bn) worth of business.
Success Stories
Phase one of the Al Zour North IWPP established the template for PPPs in Kuwait. Built on a build, own, operate and transfer basis by a consortium including the French firm Engie, Japan’s Sumitoto and Kuwaiti company Abdullah Hamad Al Sagar and Brothers, the construction process began in late 2013 and was completed in November 2016. Hyundai Heavy Industries handled the engineering, procurement and construction contract, and the desalination facilities were provided by Sidem, a subsidiary of Veolia. The project was able to draw on international expertise, but also benefitted from private sector efficiencies. Moreover, the operation and maintenance contract is held by consortium members, which means they have a vested interest in ensuring they meet high standards.
The Al Zour contract also established a precedent in the division and disposal of equity in a PPP construction project in Kuwait. The three private consortium members have a 40% stake, with the remaining 60% held by the government, which is mandated to float shares in 50% of the project through an initial public offering on Boursa Kuwait. The latter ensures that the people of Kuwait are entitled to a sense of ownership in PPPs playing a vital role in developing their country. Subsequent phases of Al Zour will have a combined value of KD2.5bn ($8.3bn), and when the entire project is completed it will boost Kuwait’s capacity to generate electricity by 30% and desalinate water by 80%.
Although much smaller in overall value, Kuwait’s other successful PPP project is in the health care sector. Health Assurance Hospitals Company (Dhaman) is committed to building three hospitals and 15 clinics to provide health care for expatriate residents in Kuwait. In 2013 Arabi Holding Group, a private company, won a 26% stake in Dhaman, which was auctioned by the country’s sovereign wealth fund. In December 2016 Dhaman signed a KD162m ($535.9m) deal with China Metallurgical Group Corporation to build two hospitals to serve insurance-paying expatriates, who account for 70% of Kuwait’s 4.4m population. The contract includes design, equipment and maintenance of the two hospitals, which will provide 600 beds and open in 2019.
Pipeline
Among the other projects in the PPP pipeline are the Khiran IWPP, waste water and solid waste treatment works, a renewable energy power plant, a labour housing scheme, a mixed-use development and KD5.5bn ($18.1bn) in contracts that have yet to be tendered for a Kuwait City metro and a national rail network. The fate of these projects rests with the Kuwait Authority for Partnership Projects, an entity that replaced the Partnerships Technical Bureau, a public body that had less independence and executive powers. With the new body also came amendments to the PPP legal framework designed to expedite the process.
While PPP contracts lock governments into long-term repayment agreements with private sector partners, there are distinct advantages, even for a country like Kuwait with no shortage of capital held in sovereign wealth funds. Up-front costs are shared and the risks associated with the delivery of complex construction or service provision are largely handled by the business partners. In Kuwait, the funding model also offers opportunities to grow the domestic private sector, ultimately creating rewarding employment for citizens.
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