Building a better boulevard: Infrastructure and social development are the focus of much investment

Social services and infrastructure projects are a key focus for state spending moving forward. The 2011-12 budget provided BD6.2bn ($16.37bn) and the 2012-13 budget is expected to include further funding for services, infrastructure, housing, education and health to boost the Kingdom’s spending drive. Furthermore, the first BD377m ($995.36m) tranche of the 10-year, $10bn Gulf Development Programme, offered by Bahrain’s fellow GCC states, is due to be transferred to the government during 2012.

Social services and infrastructure projects for housing, transportation, sanitation and energy are the main beneficiaries of this two-year rise in funding, with subsidies, health care and education also covered under the 2011-12 budget.

Increasing the number of affordable housing projects was the main priority identified and recommended by the National Dialogue, a forum headed by Khalifa bin Ahmed Al Dhahrani, the speaker of parliament, which covered civil society and political and economic reforms in the Kingdom.

The spending drive will be mainly funded out of government coffers, particularly in the case of social service programmes, health care, education and sanitation projects. In other areas (such as housing, energy and industry) the state has sought to involve the private sector to assist it with more complex – and more expensive – schemes.

TACKLING THE HOUSING DEFICIT: For the housing sector the government signed a $551m deal in January 2012 with local company Naseej Properties to build a total of 3110 social housing units and more 1000 affordable housing units over the next three years. The new units are to be constructed in Al Madina Al Shamaliya, Al Buhair and Al Lawzi.

The country must deal with a social housing shortfall of 40,000 units needed to satisfy current demand among Bahraini families, according to a 2010 estimate from the Economic Development Board. Total housing demand (including non-nationals) is set to rise to 346,711 housing units by 2030, with the government aiming to build around 77,000 units for Bahrainis by then to help meet this demand.

TRANSPORT: In the transport sector funding for major projects may prove more manageable in terms of costs given the regional or state-to-state nature of some of the schemes. The grandest will be the new Bahrain-Qatar Causeway, with funding being allocated by the Ministry of Finance. It is expected there will also be private sector participation. Total projects costs are estimated at $5bn-6bn. At least $3bn will go towards the passenger road, although the exact cost of a separate section for a rail line has yet to be agreed upon between the two governments. As part of its agreement for hosting the 2022 World Cup, Doha needs to complete 40% of the required infrastructure in the network.

The design for the causeway has been finalised and incorporates a new high-speed train section. The 42-km-long causeway will have 34 bridges with construction expected to take four years for the causeway and another two years for the train component. Denmark-based COWI carried out the design and France’s VINCI is the main contractor, heading a consortium to build the causeway, while US-based KBR is the government’s project manager.

Over the long term the causeway will play an important role in developing the transport sector as the Kingdom seeks to develop itself as a logistics hub serving the northern Gulf region. In light of this strategy the Kingdom has sought better regional rail links. As part of a new $25bn, 2117-km GCC railway network Saudi Arabia will be linked to Bahrain via a new $4.2bn, 90-km track. The GCC rail project will start in Kuwait, pass through Dammam in Saudi Arabia, connect to the Kingdom via a bridge running parallel to the existing King Fahd Causeway and then head on to Qatar. Another line will connect Bahrain to the UAE via Bathaa, running through Abu Dhabi and Al Ain and on to Muscat, the Omani capital.

However, on other transport schemes, such as overhauling the domestic road network, the government alone will be left to fund the cost. Major highways and junctions in the Kingdom will be upgraded such as the interchange on Sheikh Khalifa bin Salman Highway and a highway connecting the new Northern City. BD109m ($287.78m) will cover the cost of these highways, and will also fund new sanitation and construction projects. Up to 104 infrastructure tenders were due to be issued in the early months of 2012, according to the Ministry of Works. These included 48 tenders worth BD56m ($147.85m) for new roads, 18 tenders for construction worth BD7m ($18.48m) and 38 tenders for sanitation projects worth BD46m ($121.45m).

SHARING THE LOAD: Much of the funding for housing, sanitation and highways is being supplied by the state, but for the energy sector the government is looking increasingly at forming public-private joint venture partnerships. One such example of a complex large-scale energy project is a planned new liquid natural gas (LNG) terminal to be located next to the Khalifa Bin Salman Port in the north-east.

The government has sought out private investors to help carry some of the financing burden in return for an equity stake in the project. To develop the new LNG terminal Oslo-based I M Skaugen formed a joint venture in December 2010 known as Skaugen Gulf Petrochemical Carriers, with state-owned oil and gas holding company nogaholding owning 35%, Bahrain-based Capital Management House having 30% and Skaugen owning the remaining 35% share.

The same model is being used by the government to develop the upstream oil and gas sector. Tatweer Petroleum, a joint venture between US firm Occidental, UAE-based Mubadala Development Company and nogaholding, is heading the main field development projects in the country. In this case Occidental’s experience of enhanced oil recovery projects in Oman is expected to save the state more over the long term given the level of expertise and experience the firm brings to the venture.

The country’s flagship refinery is also set for an upgrade. So far South Korean and Japanese investors have expressed interest, although no joint venture has been formed. A master plan requires up to $ 5bn7bn to be spent on improving the refinery.

PRIVATE SECTOR: Private sector participation in industry is well established. When the Kingdom first set up the Bahrain Investment Wharf, it turned to the private Kuwait Finance House for assistance, for example. In another such project, the Ministry of Industry and Commerce is working to develop a new Economic City with an expected cost of BD5.4bn ($14.26bn) and an expected completion date of 2040. Land will be reclaimed near the Askar-Jaw Corridor, and the expenditure is included within total project costs. The scheme will cover 93.3 sq km and be developed in a number of separate phases. These types of partnerships with the private sector have given the government the freedom to focus spending on important social development schemes such as subsidies, education, health and social services.

SOCIAL SPENDING: Under the 2011-12 budget, the social services sector was given a total of BD988.61m ($2.61bn), with this covering allocations for the Ministries of Health, Education, Labour, Social Development, among others. From the transfer budget, BD116m ($306.26m) went to the Housing Support Programme, which covers rent allowances and housing loan reductions. BD132.89m ($350.86m) went to food subsidies, while the Bahraini families subsidy received BD145m ($382.83m). The Social Welfare Fund got BD52m ($137.29), and BD3m ($7.92m) went to the National Health Regulatory Authority, a new body set up in 2011 and tasked with licensing medical professionals and facilities. King Hamad Hospital received BD45m ($118.81m) over the same period. In addition, the Electricity & Water Authority was allocated BD500m ($1.32bn), a sum which also covers the cost of water and electricity subsidies.

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