Kuwait: Investment drive

An ambitious infrastructure investment programme to be spread over the next two years is the latest stage of Kuwait’s long-term development plan.

Fadel Safar Ali Safar, the minister of public works and municipality affairs, announced investments worth $12.6bn for 2012-13 in late March. The private sector and foreign investors are set to play a leading role in implementation, with Safar encouraging private firms to participate in a range of schemes.

The development plan includes more than 320 infrastructure projects, including roads, bridges and government buildings, and will be overseen by several ministries such as public works, education, health, justice and the interior.

Underlining the importance of the programme for Kuwait’s future, Safar said recently that “the construction of tangible infrastructure facilities is the backbone of economic and social development”. The spending should also provide a welcome stimulus to the economy, boosting demand at a time when the global outlook is unclear.

According to Safar, it is expected that each project will include human resources development to ensure that workers are equipped with the necessary skills to deliver and manage the proposed developments. Training for workers will be specifically focused on enabling Kuwaitis to run the facilities under construction.

Meanwhile, the government is keen to increase private participation in constructing, funding and managing infrastructure projects. In March, for example, a consortium of Japan’s Sumitomo Corporation, Anglo-French International Power-GDF SUEZ (IPR) and Abdullah Hamad Al Sagar and Bros, a Kuwaiti construction firm, was named preferred bidder for Kuwait’s first-ever independent water and power project (IWPP).

This is considered a highly important development for Kuwait, both due to the facility’s scale and cost, and because it is a groundbreaking first in infrastructure public-private partnerships (PPPs) in the country. The project has an estimated value of $1.8bn and will have installed capacity of at least 1500 MW, producing between 102m and 107m gallons of potable water per day. The contract establishes a 40-year purchase agreement with the Ministry of Electricity and Water (MEW) and is expected to give Sumitomo and IPR a 17.5% stake in the plant, with Al Sagar taking 5% and the Kuwaiti government 60%.

The plant, located at Al Zour North, some 100 km south of Kuwait City, will account for 23% of installed desalination capacity and 12% of power capacity in Kuwait. Demand for power and water is growing strongly in Al Zour North, at around 3.5% to 4.5% per year.

According to Suhaila Marafi, the director of the department of studies and research at the MEW, Kuwait will need an additional 9000 MW of installed capacity by 2020. The country currently has around 13,000 MW available, but in 2011 Kuwait’s power plants were operating at 87.7% of capacity and water plants at 90%. The MEW expects to launch around 20 projects over the next two years to develop water resources and the power supply, including increasing alternative energy production and enhancing efficiency. More IWPPs are thus likely to follow the Al Zour project.

Kuwait is also investing heavily in its transport network. The announcement that the 2012-13 development plan will include road projects indicates the continuation of the road-building programme that saw $10.6bn set aside for it in 2010, with more than 500 km of roads now under development.

In late March 2012, the international press reported that Kuwait was lining up an initial tender for the construction of a new terminal at Kuwait International Airport (KIA). The project is expected to be worth around KD700m-800m ($2.5bn-2.8bn). A government official was quoted as saying that 16 international companies had already expressed an interest, and that the new terminal, KIA’s second, should be complete by the end of 2016. The first stages of the tender include design and consultancy and will be followed by a tender for construction, which should happen by mid-2013.

With a large number of important infrastructure projects in the pipeline, including some big-ticket schemes, international firms are showing increasing interest in Kuwait. Earlier in March, Hiromasa Yonekura, the chairman of the Japan Business Federation, said he hoped that Japanese firms could participate in a range of infrastructure schemes, from power to transport.

Foreign and local investors will be heartened by the progress being made by the Kuwaiti government as it continues to tackle some of the issues that have stalled private participation in public contracts in the past. Indeed, Kuwait is reportedly considering amendments to public tender laws to permit foreign firms to directly bid for contracts without the assistance of a local agent, as well as permitting the Kuwait Central Bank to deal with investment choices and supervise tenders.

With much vital infrastructure to build over the coming years, Kuwait need the private sector’s capital and expertise, including that brought by foreign investors. Its latest development plans recognise this, and the opportunities for private firms are set to increase as a result.

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