Kuwait in the midst of a construction infrastructure boom

 

With the country beginning to clear a backlog of major projects in energy, infrastructure and housing, the construction sector in Kuwait has seen a resurgence of activity in recent years. The government’s five-year National Development Plan committed to spend KD34bn ($112.5bn) over the 2015-20 period, and KD12bn ($39.7bn) worth of projects were signed off in the plan’s preliminary year. The country has seen its first successful construction project completed on a public-private partnership (PPP) basis, and according to National Bank of Kuwait (NBK), there is a further KD10bn ($33.1bn) in PPP projects in the pipeline for schemes ranging from power and water to education, health and transport. Major contracts have been won by international construction companies, but many others have been granted to Kuwaiti firms. The country is better able to weather low oil prices than any of its GCC neighbours and some see the fall in hydrocarbon revenues, which began in June 2014, as a catalyst for increased investment to diversify the economy.

SIGNIFICANCE: Construction is one of the biggest employers in the private sector, but it accounts for a relatively modest proportion of GDP. According to the Public Authority for Civil Information, there were just under 395,000 construction workers in Kuwait in 2016, all but 21,000 of them expatriate employees, and the industry accounted for 18% of jobs in the private sector and just over 15% of all expatriate workers in the country. The most recent data on GDP from the Central Statistical Bureau shows that, according to initial estimates for 2015, the construction sector was valued at KD3.265bn ($10.8bn) at current prices or KD2.989bn ($9.8bn) at constant prices – by either measure it had grown by just over 4% since 2014 – making construction worth 8.6% of non-oil GDP and 5.3% of overall GDP. In 2013, a year of higher crude oil prices, the construction industry had been worth just 3.5% of GDP.

GROWTH: According to analysis from Timetric’s Construction Intelligence Centre, Kuwait’s construction sector will be valued at KD4.7bn ($15.5bn) by 2020. The report found the sector experienced a compound annual growth rate (CAGR) of 5.23% from 2011 to 2015, and predicted a CAGR of 6.44% for 2016 to 2020. The upbeat assessment reflected the scale of ongoing and anticipated infrastructure projects being undertaken by the government and by the so-called “K companies”, which are government-owned enterprises in the energy sector.

PENT-UP DEMAND: The raft of contract awards and new tenders that have been granted since 2014 reflect the momentum that followed a number of years of delay. Many of the projects currently under construction or in the planning stages are already overdue. There are more than 100,000 citizens on a waiting list for homes, the country’s international airport is struggling to cope with passenger numbers that more than doubled over 10 years from 4.3m in 2003 to 9.4m in 2013, and the construction of key petrochemical plants and refineries first tendered in 2008 and 2009 has not yet been completed.

A number of factors may have prompted the fillip to construction seen since 2014, including: a new sense of urgency as a result of the fall in oil prices; a decrease in political infighting resulting from a temporary boycott of parliamentary elections by opposition groups; and the amendment to laws on PPP development, smoothing the way for greater private sector involvement in infrastructure schemes.

Businesses in the construction sector are keen to see the pace of development continue. Ghalib Safouq, assistant undersecretary at the Ministry of Public Works (MPW) Construction Division, told OBG, “There are 13 major construction contracts currently under implementation through the ministry’s Construction Division valued a KD2.06bn ($22.5bn), with an additional set of projects, valued at a total of KD1.82bn ($6bn), which are under design. The government is in a good position to be able to continue investing over the next several years.”

NEW PLANS: A key driver for much of the new construction work in Kuwait is the National Development Plan running from April 2015 to March 2020. Lawmakers sanctioned KD34bn ($112.5bn) in spending contained in the plan in February 2015. This gave a second lease of life to no fewer than 421 development schemes carried over from the previous fiveyear planning period. Across all sectors in Kuwait, blueprints for action that had been tied up in red tape were being given the green light. In March 2016 the MPW announced 30 infrastructure projects with a combined value of KD3.43bn ($11.3bn) and KD2.3bn ($7.6bn) between Q2 and Q4 of 2017 as its contribution to the national plan’s objectives. In January 2017 a longer-term vision for development, known as New Kuwait, was launched, promoting a greater role for the private sector and foreign direct investment is diversifying and reducing its dependence on oil. New Kuwait contains 164 development plans, with some suggesting it will keep the country’s construction sector busy for 18 years. Safouq told OBG, “Government spending on infrastructure is creating a lot of opportunity for the involvement and development of the private sector economy in Kuwait, because while the MPW’s Construction Division acts as the government’s general contractor, the actual building is subcontracted to the private sector.”

HOUSE BUILDING: Housing has been a particularly contentious issue in Kuwait for decades, with the government’s Public Authority for Housing Welfare (PAHW) charged with providing homes for citizens. From 1954 to 2012 the government of Kuwait provided 93,040 free homes for citizens, all but 1088 of them villas rather than apartments. But by 2012 there were more than 100,000 citizens on the waiting list, a number that had reached 103,000 in September 2016. The idea of free modern homes for Kuwait’s citizens was established in the 1950s as a way to re-allocate oil wealth, and from 1984 every newly-wed couple, regardless of income or wealth, was entitled to apply for government housing.

The state pays couples on the waiting list a monthly KD150 ($496) rent allowance and offers KD70,000 ($232,000) long-term, interest-free loans through the Savings and Credit Bank, which can be used to purchase plots, houses or apartments. However, many of those on the waiting list say the rent compensation and loan amounts are both a fraction of true market costs. The standard government home, when it is handed over, is a detached, two-storey property with servants’ quarters, built on a 400-sq-metre plot. In comparison, the average plot size of a new home in the US is 250 sq metres while in the UK it is 92.3 sq metres.

GOVERNMENT HOUSING: As the PAHW works to meet demand for these homes, new suburbs are being built and others planned. PAHW construction projects, at varying distances from Kuwait City, include Sabah Al Ahmad (65 km away, 11,794 homes), Jaber Al Ahmad (22 km away, 6679 homes), North West Sulaibikhat (20 km away, 1736 units), Wafra (370 homes and its extension a further 2426) and West Abdullah Al Mubarak (70 km away, 5201 homes). PAHW said several additional community schemes are in the planning stage including: Khairan, 80 km south of the city, where 35,530 homes are planned; and south of Sabah, where a further 25,000-unit development is planned. The PAHW’s future plans include building 52,000 homes in the Nawaf Al Ahmad project, 60 km north of Kuwait City.

INTERNATIONAL PARTNERS: In May the PAHW struck a number of deals with international partners to deliver two of its housing schemes. A consortium led by the Italian company, Salini Impreglio, was awarded a $955m contract by the PAHW to create a 12,000-ha urban residential development 40 km north-west of Kuwait City at South Mutlaa, which will have 150 km of roads and be home to 400,000 people. The project includes road building and the construction of drainage, sewers, electrical and telecoms cabling and lighting. The Italian firm has a 55% stake in the venture, which also involves Turkey’s Kolin Group. South Al Mutlaa will have 28,363 housing units. US firm Hill International signed a separate contract valued between $80m and $90m to manage the development. In May 2016 the PAHW also signed a memorandum of understanding with South Korea’s Land and Housing Corporation to create a joint-venture (JV) company to build the Saad Al Abdullah housing development south of the Sixth Ring Road. The community will have 30,000 homes, and is being designed as a smart and environmentally friendly city, according to local media reports. Work on the development is due to start in 2018.

HESSAH AL MUBARAK: In October 2016 construction began at one of Kuwait’s first mixed-use real estate developments. Hessah Al Mubarak is being developed by Kuwait Projects Company on a 227,000-sq-metre plot of the city overlooking the sea. The $2.5bn construction contract was won by Ahmadiah Contracting Trading Company. Hessah Al Mubarak is being built around a green space and will include public facilities, multi-storey parking and urban plazas. The infrastructure work is expected to take 12 months and residential areas will be developed subsequently, with an anticipated completion date of 2020. The master plan includes residential plots, restaurants, retail buildings, clinics, health clubs and specialised office buildings.

INTERNATIONAL INTEREST: A number of the major projects awarded since 2014 have gone to international companies, some with specialised expertise in oil and gas or power. However, even in instances where multinational firms have taken the engineering, procurement and construction lead, Kuwaiti firms have won work either as subcontractors or by establishing JVs with international partners. Combined Group Contracting Company (CGCC), a Kuwaiti firm with 10,000 employees that is listed on Boursa Kuwait, revealed it had signed 15 new JVs in 2015 alone. It has agreements with companies from South Korea, India, China, France, Italy, Spain, Germany, Japan, Greece, the UK, Portugal, the Czech Republic, Albania and the UAE. In 2016, CGCC’s Kuwaiti parent company won 14 new major contracts in Kuwait with a combined value of KD525m ($1.7bn), and three new contracts with Abu Dhabi worth a total of approximately KD56m ($185.3m).

Kuwaiti projects represented the highest project value for the company in 2016, at a total value of KD1bn ($3.3bn). The range of work undertaken by this particular company reflects the breadth of activity in Kuwait. It worked on four highways projects worth a total of KD393m ($1.3bn), 14 construction projects worth KD314m ($1bn), 12 oil and gas projects worth KD205m ($678.2m), and eight water and electricity schemes worth KD36m ($119.1m).

OIL & GAS: Despite the fall in oil prices since 2014, Kuwait’s state-owned oil companies have been investing billions of dinars in new facilities. Upstream, almost KD4bn ($13.2bn) is being spent on projects to develop heavy oilfields in the north of Kuwait, as well as the country’s Jurassic non-associated gas reserves. Among the big winners of contracts from Kuwait Oil Company are the UK firm Petrofac, which won almost $4bn in contracts to build the Lower Fars heavy oil facility; US firm Schlumberger, which won the contract for the east field; and Kuwait’s Spetco International Petroleum Company, which won the contract for the west field – together the east and west fields contracts are worth $728m.

Downstream, Kuwait National Petroleum Company (KNPC) has commissioned the construction of two major projects that have been stalled since 2009. The Al Zour Refinery and the Clean Fuels Project will see two of the country’s existing refineries, Mina Abdullah and Mina Al Ahmadi, expanded and modernised, while a third, Shuaiba, will be decommissioned. Among the big winners for these contracts are companies from South Korea, with Daewoo, Hanwha, and Hyundai Engineering and Construction winning significant business from KNPC on the two refining projects, as well as the contract for a KD1.1bn ($3.6bn) liquefied natural gas (LNG) import and regasification terminal.

Other international firms working on these projects in the downstream sector are Saipem, of Italy and Spain’s Tecnicas Reunidas, which reports having more than $6m worth of ongoing projects in Kuwait. Work on the country’s refineries is expected to last until 2019, with the LNG import terminal due for completion in 2020. In 2016 Kuwaiti firms CGCC and Arabi Enertech won contracts, worth KD84m ($277.9m) and KD53m ($175.3m), respectively, to build oil and gas pipelines serving the new upstream developments. In early 2017 bidders were waiting for the award of the olefins III plant for Petrochemicals Industries Company, which will be integrated into the Az Zour Refinery complex, at a cost of $7bn-9bn.

PARTNERSHIPS & POWER: In November 2016 an international consortium showed that construction projects can be delivered on time and on budget when public-private financing is utilised effectively. Phase one of the Az Zour North Independent Water and Power Project (IWPP) was the first PPP construction scheme to be completed in Kuwait and now there are a KD10bn ($33.1bn) in PPP projects in the tendering or pre-tendering phase, according to NBK. The success of PPPs in Kuwait has come thanks to legal amendments including the creation of a new body with more executive powers, the Kuwait Authority for Partnership Projects (KAPP). The first phase of the Az Zour North IWPP was completed on a build-own-operate-transfer basis, with Hyundai Heavy Industries handling the engineering procurement construction contract for Engie of France, Sumitoto of Japan, and Kuwait’s Abdullah Hamad Al Sagar and Brothers. A second phase of Az Zour North is due to be awarded in 2017, and the PPP pipeline includes more IWPP and other PPPs, as well as projects in health care, railways and renewables.

INFRASTRUCTURE: Work is under way on a number of major infrastructure projects designed to transform Kuwait’s transport networks and hubs, with new tenders out for some components of existing major projects, while additional invitations are expected for new developments. In the north of Kuwait the third phase of the Mubarak Al Kabeer Port on Boubyan Island is expected to start in early 2018 and be completed by 2021. Mouchel is the master planner for this phase of the development, which is divided into three packages covering the construction of the approach, buildings and infrastructure, a container yard, a free trade zone and associated facilities, and an equipment facility.

The overall aim of the Boubyan Island scheme is to create a major container port on the previously uninhabited island at the mouth of the Tigris that will serve the northern Gulf. Hyundai Engineering & Construction was awarded the contract for phase one in 2010 and has built four container berths and a small boat harbour. In the second phase, six additional container berths were constructed with an extra eight berths to be completed in phase three. With all 18 berths operational the container port will have a capacity for 3.6m twenty-foot equivalent units per year. Arguably the most ambitious infrastructure project in Kuwait is Sheikh Jaber Al Ahmad Al Sabah Causeway, a cable-stayed bridge that will span Kuwait Bay, linking the capital to the site of the planned Silk City at Subiyah. Silk City will face Boubyan Island to the east and north and Kuwait City to the south. The main bridge being built is 36-km long, while the Doha link being built from Kuwait City to the west is 13-km long. The causeway will have three lanes plus a hard shoulder in each direction. The main contractor for the $3bn project is Beirut’s Dar Al Handasah, which is working alongside Hyundai Engineering and Construction, CGCC and SSH Design.

ROAD READY: Local media reported that the Kuwait government is planning to spend KD622m ($2.1bn) on road projects in FY 2017/18, including the causeway works, with 22 separate contracts signed. The Turkish company Limak has begun construction work on the KD1.3bn ($4.3bn) contract to build Kuwait’s new international airport terminal, which will have an initial capacity of 13m passengers a year, with provision in the design for this to be expanded to 25m. The tendering process took some time, with the government initially rejecting all bids as too expensive, but finally relenting and offering the work to the Turkish company and its Kuwaiti partner Kharafi National. The original design for the 708,000-sq-metre airport was first unveiled by UK architectural firm Foster + Partners in 2011.

The delay in appointing contractors combined with growth in passenger numbers means the Kuwaiti authorities have also had to invest in a quick-fix temporary terminal while construction on the main facility continues. In November 2016 the office of the ruler, the Amiri Diwan, intervened and took over management of the Passenger Support Terminal (PST) scheme, which will cost KD52m ($172m) and must be completed in 450 days. The PST will be able to handle 4.5m passengers per year.

AMIRI DIWAN: It is not unprecedented for the Amiri Diwan to take the lead on construction projects in Kuwait. The system tends to mean that the project planning and execution cycle is sped up, because tiers of bureaucracy are stripped away. However, the government also tends to take the lead in schemes designed to enhance the quality of life in the country. The Amiri Diwan’s office was responsible for restoring and rejuvenating Al Shaheed Park, a recreational space originally intended as a green belt by the British architects who first laid out the template for the new city after the discovery of oil. The park covers 20 ha and contains public attractions including museums, footpaths and jogging tracks, botanical gardens, a lake and a visitor centre.

The Amiri Diwan is also behind the development of more than $1bn worth of construction providing the museums, art galleries and concert venues in the heart of Kuwait City. The $775m Sheikh Jaber Al Ahmad Cultural Centre, which contains a theatre, concert hall and conference centre, opened in October 2016, and by spring 2018 an 18-ha museum district, known as Sheikh Abdullah Al Salem Cultural Centre, will also be completed.

“The Amiri Diwan’s department has been able to greenlight projects that have hit a speed bump, but it has also ensured that more esoteric plans are pursued, and that is good because it is bringing back a sense of Kuwait as it was before the war, when it was a centre for the arts and culture in the Arab world,” Ahmad Jafar, vice-chairman of Kuwait Bruckner Construction Contracting Company, told OBG.

OUTLOOK: While Kuwait’s construction sector has historically seen state-funded development plans prone to delay or even cancellation, in 2017 it appears to be at the crest of a wave of activity. Valuable partnerships and joint ventures with international companies have enabled rapid progress to be made, and many major projects are nearing completion. Great strides are also being made in the developmental stage for a number of largescale projects, such as the housing estates under the PAHW and new oil refineries. As more funding streams such as the PPP model come to the fore and significant progress is made in current construction works, the signs point to continued growth ahead.

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The Report: Kuwait 2017

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