Should we keep faith in Kuwait's projects market?

Those that know me know that I have long been an enthusiastic supporter of the Kuwait projects market. Although this is a view not commonly shared among the regional contracting community, I have firmly believed that Kuwait had an almost unmatched potential for future project growth. After all, it had the two most important ingredients for success: a need and the financial means to meet that need.

So when the Central Tenders Committee (CTC) approved the Subiya Causeway budget in January, I was convinced that my faith in the market was finally about to reap rewards. For years, I had proclaimed the 34km-long project across Kuwait Bay as the essential piece in the projects puzzle. If it went ahead, then the state would have no option but to develop the Subiya peninsula or face the ignominy of having built a bridge to nowhere. The award of the $3bn-plus project would thus surely be the catalyst for the long-awaited and much-needed major projects boom.

There were other reasons for my optimism. The appointment of the energetic Sheikh Ahmad al-Fahad al-Ahmad al-Sabah to oversee the state’s $100bn, five-year development plan was further proof that the state was finally getting serious about its plans. While he undoubtedly has his critics, the former oil minister is known as one of the few politicians of action in a government that is painfully slow to make decisions.

But just as I began to say “I told you so”, it all began to unravel. Almost as soon as the CTC had approved the Hyundai Engineering & Construction-led bid, then the predictable political game began. MPs questioned the contractor’s credentials, while the State Audit Bureau – so often the death knell of major projects in Kuwait – was asked to investigate the bids. It was all starting to become depressingly similar, especially with the news in early June of the resignation of Sheikh Ahmad in advance of a scheduled parliamentary grilling.

So today it would seem we are no further along with the Subiya causeway than we were back in 2003 when the scheme was originally envisaged as a design-build project. Since then, the tendering strategy has been revised twice, the project redesigned, contractor prequalification started and then cancelled and then re-started, the alignment changed, more design work carried out, rejections made by Kuwait Municipality and the Environment Protection Agency and now finally by the National Assembly. In eight years, the only thing accomplished is a lot of expensive design work.

Now projects, especially such landmark ones, need to be implemented properly and the experience with the causeway would probably be acceptable if hadn’t been repeated so many times in Kuwait. Remember Project Kuwait, the much-vaunted plan to introduce international oil companies (IOCs) in Kuwait’s upstream sector? It took 15 years before the government gave up trying to convince parliament to accept it.

Then there is the on-going saga of the new refinery project at Al-Zour. Lump-sum engineering, procurement and construction (EPC) bids were first submitted way back in 2006 for the 600,000-b/d facility. But they were considered too expensive, so it was decided to tender the scheme on a cost-reimbursable basis. That was fine until MPs kicked up a fuss about the fact that bids did not go through the CTC. Today in 2011, the government is not even sure it wants the project in the first place!

I could list a whole number of other projects that have still to see the light of day; Failaka Island, first tendered by Dizart (remember them?), then the short-lived Mega Projects Agency, then the MPW and now by the Partnerships Technical Bureau (PTB). Then there is the Al-Zour North power plant. First tendered in 2005, it was cancelled when only one bid was received. Six years on and Kuwait still receives power cuts during the peak summer months while Al-Zour North is being tendered again, this time on an independent water and power project (IWPP) basis. The list of failed, abandoned or delayed projects goes on and on.

The question facing most business strategists today is whether to focus on Kuwait as a potential growth market over the coming years. There is unanimous agreement that Saudi Arabia and Qatar are the places to target, but with other nations such as Iraq, Algeria and Egypt also offering good prospects. For firms with limited resources, tough decisions have to be made on whether Kuwait really can provide them with a revenue opportunity.

There is no doubt that some firms have done well in Kuwait. UAE-based Drake & Scull has carved itself a successful niche as a capable MEP contractor in the state, while Egypt’s Arab Contractors has won close to $2bn worth of work over the last couple of years. But on the whole, most jobs in Kuwait remain restricted to local contractors, with opportunities for international players few and far between.

Data from MEED Projects shows that this is changing. Schemes such as the $3bn new university at Shadadiyah and the new airport terminal are open to international contractors as will the majority of PPP projects planned by the PTB. However, a brief look at the prequalification lists will not offer much solace to the traditional western contractor. Dominated by Turkish, Malaysian, and Chinese firms, being able to submit a competitive bid will be a significant challenge.

In our recent forecasts made in the Middle East Projects Forecast & Review 2011 report, we’ve projected Kuwait to be one of the major growth markets over the next two years, primarily due to a number of delayed projects such as the new refinery and clean fuels projects finally coming to fruition. 

But this growth forecast comes with a major caveat: that the various authorities and politicians can agree on the way forward. For a while, it seemed that they had, but with the Subiya Causeway stumbling, it appears that same age-old problems still prevail.  And while the projects market is still expected to grow, it may not be at the pace or breadth that many Western contractors may have hoped.

Given the seemingly terminal problems facing the Kuwaiti projects sector, is it now finally time to admit that the market is never likely to live up to its potential? There are many good things about the projects market such as transparent tender pricing, but frankly unless contract decision making becomes more centralised and decisive, and politics is kept out of the process, then I don’t think it will be possible to sustain my bullish position on the market for much longer.

What do you think? Do you believe the Kuwait projects market can offer long-term opportunities for your company, or do you think it will remain a second-tier projects destination?  I’d like to hear your thoughts in comments below.