Power and water focus is sensible

The most high-profile casualties of the economic downturn have been commercial real estate developments, but there is also a backlog of at least six major power and water projects that are vital to the region’s infrastructure and need to raise finance.

In 2008, the drying up of project finance was so acute that only one major power and water deal was carried out: the $3.5bn financing for the Ras Laffan C project in Qatar, which reached financial close on 5 August.

The Gulf might not need to build mile-high towers, but it does need to develop more power and water plants. Without them, the region could increasingly find itself facing blackouts during the summer months when demand is at its peak.

In recognition of this need, the region’s governments are pushing local banks to prioritise lending to power and water projects.

Alinma Bank, Saudi Arabia’s newest bank, which was floated on the stock market in mid-2007 with capital of SR15bn, agreed in January to lend $400m to the Ras al-Zour power and water project. Including the contributions of Riyad Bank and National Commercial Bank, local institutions raised $1.2bn in funding for the scheme, more than twice the amount secured from international banks.

That local banks are getting behind vital infrastructure projects is good news, but the backlog of projects needs to be cleared before the celebrations can start in earnest.