Wary Kuwaiti lenders will limit bidding pool

Kuwaiti lenders and state-run oil and gas companies need to find a way to increase bank guarantees to contractors, or the competitiveness of the country’s bidding process may be compromised at just the wrong time.

A week after Kuwait Petroleum Company announced an ambitious five-year $82.5bn spending programme, contractors in the country say they will find it difficult to meet bid and performance bond requirements should major projects be tendered, given the reluctance on the part of lenders to provide guarantees.

Banks are now asking contractors to deposit the full amount of the required bonds, which can potentially stretch into tens of millions of dollars, before they will provide the backing that will allow firms to bid for and be awarded projects.

This in turn means contractors must either hold massive cash reserves or concentrate on bidding for one project at a time, limiting the number of contractors available to bid on each project.

In an environment where few projects valued in the hundreds of millions of dollars are being tendered, there has yet to be a situation where a tender has had to be cancelled due to lack of interest.

But should Kuwait move beyond its recent history of political stasis and more projects, such as the beleaguered Al-Zour refinery, be approved, contracts will run into the billions rather than the millions of dollars.

Without proper lending facilities being opened to contractors, lists of bidders will shorten, to the advantage of those that simply have more cash in the bank, shutting out smaller, local companies.

At a time when clients are moving to push down the cost of projects, a reduced bidding field can only be to the detriment of the sector.