First BOT schemes go down well

23 February 1996

TIMES are changing in the Kuwaiti construction sector. Unable to rely on a steady flow of work from the public sector, contractors are searching eagerly for opportunities in the private sector. They are also heartened by the first signs that ministries and municipalities have begun to embrace build-operate-transfer (BOT) arrangements to finance construction projects.

'Compared to Abu Dhabi, there is not a great deal going on in Kuwait City,' says Donna Sultan, chief executive officer at Kuwait Engineer's Office (KEO). Most of the major construction projects started after liberation are now close to completion. The KD 120 million Emiri Diwan is scheduled for completion in March although work on the project is likely to continue until the middle of the year. In Kuwait City, the local Ahmadia Contracting & Trading Company expects to finish the Salmia commercial centre and the 23-storey Sahab tower by the end of the year.

The public spending squeeze has resulted in only the most essential infrastructure work going ahead. In August, the local Mohamed Abdulmohsin Kharafi & Sons was awarded a KD 19.9 million contract to expand the Riqqa sewerage works to handle the flow from the new Al-Qurain housing development. However, this contract was one of the few major wastewater projects to be implemented in 1995.

Education and the oil sector are in a privileged position when it comes to budget allocations. With an increasingly youthful population profile the pressure on higher education facilities is set to increase rapidly in the coming years. To absorb future demand. Kuwait University is undergoing a KD 100 million expansion under a masterplan drawn up by KEO. The local company has also drawn up the masterplan for the construction of a new campus in Shuwaikh for the Public Authority for Applied Education & Training (PAAET). The KD 100 million project will raise PAAET's capacity to 20,000 students.

As Kuwait looks to raise oil production capacity to 3 million barrels a day, the oil sector will continue to offer construction opportunities (see page 12). Kuwait Petroleum Corporation (KPC) is also planning to build a new KD 35 million headquarters. The first of the construction packages is expected to be tendered in the summer.

China Petroleum Engineering & Construction Corporation (CPECC) was awarded the largest contract in the oil sector in 1995. The $390 million contract was for the construction of two new gathering centres. 27 and 28, in the western fields.

The most lucrative power contracts have also been linked to oil field development. In July, Germany's AEG and the Zurich-based ABB Asea Brown Boveri shared the key contract to supply and install three 132/11 -kV substations at Rawdatain B and Minagish A and B oil ields.

The major construction contracts for the new Equate petrochemical complex were also awarded in 1995. A group of local, regional and US banks was awarded the mandate in January to raise $1,200 million of finance for the project. The success of local and regional banks in raising the finance for such a large project has generated hopes that they will have the confidence to enter into more project finance packages in the future.

The proposed $1,000 million aromatics plant is another likely candidate for commercial financing. The plant will be built next to the Equate complex at Shuaiba and will produce benzene, xylene, and paraxylene using naphtha as feedstock. It is also likely to be a joint venture.

Talks between PlC and the US' Amoco Corporation over licensing and investment are understood to be at an advanced stage.

The use of private financing for large scale projects is a new experience for Kuwait which was accustomed to ample oil revenues funding its every need.

Contractors are now looking for a firm government commitment to use BOT for construction projects. 'We need a clear decision making process,' says one. 'If the terms are right, the money will come in.'

Clear water

Kuwait City Municipality has taken a lead, allocating the waterfront development for completion on a BOT basis. In September 1994, National Real Estate Company signed an agreement with Kuwait municipality to invest KD 20 million in phase three of the waterfront scheme. Preliminary designs for the area include food markets, leisure facilities and landscaping. The local Consolidated Contractors Company (Conco) was awarded a KD 5.4 million contract to develop the marina in November. The area will be handed back to the municipality after 25 years. The success of phase 3 has prompted the municipality to invite qualified property developers to produce designs and financial feasibility studies by June for phase 4 and 5 of the waterfront scheme.

Public housing is another sector which has begun to employ BOT techniques.

With more than 45,000 applications for housing pending, the government is keen to share this particular burden with private sector developers. In January. the Public Housing Care Establishment invited contractors to submit bids to provide full infrastructure on two plots of land in South Jahra and West Glib al-Shiouk. The successful bidder will complete the planning, design and execution of the infrastructure work using their own finances. The plots will then be transferred to the housing authority which will sell them on and use the revenues to repay the contractors.

These first steps in attracting private money into schemes which had once been the preserve of the public sector have set an important precedent. The initial BOT schemes are relatively small but contractors are hopeful that the scope of future projects will be enlarged. One build-ownoperate-transfer (BOOT) project under consideration is the KD 120 million-140 million Sulaibia wastewater treatment plant. However, contractors say it will take time before the complexities involved in such a scheme are sorted out. 'This is a project the country needs but the government cannot afford,' says one. 'A whole new legal framework is needed before it can go ahead.'

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