Fresh confidence in PPP market

24 February 2015

There is growing optimism in Kuwait’s projects market, with the newly established Kuwait Authority for Partnership Projects reviving power and water projects and taking responsibility for rail schemes

  • More than $20bn-worth of projects are stalled in various phases of the tendering process in Kuwait
  • Changes in foreign direct investment laws simplified
  • Doubts persist on whether Kuwait can tender large schemes simultaneously

Kuwait is currently finalising laws covering public-private partnerships (PPPs) for the newly established Kuwait Authority for Partnership Projects (KAPP). Once the executive regulations are published, which is expected to happen in March, KAPP can move forward with more than $20bn-worth of projects stalled in various phases of the tendering process.

The return of responsibility for rail megaprojects to the PPP body, as well as the recent invitation to prequalify for two independent water and power projects (IWPPs) suggests strong confidence and drive at KAPP. These projects were put on hold during the protracted tendering process for phase one of the Al-Zour North IWPP, managed by KAPP’s predecessor, the Partnerships Technical Bureau (PTB).

There are mixed predictions in Kuwait over the outcome of the reforms, but 2015 will show whether it can get investment schemes off the ground.

Greater impact

“The changes to the FDI [foreign direct investment] and PPP laws have a similar intent: to simplify the process,” says Alok Chugh, a partner at UK consultancy EY. “But the PPP law will have a much greater impact due to the size of the projects.”

Progress with PPP projects is of particular importance in the utility sector, where rapidly growing demand for power and water is putting increasing pressure on existing infrastructure.
Kuwait has experienced numerous challenges with its PPP programme to date. The PTB tendered only one project, phase one of the Al-Zour North IWPP, between 2008 and 2014 due to slow decision-making.

The winning bid, submitted by a consortium led by France’s GDF Suez Energy International, with South Korea’s Hyundai Engineering & Construction undertaking the building work, was selected in 2012. However, financial close was only reached in 2014, after Kuwait’s National Assembly (parliament) voted to cancel the contract in June 2013, a decision that was reversed later that year.

Delayed projects

Delays with the country’s first IWPP forced the Ministry of Electricity & Water (MEW) to tender smaller engineering, procurement and construction (EPC) projects (below 500MW) to meet immediate demand and prevent power cuts. Other megaprojects, such as the Kuwait metro and the national railway, were transferred to the Ministry of Transport & Communications, suggesting the PTB was permanently sidelined.

Kuwait’s IWPP law, which covers all power and water projects above 500MW, was amended in 2012. The PTB did not issue any further tenders while it waited for amendments to the PPP law (116/2014), which the National Assembly passed in June 2014, although IWPPs are not directly affected.

The newly restructured and revamped KAPP has finally moved forward, reissuing requests for prequalification for two IWPPs: phase two of Al-Zour North, with a capacity of 1,500MW and 102 million imperial gallons a day (MIGD) of desalinated water; and Al-Khiran, with a capacity of 2,500MW and 125 MIGD.

Hopes for KAPP

With the IWPPs revived and the rail megaprojects back under the auspices of KAPP, the Kuwaiti projects market, renowned for frequent cancellations and retenders, could finally begin to deliver on its potential in 2015.

The reforms have made KAPP a more autonomous body and have addressed issues that arose during the Al-Zour North phase one tender, such as providing greater security and clarity for financiers. KAPP will create a committee with representatives from ministry stakeholders, with the authority to review and approve projects.

“Based upon our experience, KAPP is dedicated to moving forward with large-scale infrastructure PPP projects and is working closely with ministries,” says Philip Kotsis, partner at UAE law firm Tamimi & Co. “It is drawing upon past experience, namely Al-Zour North 1, to move the projects forward.”

Largest projects to be tendered by Kuwait Authority for Partnership projects
ProjectValue ($m)StageScope
Kuwait national rail road: phase one8,000Prequalification for consultants411 kilometres
Kuwait City metropolitan rapid transit system7,000Prequalification for consultants160km, 69 stations
Failaka Island development3,000Consultancy bids under evaluation43 million square metres
South al-Jahra Labour City2,000Consultants appointed1 million sq m
Al-Zour North IWPP: phase two1,749Request for prequalification1,500MW, 102 MIGD
Al-Khiran IWPP1,710Request for requalification2,500MW, 125 MIGD
Umm al-Hayman WWTP1,550Six companies prequalified500,000 cubic metres a day
Kabd municipal waste treatment facility880Prequalification documents submitted3,275 tonnes a day
Al-Abdaliya ISCC720Expressions of interest received280MW, of which 60MW solar
Egaila services and entertainment centre300Expression of interest issued112,400 sq m
IWPP=Independent water and power project; MIGD=Million imperial gallons a day; WWTP=Wastewater treatment plant; ISCC=Integrated solar combined-cycle. Sources: KAPP; MEED Projects

Executive regulations

Much depends on the executive regulations of Law 116/2014, which have been drafted by KAPP and government experts and are awaiting approval by the National Assembly. KAPP expects to issue them in March and begin tendering $22bn-worth of PPP projects including the metro, the Umm al-Hayman wastewater treatment plant and the Kabd municipal waste treatment facility. It is unclear whether tenders already under way will be restarted.

“There are lots of interesting projects and the new law is well-written,” says Ignacio Diez de la Cortina, general manager of Spain’s FCC Aqualia for the Middle East. “But only large companies will have access, so it will still be difficult for the smaller ones.”

Doubts remain

However, doubts remain in two areas: the ability of KAPP to tender several large schemes simultaneously, and the effect of lower oil prices on the government’s will to move ahead with expensive projects, despite $548bn in sovereign wealth fund savings.

While KAPP points out that financing will come from external sources unaffected by oil price volatility, investors and contractors are less optimistic about the prospects for PPPs in Kuwait.
“It will be a challenging task for KAPP to manage all their projects, and with reduced oil prices, some projects such as Silk City and the national railway will take a back seat,” says Chugh. “There is some positive interest from investors and contractors, but they will remain sceptical until the executive regulations are released.”

Although contractors looking for opportunities in the Kuwaiti market have mixed feelings about the future, they are more positive than at any recent point. The reforms are viewed as important progress, but Kuwait has yet to shake off its reputation as a difficult market.

Investors sceptical

“They have found a better governance method, as the previous system was a little complicated,” says Xavier Joseph, CEO of Veolia Gulf Countries. “They have the financial resources and political will. Doing business there will get easier, but at this point, the situation is still slightly confused.”

The progress made in 2015 on projects coming under all these investment reforms will set the scene for Kuwait’s future. The developments of the past two months are promising and the political hurdles have been cleared. While the direct foreign investment programme looks set to gather pace, the real test will be tendering and appointing companies for the next IWPPs.

Power and water projects central to PPP programme

The development of independent water and power projects (IWPPs) will be central to the infrastructure programme of the newly formed Kuwait Authority for Partnership Projects (KAPP).

Kuwait is experiencing rapid demand growth for electricity and water, and will require several new major utility projects over the next seven years to meet expected demand. Following the amendments to the country’s IWPP and public-private partnership (PPP) laws in 2014, in January, the restructured KAPP was finally unveiled.

In early February, the body invited developers to prequalify for the country’s next two IWPPs: Al-Zour North 2 and Al-Khiran 1.


IWPP opportunities in Kuwait

The Al-Zour North 2 IWPP will have a power capacity of at least 1,500MW, to be provided through combined-cycle gas turbines, and a desalination capacity of 102 million imperial
gallons a day (MIGD). The Al-Khiran 1 IWPP will run on low-sulphur fuel oil as its primary fuel. The plant will be designed so it can accommodate crude oil, gas oil and natural gas as back-up fuels. The facility will have a desalination capacity of 125 MIGD.

Progress with both schemes had stalled as a result of the restructuring of the Partnerships Technical Bureau (PTB) and the creation of KAPP. Companies had been invited to submit expressions of interest (EOIs) for both projects in 2013. It is hoped the newly formed body will have the authority and capacity to move ahead with the schemes as quickly as possible.

The Ministry of Electricity & Water (MEW) forecasts that peak power demand will climb from 12,800MW in 2013 to 14,000MW in 2015 and to 22,500MW by 2022. To meet the demand and build a reserve margin of about 10 per cent, the ministry estimates that power capacity will have to reach 25,500MW by 2022, an 80 per cent growth in capacity.

The MEW also predicts that an additional 270 MIGD of desalination capacity is required to meet the estimated water demand by 2020. In addition to the IWPP programme, KAPP will oversee the development of the 500,000 cubic-metre-a-day Umm al-Hayman wastewater treatment plant and the Al-Abdaliyah integrated solar combined-cycle power facility, which will run on a combination of gas and solar energy.

Both these projects have also been in the planning stage for several years, and it is hoped the reinvigorated PPP programme will enable them to reach fruition.

Andrew Roscoe

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