Interview: Turning pain into gain

19 November 2004
Yousef Hussain Kamal has experienced the extremes over the past 15 years at the Ministry of Finance. He well remembers the extraordinary efforts that had to be made in 1993/94 to secure the financing from a sceptical banking community for the pioneering Qatar Liquefied Gas Company (Qatargas) project. He can recall the time in the mid-1990s when it took the government six-12 months to pay contractors and suppliers. And he can recollect the dark days of 1998 when a single-digit oil price brought public finances to the brink and very nearly resulted in Qatar's credit rating falling below investment grade.

These days, the finance minister can look back on those events with a wry smile. For after the pain of the 1990s, Qatar's economy and public finances are now reaping the gain. And much of the credit for the turnaround can be attributed to Kamal, who, despite considerable popular pressure in the late 1990s, stuck rigidly to a fiscal plan that laid the foundations for today's resurgence.

The transformation in Qatar's fortunes has been dramatic. Take liquefied natural gas (LNG). It took 12 years for the 6 million-tonne-a-year (t/y) Qatargas venture to become a reality. In contrast, over the next eight years, 10 times that amount is set to come on stream. 'Now we are almost committed for 77 million t/y of LNG,' says the minister, who is also chairman of Ras Laffan Liquefied Natural Gas Company (RasGas). 'Our production level today is 19 million t/y and we will add another 5 million t/y next year. By the end of 2012, we will have 77 million t/y.'

On LNG financing, the change in market appetite has been equally striking. Such has been investor confidence in Qatar LNG that RasGas' second bond of $665 million came in four times oversubscribed in the spring. Six months later, it was the turn of the bank market to show its approval, with the Qatargas II commercial tranche receiving commitments worth $3,600 million, by some margin the biggest commercial facility ever secured in the Middle East.

A proven track record and robust economics have introduced considerable flexibility into the Qatar LNG financing market. Indeed, RasGas II has even been able to finance some of its new capacity without resorting to the markets at all, a major feat given the size of its investment programme. Says Kamal: 'Train 3 has been 100 per cent financed internally; for train 4, 80 per cent has been completed without borrowing a single dollar; on train 5, 25 per cent has been done; while on train 6, we have just signed the first cash call from shareholders.'

Flexibility is a growing feature of public finances, too. Rising LNG production and a surging oil price have worked wonders over the past five years, transforming yawning deficits into expanding surpluses. That in turn has allowed the government to draw up a three-pronged strategy to tackle weaknesses in fiscal and economic structures.

A proportion of the surpluses is being channelled into a stabilisation fund, set up in 2000. 'In the past, whenever there was a fluctuation in the oil price, there was an almost immediate impact on infrastructure spending. It was budgeting according to the oil price, which meant people suffered,' Kamal says. 'Through the fund, we now have a cushion. If there is a drop in the oil price, the Ministry of Finance will be reimbursed. If there is an increase, there will be more money spent on infrastructure. The fund therefore provides a guarantee and allows long-term planning.'

Increased government revenues are also being used to bankroll the long-awaited infrastructure upgrade programme. Capital expenditure has risen four-fold over the past five years. In the current fiscal year, it is budgeted to double to $2,420 million and Kamal says it will be raised further. Although roads, sewerage and buildings have all seen sharp increases in allocations, health and education top the list of

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