Kuwait mobilises $102bn construction development plan

10 March 2010

The four-year plan to improve infrastructure covers power, water, metro, housing, roads and healthcare but must overcome bureaucratic hurdles

According to Kuwait’s Deputy Prime Minister for Economic Affairs, Sheikh Ahmad al-Fahad al-Ahmad al-Sabah, 2010 is going to be the year for accomplishing projects in the emirate. A former energy minister, Sheikh Ahmad has been put in charge of driving through a KD30bn ($102bn) four-year development plan.

As minister of state for development affairs and minister of state for housing, he is certainly well placed to implement the spending programme, which was approved by 53 representatives of Kuwait’s 56-member parliament on 2 February 2010.

The programme covers both oil and non-oil investment and equates to more than KD7bn a year. This is intended to between the public and private sector and in mid-2009, the Kuwait government enacted a new body, the Partnerships Technical Bureau (PTB), to push through build-own-operate transfer (BOT) and public-private partnership (PPP) schemes.

Kuwait schemes
 ProjectsValue ($bn)Under construction ($3.6bn)
Infrastructure (including transport)4026.83.6
Water & Waste243.81.5
Sources: MEED, MEED Projects

Keyfact: The $102bn development plan covers both oil and non-oil investment and equates to KD7bn a year

Private partnerships

The PTB sits within the Finance Ministry and its largest scheme so far is the Al-Zour 1,500MW independent water and power plant (IWPP), which has a 100 million gallon a day desalination capacity. This represents Kuwait’s first foray into private power development and the PTB has narrowed down its advisory shortlist to two consortiums from four bidders. Either French bank BNP Paribas with US law firm Chadbourne & Parke and Germany’s Lahmeyer International, or the UK’s HSBC with Norton Rose and Germany’s Fichtner expect to be awarded the project this month.

The government will retain a 20 per cent stake in the IWPP with the investors holding 40 per cent and a further 40 per cent offered through an initial public offering.

In addition to this, more projects have already been pushed through the PTB. In late February, three tenders were issued by the bureau including 17 rest areas along Kuwait’s major highways; development of the downtown cultural centre and a shopping mall.

Psychologically, the existence of the plan, its approval and Sheikh Ahmad’s commitment makes a difference

Head of local consultancy firm

However, these are minor schemes in comparison to what is expected to come. Consultants are expecting Kuwait’s 540km, $7bn metro project to be tendered by the bureau, which is considering a PPP type arrangement. The UK’s Atkins, US’ Parsons Brinkerhoff and local firm Gulf Consult have been working on the masterplan and the scheme consists of two phases. The first is a 245km line running from the Iraqi border to Qasr on the Saudi Arabia border. The second phase is a 171km network linking Kuwait City with its suburbs.

But it is early days for the PTB. Kuwait’s history of failing to spend, despite budget surpluses and the clear identification of ongoing investment priorities, means the construction industry is sceptical about the plans turning into contract awards.

Firms were expected to remain cautious about bidding for major projects after having the proverbial rug pulled from under them several times in the past as schemes are cancelled such as the $17.4bn K-Dow petrochemicals joint venture between Dow Chemical and Petroleum Investment Corporation or delayed indefinitely as happened with the $3.3bn Failaka Island tourism project. But some say the approval of the $102bn plan is having an effect.

“Whether it will really make a change is perhaps irrelevant. Psychologically, the existence of the plan, its approval and Sheikh Ahmad’s commitment makes a difference,” says the head of one local consultancy firm. 

Those involved in construction in Kuwait say it is not so much the details of the plan that could make the difference, it is the man charged with delivering it that is arousing interest. Sheikh Ahmad has a reputation as a strong-willed and forceful minister. This, combined with his political experience, are thought to be behind the Emir’s decision to make him responsible for implementing the plan. “He is one of Kuwait’s true politicians, he knows how to play to every audience,” says the consultant. “He is not always popular but he knows how to get things done.”

The finer details of the plan are nothing new to those in Kuwait’s construction sector as many of the projects have already been designed such as the 37.5km Sheikh Jaber Bridge better known as the Subiya Causeway. Firms were originally pre-qualified for the project in 2006 but design changes introduced to mitigate environmental concerns have held the scheme up.

“There is now a commitment to build what we have designed,” says the head of an international consultancy with offices in Kuwait. “This is where the plan is making a difference.  Everyone was fed up with nothing happening. The plan has focused the minds of business and the public sector.”

Just days after the four-year development  plan was announced, the bidding process reopened for Subiya with the Public Works Ministry inviting more companies to pre-qualify.

Subiya is designed to link the mainland with the Subiya peninsula where the $77bn Madinat al-Hareer or City of Silk was due to be built. This is another scheme that has been indefinitely delayed. Consultants involved with the development tell MEED this is because it was never a strategic priority for the government and that a smaller scale scheme, Subiya New Town, was in fact the original government plan. The next step is a review of both projects, with the best elements of each being kept for future development, say consultants.

Top priorities

On a strategic level, hospitals and healthcare sit at the top of the priority list, say insiders. The plan contains 108 health-related projects from new hospitals to training programmes. Masterplanning is now under way for eight major schemes that will boost the country’s medical facilities. All will be tendered as design and build contracts, say sources. These include three general hospitals, a maternity hospital and four specialist hospitals. These projects follow on from a 2009 award for a new hospital, the 1,200-bed Jaber al-Ahmed al-Sabah Hospital in Surra, a district in Kuwait City. A joint venture of Kuwait Arab Contractors Company and Egypt’s Arab Contractors (Osman Ahmed Osman & Company) won the KD304m ($1.1bn) contract in November 2009.

Housing is another sector earmarked for fast-tracked development. Huge housing schemes such as the $10bn Sabah al-Ahmed Urban Housing Project are to be pushed forward as a priority, says Sheikh Ahmad. The scheme comprises 11,000 residential units for 100,000 people and is expected to be tendered in four packages as a 20-year BOT.

In February, the housing minister announced KD30m of projects had been awarded to the local Consolidated Contractors Company, bringing the total value of enabling works contracts awarded to KD131m.

The government plans to use two public/private companies in the future to deliver low-cost housing and to take ownership of another major housing scheme in the south at Al-Khiran. The low cost housing company and Al-Khiran Company are part of the measures outlined in the state development plan and another three firms are to be set up for electricity generation, logistics and health insurance.

Al-Khiran project is also known as Pearl City and involves the completion of 100,000 waterside residential units in the south east of the country. UK consultant Buro Happold has been working with client La a’ala Kuwait Real Estate, which is owned by the Al-Marzouk family, on the first three phases of the scheme. “It is very much a leisure and tourism type of development and will primarily consist of second homes,” says Buro Happold project manager Alan Harbinson.

Pearl City is being built in two main phases and each of these split into sub-phases, with the first phase having five sub-phases. A new access road has been built to connect into the existing road 278, which runs into Kuwait City in the north and Saudi Arabia in the south. “The existing highway running north to south from Kuwait City into Saudi Arabia is being widened in locations and we are providing one road crossing across the lagoons, which links the phases,” says Harbinson.

There are also signs that activity is picking up in the roads sector. The largest scheme to date is the $1bn Jahara Road upgrade, which is expected to be awarded to a joint venture of Kuwait Arab Contractors Company with Egypt’s Arab Contractors imminently. It was approved by the Central Tenders Committee in January and construction on site is scheduled to begin in July. The next major invitation to bid expected is the 67km, $200m eighth ring road, which is intended to provide an alternative route to vehicles crossing Kuwait City.

With so many projects, it is not surprising there is a renewed air of optimism within Kuwait’s construction sector. However, there are still bureaucratic hurdles to be negotiated. Consultants report the Central Tenders Committee has new staff working within its Consultants Selection Committee and as a result awards have been slow to materialise.

Despite this, the general feeling is that changes have been made for the better in Kuwait and that 2010 could be the year the country really starts building the infrastructure it so badly needs and can definitely afford.

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