Despite having considerable oil wealth and healthy domestic finances, Kuwait has traditionally ranked among the three smallest projects markets in the GCC. However, the country experienced record years in 2014 and 2015 in terms of the value of contract awards, totalling $25.8bn and $33.2bn respectively.

In 2015, the projects market was driven by contract signings in the oil sector, followed by transport, which saw the award of the long-delayed Terminal 2 project at Kuwait International airport. Such high spending has not been repeated in 2016, with the value of contract awards for the year as a whole anticipated to be $20bn or less.

This fall in the value of contract awards is for a combination of reasons. The continued low oil price has pushed Kuwait’s finances into deficit, and although ministers have said the government is committed to its spending plans for major projects, any progress has so far been slow.

New parliament

The dissolution of parliament in October 2016 is expected to further affect the pace of contract awards. Since the elections in 2013, the political environment in Kuwait had been stable and significant progress had been made with delayed but vital multibillion-dollar infrastructure schemes such as the Clean Fuels Project and the New Refinery Project. Parliamentary elections will be held on 26 November.

Kuwait’s government is expected to run a budget deficit in the fiscal year 2016/17, of KD12.2bn ($40.5bn), on revenues of KD7.4bn. Spending has been reined in by 1.6 per cent to KD18.9bn. Oil was budgeted at $25 a barrel, with income from crude falling to about 78 per cent of government income. In previous years, it has accounted for closer to 94 per cent of state revenues. In the financial year 2015/16, Kuwait ran a deficit of KD5.5bn.

The country experienced a decrease in GDP between 2014 and 2015, on the back of tumbling oil prices. GDP fell from $162.7bn in 2014 to $114.1bn in 2015. The Washington-based IMF forecasts it to shrink further in 2016 to $110.5bn, before beginning to recover in 2017.

To manage its deficit and diversify its income, the government has announced a range of economic measures. It has introduced subsidy reforms for electricity and water tariffs, and forecourt petrol prices, and announced plans to introduce a company tax as well as join its GCC neighbours in bringing in value-added tax (VAT). The government has met resistance in particular from parliament around planned utility and petrol price increases and some have suggested this played a part in the emir deciding to dissolve parliament.

Importance of PPPs

Kuwait has also made important changes to legislation governing public-private partnerships (PPPs) in the past two years. The Kuwait Authority for Partnership Projects (KAPP) is set to become one of the most important clients in the country over the next five years, with a significant pipeline of projects to tender and award. The PPP body is expected to award the second PPP contract in the power sector before the end of the year, although other schemes under KAPP’s control continue to suffer from delays.

Kuwait has about $88bn-worth of projects currently under execution, with a further $65.9bn at the study stage and $53.2bn at various stages of pre-execution and due to be awarded in the coming years.

It is expected to spend $115bn on energy projects over the next five years despite uncertainty over the recovery of oil prices. The investment will be made to help boost its crude production capacity to 4 million barrels a day by 2020.

In the power sector, Kuwait will have to procure and execute one of the largest new-build capacity programmes in the region in the coming years. The Ministry of Electricity & Water estimates it will require an additional 17GW by 2030 to cope with demand growth and establish an adequate reserve margin.

The ministry also estimates that an additional 333 million imperial gallons a day of desalination capacity will be required by 2022 to meet industrial and residential demand.

Since 2007, the Public Authority for Housing Welfare (PAHW) has been the most active client in Kuwait’s construction sector. Its huge township programme means it will remain so in the coming years. The PAHW is planning six new cities to be built over a 15-year period to house a population of about 2 million people.

Despite the urgent need to improve its infrastructure and the government’s insistence that it will continue to invest in this new era of low oil prices, contract awards have clearly slowed in 2016.