Key fact

There are currently more than $115bn-worth of projects planned and unawarded in Kuwait

Source: MEED

While the size of the overall GCC projects market has increased dramatically in recent years, the same cannot be said for Kuwait. Despite its oil wealth and dire need for infrastructure investment, in terms of annual contract awards, the state regularly comes in well behind Qatar, and sits alongside Bahrain and Oman as the three smallest markets in the GCC.

PPP schemes could result in Kuwait becoming a premier tier projects market in the region

The reasons for the underperformance of the Kuwaiti projects market are well documented. Politics is an overriding factor, with a lack of cohesion and cooperation among the principal clients as a main stumbling block. An obstructive parliament, too many stakeholders with competing interests and a restricted private sector have also combined to hamper progress.

The poor performance is all the more striking given the fact that unlike the GCC’s two smallest project markets – Oman and Bahrain – Kuwait has the most important ingredient for success: finance.

False dawn for Kuwait projects market

There have been periods over the past decade when the local projects market appeared to be finally taking off. The Central Tenders Committee approved in 2010 the low bid for the $3bn Subiya Causeway project, intended to be a catalyst for development of the Subiya peninsula.

At the same time, the appointment of Sheikh Ahmad al-Fahad al-Ahmad al-Sabah to oversee the state’s $100bn, five-year development programme was seen as further proof that the state was finally getting serious about its plans. However, it proved to be a false dawn. The State Audit Bureau and parliament questioned the bidding process for the causeway scheme, while Sheikh Ahmad was forced to resign. In 2011, Kuwait managed just $10.6bn-worth of contract awards, down from $14.8bn the previous year.

As contractors eye 2012 and beyond, the question many are asking is whether the state will ever be able to shake off its underperformer tag and start realising its potential.

In terms of the indicative value of future projects, the evidence suggests it can. There are currently more than $115bn-worth of projects planned and unawarded in the state. This figure does not include schemes that have yet to be announced or conceptualised, so the total is only likely to grow.

Among the announced projects, the biggest sector is refining due to Kuwait National Petroleum Company (KNPC’s) clean fuels project (CFP) and new refinery projects (NRP), which together have a combined value of more than $30bn. If implemented, they will easily be the largest projects ever undertaken in Kuwait and will pose substantial logistical challenges.

The schemes continue to be politically sensitive, however, and it is far from certain whether either or both projects will actually go ahead. The NRP, for example, has already been tendered twice and awarded once since 2006 before parliament forced its cancellation.

Construction and infrastructure in Kuwait

Construction is the second-largest sector thanks largely to ongoing and planned projects by the Public Authority for Housing Welfare (PAHW), Kuwait University and the Public Works Ministry. The PAHW, in particular, is set to continue as a major client due to its ambitious township programme.

A key component of the programme is the development of the estimated $15bn Khiran township, which, when completed, will have a population of more than 750,000. 

The massive scheme, which involves the construction of 30,000 housing units over an area of 14,500 hectares, will be carried out in partnership with the private sector. The Khiran scheme is just one of several ongoing township developments that include Mutlaa, Saad al-Abdulah, Sabah al-Ahmed and Jaber al-Ahmed.

Infrastructure also features highly on the list of future projects due to the planned metro and rail projects, as well as the $3bn Subiya Causeway, the future of which is in doubt following the controversial tender process.

Where there is more certainty is in the power sector. Kuwait needs to double electricity generation capacity to more than 20,000MW over the next decade to keep up with high demand growth and avoid the summer blackouts it has endured in the past five years. The Ministry of Electricity & Water (MEW) is planning several major power plants and transmission and distribution projects as it seeks to meet supply targets.

Most large-scale power plants with a capacity of more than 500MW will now be implemented on a private power basis through the Partnerships Technical Bureau (PTB). The PTB has been handed responsibility for almost 30 public-private partnership (PPP) projects, ranging from the upcoming Al-Zour North independent water and power project (IWPP) and Umm al-Hayman wastewater treatment plant to a new labour city and a physical rehabilitation hospital.

Future performance of Kuwait’s projects market

The success of the PTB will be critical to the future performance of Kuwait’s projects market. All eyes are currently on the bidding process for the Al-Zour North IWPP, the first of the PTB’s projects. Bids have been opened for the scheme and indications are positive that it can progress to contract signing and on to financial close. If that is the case, it will provide a strong template for subsequent PPP schemes.

The emergence of a PPP programme in Kuwait is notable, given the state’s reluctance to engage with the private sector. For some years, it was the only GCC state to resist the private-power model and had abandoned its build-operate-transfer programme in the late 2000s due to several legal and political issues.

The PTB programme will prove a useful boost for the development of the private sector, local and foreign alike, and could be the catalyst the market needs for the projects market to grow. Given the bureaucratic and political constraints over public-sector contracts, and the fact that the public sector dominates the market with more than 90 per cent of all projects tendered, the PPP schemes could result in Kuwait becoming a premier tier projects market in the region.

The most encouraging aspect of Kuwait’s projects market is that, of all the GCC states, it has the highest growth potential when past activity is compared with indicative future contract awards. The state could, in theory, award more than $117bn-worth of contracts between 2012 and 2016. This is more than double the $50bn-worth of projects awarded in the previous five years and would make it the third-largest projects market in the region after Saudi Arabia and the UAE.

Critical requirements for projects market

This is partly a reflection of the market’s underperformance in 2006-11 and the state will have to work hard to substantially increase activity given the political situation. Future market performance largely rests on whether the KNPC and PTB schemes proceed as planned. However, the fact remains that Kuwait has the need and the financial firepower to meet that requirement; the two critical aspects for any projects market to flourish.

For 2012, MEED Insight, the research division of MEED, forecasts about $17bn-worth of contract awards to be made in Kuwait, a 58.9 per cent increase on the $10.7bn of contracts awarded in 2011.

Longer term, it anticipates the Kuwait projects market will settle in the $15bn-25bn range of annual contract awards. A particularly good year could be 2013 if KNPC proceeds with its NRP and CFP, which total more than $30bn. However, while it looks increasingly likely that both projects will progress, they are unlikely to do so in the same year given the enormous technical and logistical challenges involved.

Providing a comprehensive analysis and overview of the Kuwait projects market MEED Insight’s latest report, Kuwait Projects Market 2012 is out now. For more information, please email insight@meed.com or telephone +(971) 4 367 1302. Alternatively, visit www.meedinsight.com