Reshaping the Kuwait economy

24 August 2010

Adel al-Roumi, president of the Partnerships Technical Bureau, is seeking to overhaul Kuwait’s economy by inviting the private sector to take on more responsibility

In numbers

$10bn: Kuwait’s national railway budget

$7bn: The value of the planned 171-kilometre Kuwait metro

$3bn: Budget to transform Failaka Island into a tourism and leisure development: Value of Kuwait’s first Independent water and power plant at Al-Zour North

Source: MEED; PTB

In a quiet corner of an office building in Kuwait City, Adel al-Roumi, head of the government body in charge of public-private partnerships, is plotting to overhaul the country’s economy.

As president of the Partnerships Technical Bureau (PTB), Al-Roumi is overseeing the roll out of 32 privatisation projects representing a total capital injection of an estimated $28bn in the country’s infrastructure. If successful, his plan will open for the first time Kuwait’s utilities to private sector developers, raise huge sums for the government through the sale of state assets, boost efficiency in previously state-owned industries, and end the country’s image of being a challenging place to get anything done.

Already expanded once from initial 24 projects worth an estimated $21bn, the plan is ambitious by any standards.

The Kuwait government creating new opportunities

For a man faced with one of the most daunting tasks in the Gulf, he is remarkably relaxed, speaking quietly and slowly.

“First and most important is the reshaping of the Kuwait economy. It is a once in a lifetime opportunity,” he says. “If you add $28bn of new projects, and consider the implications of these projects, they are creating an area that the private sector has never invested in.”

Among the most significant projects to be offered to the private sector include plans to build a $7bn metro, a railway, several power projects including renewable energy schemes, the $3bn tourist development of Failaka Island and five projects at Kuwait airport.

The most significant project in the privatisation push is expected to be the development of Kuwait’s first independent water and power plant (IWPP) at Al-Zour North. The plant will be offered to the private sector in December or January 2011.

The scheme will have a capacity of 1,500MW of power and 100 million gallons a day of desalinated water. France’s BNP Paribas is the adviser on the scheme.

The project is not just remarkable for being Kuwait’s first IWPP, but it will also create a brand new sector for the state’s stock exchange. Under Kuwait’s plans for the power sector, an equity stake in the project company has to be listed on the exchange within a year of the plant becoming operational.

“If you go to Kuwait Stock Exchange index and compare it to any stock exchange index, there is a sector called utilities. We don’t have it in Kuwait,” says Al-Roumi. “By establishing the first electricity company, you are really creating this sector that will go on to be listed in the stock exchange.”

So is the Al-Zour North IWPP the most important part of the government’s plan? “No,” he says diplomatically, and pauses. “But what we have done at Al-Zour North is an accomplishment by itself.”

Before the government moves on with the private schemes it must first establish a privatisation law, a hindrance which has already caused delays to progress on the IWPP.

The PTB is working on the executive bylaws, which will have all the necessary information a bidder would need to participate in these projects. This should be finalised by the end of September, which will enable work to resume on the bidding for the IWPP. By December, international bidders will start to be prequalified for taking the 40 per cent shareholding of the project company that will develop the IWPP. Kuwaiti-listed companies will automatically prequalify.

First and most important is the reshaping of the Kuwait economy. It is a once in a lifetime opportunity

Adel al-Roumi, Partnerships Technical Bureau

“We have created a new industry to give to the private sector [and this] will increase efficiency of electricity production and also will give the government much needed power for the development of Kuwait. That is why we have targeted this project ahead of others,” says Al-Roumi.

Kuwait projects making progress

Other schemes are at varying stages of development. The UK’s Ernst & Young has been appointed transaction adviser for the metro project and will now evaluate the design already presented by Kuwait Overland Transport Union and Kuwait Municipality.

The PTB hopes to award the consultancy contract for the railway project in the next three months. A site for a solar plant has been approved and the feasibility study is now being finalised.

The PTB is also now receiving offers for the tourist development at Failaka Island, and will then offer it directly to the private sector for construction.

The PTB is also overseeing five airport projects that are being carried out on a build, operate, transfer basis (BOT). The consultancy contract for these is expected to be awarded towards the end of September.

Six labour cities are also being developed. The consultant is Germany’s Roedl and the project is expected to be offered to the private sector in November. Kuwait University (KU) is also offering the development of its seafront at Shweikh to the private sector on a BOT basis.

Streamlined process

Privatisation is not new to Kuwait. The state has been offering projects to the private sector through a BOT basis for some time, but two years ago, parliament decided to establish a special law to govern these activities – Law no. 7 of 2008. The development of Failaka Island was one of the first earmarked to come under the new law.

The government then formed two entities to be involved in the privatisation process. One is the Higher Committee of Development Projects, which is chaired by the Finance Minister and includes the Commerce Minister, Public Works Minister, Kuwait municipality minister, the head of the Environment Agency, Adel al-Roumi and two other members, which are assigned by the minister of the cabinet.

Kuwait is trying to catch up with the rest of the Gulf, where the private sector already plays a large role

The second institution is the PTB, which was established in 2009 and reports to the Higher Committee. The PTB has four main objectives. To study all projects that are presented by public entities to the Higher Committee and make recommendations on their viability. To identify the projects needed for the development of Kuwait and encourage greater private sector participation in the economy. To identify the right method of partnering with the private sector in terms of how these projects are presented. Finally, to establish a fair and transparent process for private sector bidders interested in state assets.

The plans also involve the privatisation of Kuwait’s national carrier Kuwait Airways. A consortium of the local Abdulhammed al-Sarraf & Partners and the US’ Baker & MacKenzie are working as legal advisers on the project and are now working on transferring the legal structure, including the transfer of assets and liabilities, to the shareholding company.

Later projects will see the privatisation of parts of Kuwait’s telecommunications network and Kuwait Post.

These projects have already been approved by the Higher Committee. All international calls in and out of Kuwait at present go through the Communications Ministry. The plan is to create a company that will be responsible for international calls. A committee to oversee this is currently being established by the Higher Committee and is chaired by Al-Roumi, who is also chairman of Kuwait Telecommunications Company. Along with the undersecretary of communications and five others members, Al-Roumi will soon start recruiting transaction advisers to oversee the privatisation process.

“I think the thing that drives all of us is to change the shape of the economy of Kuwait. It will add a huge increase of the private sector contribution to GDP [gross domestic product],” Al-Roumi says. “Most of these projects were being carried out by the state, so were considered part of the public contribution. It will also provide employment opportunities and make the services given to citizens more efficient.”

High expectations

The PTB remains resolute in executing its programme transparently and in line with international best practice. This means choosing the most suitable private investor to run each project based on technical experience rather than pricing.

Kuwait is now trying to catch up with the rest of the Gulf, where the private sector already plays a large role in providing power, developing transport infrastructure and has taken on the running of previously state-owned enterprises. The country wants to reshape its economy and diversify its capital markets.

“I think this programme will unleash the capability of Kuwait in establishing us as a regionally distinguished trading hub. If you look at all the infrastructure projects that we are talking about, the transport schemes, our central location … it will reshape Kuwait as a trading hub for the area,” Al-Roumi says.

By building all its planned infrastructure projects, Kuwait will regain some of the competitiveness it has lost to its regional neighbours, who are also developing aviation and railway networks of their own.

Similar development schemes elsewhere in the region mean Kuwait will have to deliver on its promises, or risk falling further behind its peers.

As the private sector grows in Kuwait, its reputation will no longer rest entirely in the hands of its fractious politicians who have often proved to be a roadblock to development.

“We are very ambitious about it. Hopefully, all these projects will be handed over to the private sector within two years,” says Al-Roumi. “Then it will be up to them to make sure they finish the projects as soon as possible. We are hoping that in five years you will see Kuwait as a changed city.”

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