Roads: Making the right links

24 February 2010

From Qatar’s $20bn road building programme to Kuwait’s $3.7bn Subiya Causeway and major ring road schemes, road building is enjoying a renewed focus in the region as governments concentrate on improving transport infrastructure.

According to regional projects tracker MEED Projects, there are more than $49bn-worth of road developments under way or planned in the region, giving contractors a range of schemes on which to bid.

One of the most active markets in 2010 and 2011 is expected to be Kuwait, which is in stark contrast to the country’s recent form.

Key fact - Kuwait is planning a new national highway from the Iraqi to the Saudi border

Years of political infighting and bureaucracy have led many firms to abandon the country but there is a feeling that things are changing. “Kuwait is really pushing ahead,” says Glen Thorn, regional head of transport for UK consultant Halcrow. “It is planning a trans-Kuwait national highway network, which will run from the Iraq border to Saudi Arabia. The plan is to build four or five main segments, each of about 100 kilometres.”

An increasing number of road-building schemes are coming to the market in Kuwait and Abu Dhabi, while in Qatar and Oman major projects are also moving forward

Fast-tracking development

Halcrow is working on the feasibility study for the first phase of the project, but this is not the biggest road scheme coming to the market in Kuwait. In January, the government finally issued tender documents for the long-awaited 37.5 kilometre Subiya Causeway. The eight prequalified consortiums, selected in 2006, have until June to bid for the link between the mainland and Subiya Island. 

In addition, other major road contracts have also been tendered or awarded recently, which consultants say has helped to tackle the country’s infrastructure backlog. “It has reached the point of no return, they have to build some of these schemes,” says Tim Judge, senior vice-president of strategic development at the US’ Hill International. “But it might take a while to get going. The first ring road is under construction, but [the project] did begin in 2000.”

It has reached he point of no return, they have to build some of these schemes

Tim Judge, Hill International

Kuwait’s first ring road initially began in the late 1980s, with the southern section serving downtown Kuwait City completed in 1990. The northern section, which extends from Jahra Gate Roundabout to Dasman and Maqwa Street, was put on hold following the Iraq invasion but was resurrected in 2000.

It was split into three contracts and the first $110m phase in the east of the city, was awarded to Greece’s Aktor in consortium with the local Copri Construction Projects Company in 2005, but work did not start until 2008 as a number of environmental and planning issues delayed progress.

Work is ongoing and invitations to bid for the second $100m phase are expected in the first half of 2010. This section is the western part of the road running from Dasman and Abdullah al-Ahmed streets. The designer for the project is the US’ Parsons Brinckerhoff in partnership with the local Gulf Consult.

The $100m third and final phase for the last central link is expected to be tendered before the end of the year. Sources say the designs for both phases have been complete for almost two years, but government approval has been slow to be granted.

However, the government says it is working to change the approvals process and plans to fast-track through a number of critical infrastructure projects. “Approvals have traditionally been slowed by the democratic process, but recently this seems to have been resolved,” says Thorn.

[Abu Dhabi] is also looking at PPP for other highways and surface transport projects

Abrahim Akkawi, Ernst & Young

In early February, Sheikh Ahmad al-Fahad al-Sabah, Kuwait’s deputy prime minister for economic affairs and former oil minister, presented a $102bn state development plan to parliament, which was approved with a vote of 53 out of 56 members. The plan contained details of an infrastructure investment programme that will see five new companies established to drive through projects worth up to $25.8bn a year. These companies are to be jointly owned public-private entities.

In the plan’s first year to April 2011, $16.6bn has been approved by parliament to implement the plan. To complement these efforts the government is also working to change Kuwait’s build, operate, transfer contract law and enable private investors to own infrastructure. But while the government pushes on with its changes, a series of road scheme awards and invitations to bid are giving further encouragement to firms interested in Kuwait’s construction sector.

Road schemes are a critical part of Kuwait’s development plan. The roads in Kuwait City are heavily congested and links to neighbouring countries need upgrading.

One major project about to move from the drawing board to site is the $1bn Jahra Road upgrade. The Public Works Ministry is seeking to upgrade the 7.2km road, which is located to the west of Kuwait City and establish road maintenance and utility services, such as electricity, water and telephones, on Jahra and Jamal Abdul-Nasser roads.

The terms can be pretty onerous. If it could change [these] there would be a lot more interest

Glen Thorn, Halcrow

The project will start from Jahra gate to the UN roundabout extending to Jamal Abdul-Nasser road. The project award to Kuwait Arab Contractors Company with Egypt’s Arab Contractors was approved by the Central Tenders Committee in January and construction on site is scheduled to start in July. Other recent awards include a $98m project to Kuwait’s Combined Group for a new junction on Fahaheel Road and bids are currently being assessed for new intersections on the Sixth and Seventh ring roads.

The next major invitation to bid expected is for the 67km Eighth Ring Road, which will give another route to vehicles crossing Kuwait City. The $200m project involves 10 new bridges and three-lane carriageways.

Sources advising the government on financing projects in Kuwait say that the country is considering using private finance models such as private-public partnerships (PPPs) to build new road schemes. But legislative change must precede any such developments.

PPPs have not yet been used in the region’s road sector but it will not be long before the construction of the first begins. Abu Dhabi’s Department for Transport is currently assessing the bids from three consortiums competing to design, build, finance and operate the 327km Mafraq to Ghuwiefat highway. Although details of the bids are confidential, the estimated project value is $2.7bn.

Ernst & Young is the adviser to the department on the project and says the reasons for using PPP could make it attractive to other governments. “It is used to get the infrastructure project, with services, delivered on time and to budget,” says Abrahim Akkawi, head of infrastructure and PPP advisory services at Ernst & Young. “It gives a level of certainty using performance and availability indicators that are consistent across the highway for 25 years.”

Finance models

As with most private finance initiatives, payments to the consortiums from the transport department will depend on the contractor team meeting indicators as set out by the
client, and penalties are introduced if the road fails to meet these standards. “It also ensures you get the best design and a good asset reverting back to the government in good condition,” says Akkawi.

Akkawi says that governments in Qatar, Bahrain and Kuwait are watching the project with interest and seeking advisory services from consultants. “[Abu Dhabi] is also looking at PPP for other highways and surface transport projects, which are at planning stage,” he says.

In the current PPP, the transport department is taking a 51 per cent equity stake, but in future projects this is expected to be reduced as lenders and local investors become more comfortable with the structure. Qatar may be looking at PPPs, but so far it has continued to use traditional lump-sum contracting using Joint Contracts Tribunal forms of contract.

Buyers’ market

Contractors are not expecting any immediate changes in procurement strategy when it comes to the $20bn roads that Qatar’s
Public Works Authority (Ashghal) is planning to build.

“The terms and conditions can be pretty onerous,” says Thorn. “If it could change to FIDIC [International Federation of Consulting Engineers standards] there would be a lot more interest from consultants.”

Over the next five years, Ashghal is planning to invest in a series of roads and, according to Jamal Shareeda al-Kaabi, acting manager of the design department for roads and drainage at Ashghal, construction tenders for the first two projects, known as the Dukhan road and F ring road, will be released this month. These will be followed by a construction contract on Lusail road, he told MEED in February.

But the most anticipated project to be awarded in Qatar is the fourth $604m phase of the North Road, which will connect with the planned Qatar-Bahrain causeway.

This 35km project includes construction of a four-lane dual carriageway, service roads, six multi-level interchanges, three camel underpasses and development of infrastructure network and landscaping.  The first phase of the North Road was completed in 2007 and Turkish contractor Tekfen is currently working on the second and third phases. The second phase consists of a 33km road from the North Bridge to Al-Khor Interchange and the third phase is a 61km road from Al-Khor Interchange to Ruwais.

Turkish contractors have also been successful in Oman’s road sector. Mak-Yol won the first 59.5km of phase one of the Al-Batinah coastal road worth $325.8m in mid 2009, with India’s Nagarjuna Construction taking the second 66km section. The $600m second phase of the 241km highway is due to be awarded in the first half of 2010.

From Oman to Kuwait, contractors are noting the increasing opportunities in the roads sector, but as the number of projects increases so does the competition as more contractors and consultants are drawn to the market.

Firms are seeking to increase turnover through public sector infrastructure projects such as highways as the private construction market remains subdued, but margins are increasingly under pressure as clients make the most of the buyers’ market.

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