Nine infrastructure projects in Kuwait worth an estimated US$36 billion are slated to be offered to private investors, including foreign investors, over the next two years.
Kuwait has several mega-projects in the pipeline, including a new refinery, a rapid urban transport system and a railway that will eventually link up with the proposed pan-GCC rail network. However, falling oil prices and deficit budgets have hampered the full-fledged implementation of these projects.
Kuwait is now increasingly looking to the private sector to join hands with the government in Public-Private Partnerships (PPP), which will see private investors taking stakes in projects by bearing part of the costs and sharing profits from operating them. Sectors of the economy identified for PPP include Communication, Education and Healthcare; Power, Solid Waste Management, Transportation, Water/Wastewater and Real Estate.
A new law to facilitate these partnerships, which took effect this year, will make it easier for investors to raise money and for banks to loan to them using a range of assets as collateral. The Partnerships Technical Bureau (PTB), which has been established to oversee all aspects of implementing PPPs in the country, has gone a long way to resolving some of the challenges that were present previously.
Adel Mohammad al-Roumi, president of PTB, said in a recent interview that the government’s PPP program will promote collaboration between public and private sectors to develop quality infrastructure and services. He added the PPP has evinced strong interest from the international community with many investors expressing their keenness to partner with PTB on several projects.
The success of PPP program in Kuwait is expected to spur similar joint ventures in other GCC states which are all reeling from the effects of falling oil revenues. Dubai has already published a new PPP law last month.
Kuwait's new law provides for creation of joint stock companies to handle projects, with Kuwaiti citizens owning 50 percent of such firms, the government 6 to 24 percent and foreign investors the remainder.
Saying that PTB would in the coming few months invite expressions of interest from investors in seven projects worth an approximate $10 billion, Al-Roumi added, that the bids for electricity generation and water desalination project at al-Zour are likely to be ready within months and the results would be announced by March 2016.
It is worth noting that about 70 to 80 percent of funding for these projects would come from banks, which authorities hope will stimulate the local banking system. The rest would be provided by investors in the joint stock companies.
We aim to ensure that PPP projects in Kuwait are implemented in a transparent manner which will be of mutual benefit to the public and private sectors, added Al-Roumi.
In the longer term, PPPs will be used for two much bigger projects, Roumi said. Kuwait aims to start building a $6 billion railway in 2016, having it ready to connect to a planned regional network in 2018. It also plans a $20 billion project to construct an urban metro system.
The government hopes PPPs will reduce the delays and cost overruns which have plagued past projects. Private investors will not get major payments until projects are operating, creating an incentive to complete construction on time and within budget.
Success in Kuwait's PPP drive is not assured. Bureaucracy and politics may continue to slow projects. Nevertheless, Ashurst said the new law could make Kuwait considerably more attractive for foreign investors.
"The new PPP law includes provisions for foreign investors to compete on a more level playing field with Kuwaiti companies," Ashurst's report said, adding that the new rules amounted to an easing of restrictions on foreign ownership of project companies.
Adel Mohammad Al-Roumi