20 May 2016

The Kuwaiti government remains committed to rolling out its ambitious infrastructure development plan despite uncertainty over global oil prices.

A host of public construction contracts have been awarded so far this year after the government launched a six-pronged economic recovery strategy aimed at encouraging expansion of public-private partnerships (PPPs). This came on the heels of a new five-year plan with over $100bn worth of infrastructure spending.

An emphasis on hard and soft infrastructure, including new schools and utilities projects, should support construction industry and non-oil growth in the near term, while a long-term finance agreement reached for the Clean Fuels Project at the end of April will further underpin future oil and gas growth.

Contracts boom in 2016

Kuwait's projects market has shown robust expansion despite low oil prices, international media reported in April, with the state awarding KD1.5bn ($5bn) of contracts during the first quarter of the year.

These awards brought the total size of the local projects market, including public, private and planned developments, to KD76.6bn ($252.3bn), a 2.8% year-to-date increase, according to reports.

Infrastructure development featured heavily in the state's most recent five-year economic development plan, which was approved in February 2015 and envisions $116bn of construction spending on various projects.

Although transportation mega-projects, including a metro and a national rail network, have been delayed, social infrastructure is already benefitting from the spending surge.

For example, Kuwait University is currently constructing a new campus in Shadidiyah, located south-west of Kuwait City, which will house all 14 of its faculties.

Offering capacity for up to 30,000 students, the new campus is slated for mid-year completion after the university awarded a KD173m ($574.3m) contract for construction of the administration facilities to a joint venture between China State Construction Engineering Corporation and Combined Group Contracting Company in January.

Pushing progress

Delayed utilities projects are also slated to move ahead after the creation in 2014 of the Kuwait Authority for Partnership Projects (KAPP), an agency tasked with identifying and developing PPPs, and established to replace the Partnerships Technical Bureau (PTB).

Developing PPPs is a key pillar of the six-point economic reform plan launched by Anas Al Saleh, minister of finance and acting minister of oil.

KAPP has since announced it will award the main contract for the second phase of the Al Zour North independent water and power plant, which will produce 1800 MW of electricity and 464,100 cu metres per day of desalinated water.

This comes alongside a contract bid for the KD450m ($1.5bn) Umm Al Hayman wastewater treatment plant, which opened at the end of April, and a tender for the Kabd municipal solid waste project, due in late May.

Future developments

Oil and gas projects are also making steady progress, particularly as the country seeks to expand value-added downstream production and reduce domestic liquefied natural gas (LNG) consumption via new imports.

In early March the Kuwait National Petroleum Company (KNPC) awarded its largest contract so far this year. The KD882m ($2.9bn) contract for construction of a new LNG import and regasification terminal was given to a consortium led by South Korea's Hyundai Engineering and Hyundai Engineering & Construction, and includes four full-containment LNG tanks with a maximum daily capacity of 1.5trn British thermal units.

The Clean Fuel Project - a total overhaul of the state's two largest refineries, Mina Abdullah and Mina Al Ahmadi - will see the government intensify its focus on value-added production of diesel and kerosene. It is one of the largest undertakings on Kuwait's infrastructure agenda, and although some media sources have reported that the KD3.7bn ($12.3bn) initiative has been pushed to 2019, the project has witnessed some positive developments in recent weeks.

In late April the KNPC announced it had signed an agreement for the first tranche of financing, a 10-year agreement worth KD1.2bn ($4bn) and backed by a consortium of local lenders, including the National Bank of Kuwait and Kuwait Finance House.

The forecast for construction industry growth is positive, with the government set to award KD10.8bn ($35.8bn) worth of contracts before December, while down from the KD16bn ($53.1bn) originally planned, more than 60% of contracts to be awarded already have a list of qualified bidders, according to international media. 

© Oxford Business Group 2016