Kuwait Promotes Public-Private Partnerships with New Law
Kuwait invites private investors to take part in developing nine infrastructure projects worth $36 billion under a new law designed to facilitate Public-Private Partnership (PPP) projects.
Kuwait has significant construction and investment plans, ranging from power stations and sewage and waste treatment facilities to railway and metro systems. The decline oil prices has compelled the government to explore alternative business model options. As an alternative to assuming the full cost of construction projects, the Government is focused on utilizing the PPP business model to develop essential infrastructure assets and services.
Previously, Kuwait has completed only one PPP deal. The phase one of is Az-Zour North IWPP project. The Project involved the development, design, engineering, construction, operation, maintenance and transfer of a power and desalination plant with a capacity of at least 1,500 MW and 102 MIGD. The Project also included the sale and purchase of associated power and water by the Ministry of Electricity and Water pursuant to an Energy Conversion and Water Purchase Agreement (ECWPA). Currently, the power plant runs successfully under a public shareholding company that was established with a capital of KD 110 million (Approximately $ 366 million).
Several projects have been delayed or canceled because of red tape, uncertainty over legal terms and political tensions between the Cabinet and Parliament, which have hindered planning. However, a new PPP law which took effect this year may help to break the logjam, by making it easier for investors to raise money. While it was hard for banks to obtain security for loans under the old rules, the new law allows a range of assets to be used as collateral, including the developer’s shares.
The new PPP law and its implementation regulations are a positive step for Kuwaiti PPPs and resolve a number of challenges that were preventing progress on these key infrastructure projects.
In coming few months, Kuwait will invite expressions of interest from investors in seven projects valued at approximately $10 billion. Among them, two specific bids are expected to be released within the next four months for a $1.3 billion to 1.7 billion electricity generation and water desalination project at Al-Zour. Nearly 70 to 80 percent of funding for these projects would come from banks, which authorities hope will stimulate the local banking system. The remaining funds would be provided by investors in the joint stock companies.
In the transportation sector, PPPs will be used for two large development projects. Kuwait aims to start building a $6 billion railway and it also is planning a $20 billion project to construct an urban metro system.
The Government expects the public-private partnership (PPP) model will reduce the delays and cost overruns which have plagued past projects. Private investors will not receive 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, 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. The new laws amounted to an easing of restrictions on foreign ownership of project companies.
For more information on PPP projects in Kuwait, please contact Xavier Muthu at Xavier.Muthu@trade.gov