Kuwait will invite private investors, including foreigners, to take part over the next two years in nine infrastructure projects worth about $36 billion, under a new law designed to facilitate such deals, an official said.
The country has huge construction plans, ranging from power stations and sewage and waste treatment facilities to railway and metro systems. But the plunge in oil prices since last year has slashed its revenues.
So rather than assuming the full cost of construction, the government wants increasingly to use public-private partnerships (PPPs), in which private investors take stakes in projects, bear part of the risk and share profits from operating them.
“This has become an inevitable necessity because it reduces the burden on the state budget in light of falling oil prices,” Adel Mohammad Al-Roumi, the president of the Kuwait Authority for Partnership Projects, which will oversee PPPs, said in an interview.
In the past, Kuwait has completed only one PPP deal. 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.
But a new PPP law which took effect this year may help to break the logjam, partly 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 present under the previous regime,” global law firm Ashurst, which has advised on projects in the country, said in a report.
Successful PPP projects in Kuwait could spur such deals in other Gul states, which also want to save money in an era of low oil prices. Dubai published a new PPP law last month.
THE NEW LAW
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.
Roumi said his authority would in the next few months invite expressions of interest from investors in seven projects costing about $10 billion. Among them, bids are expected within about four months for a $1.3 billion to 1.7 billion electricity generation and water desalination project at Al-Zour, with the winners likely to be announced next March, he said.
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.
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.