Kuwait

Jamal Abdul Nasser Street ... scheduled for completion in March 2017.

Jamal Abdul Nasser Street ... scheduled for completion in March 2017.

Coping with the crisis

Kuwait continues to spend on its hydrocarbon and infrastructure sectors buoyed by a record surplus budget, but political instability is hampering growth, writes DHUSHYANTHI RAVI.

December 2011

THE drawing boards abound with mega developments that have been lined up for Kuwait: the ambitious Silk City with its iconic centrepiece tower, residential cities such as Kheiran City and Sabah Al Ahmad city, tourism developments such as Failaka, power and water projects, roads and railways.

The country also enjoys a strong economy, buoyed by the robust oil prices. A Reuters poll in June forecast Kuwait’s economy would grow 4.4 per cent in 2011 and generate a fiscal surplus of 20.2 per cent of gross domestic product in 2011-12, the largest among Gulf Arab oil exporters.

However, despite its sound finances and well-thought-out plans, growth has been stymied by the political instability that plagues the nation – which has now culminated in the resignation of the Cabinet, the seventh cabinet to step down in five years.

Though Kuwait’s parliament cleared a $110-billion development plan in February 2010, aimed at diversifying away from oil and boosting the private sector, progress has been slow so far.

Lingering tensions in Kuwait’s parliament, combined with the regional political crisis, could significantly distract the government from pushing through much-needed reforms to the business environment, according to Business Monitor International.

Though Kuwait is enjoying a budget surplus that stood at KD4.2 billion ($15.3 billion) in the first two months of its 2011/12 fiscal year, investment plans seem to be put on the backburner by the government which is looking to put a cap on spending and axe wasteful expenses.

'Kuwait has no plans to boost budget spending in the next fiscal year, nor does it expect budget cuts in the coming months,' the Finance Minister Mustapha Al Shamali said recently.

Kuwait’s Amir Sheikh Sabah Al Ahmed Al Sabah has also indicated that a misuse of budget surpluses and 'irresponsible consumer waste' have deepened structural imbalances and distortions in the economy.

The nation has witnessed a 50 per cent contraction in the investment on construction of real estate projects compared to the period before the global financial crisis, a specialised economic report said. In a weekly report, Coldwell Banker-Kuwait mainly attributed the crunch to high prices of construction materials, and to budget cuts made by most local real estate companies.

The residential segment of the real estate sector, however, is relatively buoyant driven by the growing population and shortage in supply, according to the Global Research unit of Global Investment House. Quoted prices of houses designated for private living or investment purposes have been on the rise over the past two years, driven by increasing land prices due to the scarcity of new supply of serviced land. In addition, the upscale retail segment, which is considerably undersupplied, is expected to see a number of malls that are currently under construction enter the market over the next two years (see table).

Link to Retail space: existing and new supply table

While private sector investment is on the downtrend, the oil-reliant country continues to spend on its lucrative hydrocarbons sector as well as on infrastructure.

Kuwait National Petroleum Company (KNPC) expects to start work shortly on projects worth a total of KD11 billion ($40.15 billion). These include Kuwait’s fourth refinery and the clean fuels project, which will upgrade two of the country’s three refineries at a cost of KD8.6 billion ($31 billion), according to Hatem Al Awadhi, deputy managing director of KNPC.

Awadhi said the projects also included building a fifth gas production line at a cost of about KD315 million ($1.1 billion). Kuwait’s Supreme Petroleum Council (SPC) approved the construction of the long-delayed Al Zour refinery and the clean fuels project last June.

The world’s fourth largest oil exporter plans to increase its refining capacity to 1.4 million barrels a day.

Roads, railways, power stations, housing and health and educational facilities are areas that will continue to see investment.

 

Roads

The Public Works and Housing Ministry is expected to float tenders for the construction of new highways at a total cost of $6.3 billion. The highways, which will have a total length of 550 km, are currently being designed by the ministry. The planned projects include the Jaber Al Ahmad Bridge (Subiya Causeway), one of the country’s biggest highways.

Kuwait’s Deputy Premier for Economic Development Sheikh Ahmad Fahad Al Sabah, said authorities will soon sign a contract to construct the Subiya causeway. The 25-km causeway, which has been delayed for more than 10 years, will link Kuwait City with the Subiya area in the north to pave the way for the execution of the Silk City project at a cost of $90 billion, said the official, who is overseeing the country’s $110-billion four-year development plan. When complete, the city is expected to be home to around 700,000 people and is estimated to create over 300,000 new jobs.

Work is currently under way on Jamal Abdul Nasser and Jahra Road corridor.

The upgrade of Jahra Road started in August 2010 and is on schedule for completion in January 2016, while the revamp of Jamal Abdul Nasser Street commenced in May this year for completion in March 2017. Pan Arab Consulting Engineers (Pace) is responsible for the study, design and supervision of these projects.

 

Water & power

Kuwait plans to spend KD7.5 billion ($27 billion) to develop 180 electrical power and water projects in the country by 2013, a government utility official said.

Suhaila Marafi, director of studies and research at Kuwait’s Ministry of Electricity and Water said the country would also need to double its electricity capacity by 2020.

Marafi said Kuwait’s current capacity stood at around 11,300 MW and power needs called for an additional 10,000 MW over the next 10 years.

The country plans to build its first solar power plant with a generation capacity of between 50 to 200 MW, which will be built in phases.

Electricity and Water Minister Badr Al Shuraian said the state is seeking to increase water production capacity to 700 million gallons per day in five years from the current 400 million gallons.

 

Airport & Ports

A key area that is being prioritised is the aviation sector, in line with the country’s ambitions to establish itself as a regional air and marine hub and create the world’s first Leed (Leadership in Energy and Environmental Design) Gold-rated airport.

The expansion plan for Kuwait International Airport is expected to take off next year, with the construction of a state-of-the-art terminal building, designs for which have been drawn up by Foster + Partners (see separate report).

Another key project is the Bubiyan seaport, better known as Mubarak Al Kabeer port. The multi-billion-dollar container port is being constructed on Bubiyan Island, close to the border with Iraq and is due for completion in 2016.

 

Railway

Kuwait’s Partnerships Technical Bureau (PTB) signed a contract with an international consortium to provide consultancy services for the Kuwait Railroad Project, according to state-run news agency Kuna. The consortium, including consultancy Booz Company, will explore the options for linking the Kuwaiti sea ports with the international airport through a railway. The Kuwait Railroad Project is part of a larger Gulf rail network that aims to link the Gulf countries.

The 171-km railway network, of which 60 km will be underground, will cover Kuwait City.




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