Kuwait projects sector grows despite oil revenues shrinking

Lower oil prices dampen state oil earnings

KUWAIT:

Kuwait’s projects market maintained its relatively healthy momentum in the third quarter of 2016, with the government committed to implementing its development plan even as lower oil prices continue to dampen state oil earnings. Citing the Middle East project tracker (MEED), the National Bank of Kuwait reported that Kuwait awarded KD 1.0 billion ($3.4 billion) in contracts in 3Q16, an increase of KD 129 million (14.8 percent) over the previous quarter. “This brings the total value of contracts awarded so far this year to KD 3.6 billion ($12.0 billion), roughly KD 1.5 billion ($4.8 billion), or 42 percent, of which are oil and gas contracts.

“With another KD 2.3 billion ($7.7 billion) expected before year-end, 2016 should be another stellar year in terms of contract awards. Last year saw almost KD 10.0 billion ($33.2 billion) in contracts signed,” reads the report. The report also showed that the total value of Kuwait’s projects market (active and planned) stood at KD 75.1 billion ($247 billion), up 0.8 percent year-to-date, by the end of September. Looking ahead to 2017, the total value of awarded projects is expected to increase to KD 11.5 billion ($38.1 billion).

In spite of the challenges facing Kuwait’s project marketmainly lower oil earnings and sub-optimal levels of foreign direct investment (FDI)-capital for projects is not in short supply thanks to the government’s commitment to rolling out its infrastructure development plan. Moreover, a central plank of the plan is the participation of the private sector through at least eight public private partnerships (PPP). The report stated that after softening in 2Q16, project awards in the oil and gas sector were boosted in 3Q16 by Kuwait Oil Company’s (KOC) signing of the remaining two packages (Packages 1, 2) of the Jurassic Non-Associated Gas Reserves project: the West and East Raudhatain fields.

Local company Spetco International Petroleum Company was awarded the contract for the west field while US firm Schlumberger secured the contract for the east field. The two packages together are worth around KD 228 million ($758 million). Schlumberger had already won the contract to develop the Sabriyah and Umm Niqa fields (Package 3) earlier in the year for KD 144 million ($480 million). Upstream operator KOC aims to expand domestic production of natural gas to 300 million cubic feet per day (cf/d) in order to keep up with rising domestic consumption.

During the same quarter, KOC also awarded two FEED pipeline projects, one for oil transmission worth KD 84 million ($280 million) and another for gas transmission valued at KD 53 million ($177 million). They were awarded to local firms Combined Group and Arabi Enertech, respectively. In the construction sector and after coming in at over KD 301 million ($1 billion) in the first two quarters of 2016, the value of awarded projects in this sector fell to KD 63 million ($210 million) in 3Q16. However, the sector is expected to get a boost in 4Q16 after KIPCO (the Kuwait Projects Company) awarded its KD 723 million ($2.4 billion) Hessah Al-Mubarak project to the Ahmadiah Contracting Trading Company.

In the meantime, figures also showed that the value of awarded projects in this power and water sector came to KD 28 million ($92 million) in 3Q16, which is the lowest level this year. However, there are major projects in the pipeline under the ownership of the Kuwait Authority for Partnership Projects (KAPP) that should result in at least KD 2.1 billion ($7.1 billion) in contracts awarded over 4Q16 and 1Q17. The authorities continue to press ahead with upgrading and developing Kuwait’s transport infrastructure. According to MEED projects, the sector currently accounts for the second largest share of the awarded projects market in 2016.

In 3Q16, KD 572 million ($1.9 billion) worth of projects were awarded, 86 percent of which were awarded by the Ministry of Public Works (MPW). Some of the MPW’s major projects include the development of the Northern Regional Road (to facilitate the growth of inter-regional and international trade with the GCC states), the 6.5 Ring Road and the improvement of the Sheikh Jaber Al-Ahmed Al-Sabah Road. A further KD 572 million ($1.9 billion) worth of projects is expected to be awarded in 4Q16 in this sector. — KUNA