Kuwait projects market remains healthy in Q3

NBK ECONOMIC REPORT

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. According to MEED Projects, 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.

By the end of September, 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.

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 market-mainly 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).

Below is a breakdown of major project developments by sector.

Oil & gas

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.

After coming in at over KD 301 million ($1 billion) in the first two quarters of 2016, the value of awarded projects in the construction 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. The project, which is situated in Al-Daiya area on the outskirts of Kuwait city, will be the country’s first mixed-used development. It will cover 381,000 sqm and include 82 plots for both residential and commercial spaces as well as infrastructure such as roads, parks and walkways. Through its subsidiaries, KIPCO will be developing 38 plots of the development scheme. The rest of the project will be developed by other parties.

The project’s infrastructure is expected to be completed by September of 2017. The first phase of the project, which will include residential properties developed by KIPCO’s subsidiaries, should be ready for habitation by 2020. The rest of the project is due in 2030 or sooner.

Power & water

The value of awarded projects in this 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.

KAPP had to extend the bid submission deadline for three of its projects several times this year. After the bid submission deadline for its Umm Al-Hayman Wastewater Treatment Plant project was extended four times, according to media reports in early October, a consortium led by the Commercial Bank of Kuwait agreed to finance the KD 450 million ($1.5 billion) project. The bids for the KD 265 million ($880 million) Kabd Municipal Solid Waste project are currently under review, with the contract expected to be awarded by the end of this year. The bid submission date for the KD 217 million ($720 million) Al-Abdaliya Integrated Solar Combined Cycle (ISCC) Power Plant (CSP) has been pushed back again, to early November of this year; it is now scheduled to be awarded in the first half of 2017, according to MEED. Earlier this year, KAPP had also announced bids for Phase 2 of the Al-Zour North IWPP, valued at KD 810 million ($2.7 billion). The project aims to produce 1,800 megawatts (MW) of electricity and 464,100 cubic meters of desalinated water a day. Three consortiums involving 11 companies submitted their bids in June. According to MEED Projects, as of the end of September, the technical bids were still under evaluation and the commercial bids were still to be opened.