Kuwait positive on PPP prospects

As other regional governments launch ambitious public-private partnership (PPP) initiatives, Kuwait is celebrating the 10-year anniversary of its pioneering PPP programme this year.

Initially launched in 2008, Kuwait’s PPP body, the Kuwait Authority for Partnership Projects (KAPP), has undergone a number of changes and delivered its first major project in this time.

Project plans

While reforms and legal amendments have led to delays with the programme, the finalising of agreements for its most ambitious project yet in 2018 has paved the way for more success in 2019.

Nayef al-Haddad, a senior manager at KAPP, tells MEED that the signing of agreements for the planned Umm al-Hayman wastewater project, with a consortium led by Germany’s WTE and the local International Finance Association, is an important milestone.

“The Umm al-Hayman wastewater expansion has been the most complicated project to be tendered by KAPP as it has two components,” Al-Haddad explains. “The first part is for design, build, operate for a three-year period, and then there is a BOT [build, own, operate] part for a 25-year period.”

The project will expand the capacity of the Umm al-Hayman wastewater treatment plant by a sizeable 500,000 cubic metres a day (cm/d), with the option to expand up to a total of 700,000 cm/d in the future, offering further opportunities for local and international investors.

“For the future expansion, there is potential for the same lenders or different lenders to participate through refinancing,” says Al-Haddad.

Local support

Al-Haddad is keen to emphasise that international expertise and finance will provide significant benefits for local citizens.

“The appointed consortium is taking financing from local and international banks, and in all aspects there is a local touch,” he explains. “In addition to the environmental benefits for Kuwait, it will create jobs, transfer of knowledge and technology and will also enable local companies and citizens to benefit from shares in the company.”

PPP models

Under Kuwait’s PPP structure, the appointed developer will form a project company in which 60 per cent of shares will be distributed between local citizens and public institutes.

“For the project company, 50 per cent of shares will be transferred to Kuwaiti citizens, 10 per cent for public entities allowed to invest and the remaining 40 per cent will be held by the developer,” says Al-Haddad.

While some previous efforts to implement PPP projects had stalled as a result of the new procurement models, Al-Haddad says the successful signing of the project agreement was due to numerous state entities cooperating with investors to find the best solution for a complex project.

“The Umm al-Hayman project involves the expansion of current transmission, distribution and pumping infrastructure, so there is a lot of risk and responsibilities shared between the private and public sector,” he explains.

“Thankfully, this project has come through a lot of challenges, in the technical and commercial components, to reach this stage. It’s a major milestone for us.”

Following the successful conclusion of negotiations with the Umm al-Hayman project, attention will now turn to signing the project agreements for the next project, the Kabd solid waste-to-energy PPP scheme.

The Kabd PPP

The senior engineer for KAPP currently working on the project, Muneera al-Bahar, is confident that the Kabd project can follow the lead of the Umm al-Hayman project and reach execution soon.

“It was approved earlier this year, and we are still waiting for final approvals from relevant authorities,” says Al-Bahar.

“It has faced more reluctance from the public sector as it is a new technology coming in that requires more understanding and awareness of technology, and it will cost hundreds of millions of dollars over 25 years, so it may take longer to convince stakeholders than the Umm al-Hayman project, but we are confident it will go in the same direction. Both projects aim to benefit the environment and improve quality of life.”

Power capacity

A key part of KAPP’s mandate will be delivering the next independent water and power projects (IWPPs) to meet the growing demand for power and water in the country.

Following the successful commissioning of the Al-Zour North 1 IWPP in late 2016, procurement for the next phases of Al-Zour and a major IWPP at Al-Khiran is under way.

In 2017, plans for an Al-Zour North 2 project were dropped to amalgamate the second and third phases. In August, KAPP invited developers to submit expressions of interest (EOI) for Al-Zour North phase 2&3 IWPP and Al-Khiran 1 IWPP. The client set a deadline of 18 November for developers to submit interest in the projects.

“We have had a lot of responses from the private sector since we published the EOI, and we are going to hire a transaction adviser soon,” says Al-Bahar.

Following the pre-qualification process, the tendering of the schemes will be staggered to maximise participation.

“We are going to have a six-month gap between the two tenders,” says Al-Bahar. “We came to this decision following a workshop we had with investors, and the view was that this gap is important for financing as most of them are interested in investing in both.”

Both IWPPs are planned to contain gas-fired combined-cycle power elements, with the Al-Zour North 2&3 set to have a capacity of 2,300MW and the Al-Khiran project scheduled to provide up to 1,500MW. Both will have sizeable desalination components, with the Al-Zour and Al-Khiran plants to produce 165 million imperial gallons a day (MIGD) and 125MIGD respectively.

Construction schemes

In addition to key utilities projects, KAPP is also planning to develop real estate PPPs. The most advanced projects are the South Al-Jahra Labour City and the Egalia Services & Entertainment City.

The South Al-Jahra Labour City will involve the construction, operation and transfer of a labour city covering an area of 1,015,000 square metres, which will provide affordable housing for 20,000 expatriate workers.

The Egalia Entertainment City will cover a total area of 85,500 sq m, and will consist of a commercial entertainment cultural complex, fresh food market and car parking.

Both of the projects are expected to be tendered to regional and international investors soon.

“We have had a lot of interest for both projects and have qualified companies to participate,” says Asmaa Salem Burbayea, civil engineer for KAPP. “We are just waiting for the state fatwa to comment on tender documents, and then we will issue the RFP [request for proposals].”

Future plans

With the tenders for the labour and entertainment cities expected soon, KAPP is already looking at the next possible real estate projects.

One of these is a project to develop two artificial islands either side of the Sheikh Jaber al-Ahmad al-Jaber bridge, which is expected to be finished this year.

“One island is south of the bridge, closest to Kuwait City and Shuwaikh port, while the other one in the north is close to Subiya,” says engineer Sara Alosaimi, who is working on initial plans for the scheme.

“Each island has a part in which government buildings have already been developed, and around half of each island will be used for a PPP project. We have not identified the usage yet – they could be commercial or resorts. It is still in the early stages, but we are exploring the choices and possibilities,” she adds.

Al-Haddad says KAPP has been keen to seek the advice of international PPP units and neighbouring countries to ensure that Kuwait is aware of the challenges and opportunities involved in delivering such an ambitious programme.

“We have reached out to similar organisations in the region and internationally to see what they are facing and how they are doing things,” he says.

“The most important thing is to ensure transparency and fair competition and, despite challenges, people are still coming to participate in our projects. It is not a one-man show in Kuwait, and that gives it fairness, safety and comfort for people who want to invest here.”