Infrastructure: New Contracts, Same Outlook

BMI View : Kuwait is a prime example of the importance o f a stable and unified political landscape to creat e a fertile environment for infrastructure projects. Kuwait ' s political instability and conflicts have undermined the potential of a US$110bn infrastructure plan and has been to blame for the minimal progress made on multi-billion dollar projects overall . With our country risk team expecting five more years of political deadlock, we do not have high hopes that projects such as the Bubiyan Port, the Subiya Causeway and a new airport terminal will progress, although they remain in the pipeline.

Kuwait ' s political deadlock is having a significant impact on the country ' s ability to implement a US$110bn spending plan. It is hoped that t he five - year National Development Plan (2010-2014) will improve Kuwait's infrastructure and help to diversify the economy away from oil. However, progress has been limited, with funding blocked by political infighting.

Large Projects Not Priced In
Kuwait Construction Industry Value And Growth

A number of flagship multi-billion dollar infrastructure projects have stagnated over recent years. Almost two years since it was first awarded, Hyundai Engineering & Construction signed a contract to design, build and maintain the US$2.6bn Subiya Causeway. The Subiya Causeway, officially known as the Sheikh Jaber al-Ahmed al-Sabah bridge, is a 37.5km bridge which will cross Kuwait Bay, linking Kuwait City, the Subiya peninsula and Bubiyan Island.

The contract for the bridge was first awarded to the group in February 2011, with the signing of the contract illustrating the lengthy lead times and uncertainty for project developers participating in the market. The attraction of the multi-billion dollar contracts must be offset with the concerns over the potential realisation of the project.

Another pertinent example, also involving Hyundai E&C, is the Bubiyan Port project. In January 2010, Hyundai E&C was awarded a US$1.14bn contract for marine engineering on the planned port. However, no progress has been seen on the project thus far. The port, which will be build on Bubiyan Island, has been in the pipeline in one form or another since the early 2000s. Plans have been repeatedly changed over the years, with a number of consultants and designers having worked on the project; the most recent design consultancy contract was tendered in Q212.

The experience of these two projects gives us little optimism for the planned new terminal at Kuwait International Airport. The project is estimated to cost US$3.2bn and is part of a US$6bn expansion plan at the airport, which is designed to expand capacity to 13mn passengers per year by 2016, and 25mn by 2025. The tender is due to be released in December 2012. Whilst we do expect interest in the tender, we do not expect the process to run efficiently or the project to be completed within the timeframe expected.

These three projects represent a combined investment of over US$7bn. This investment would be a major boost for a construction industry that is consistently underperforming potential and an economy which is stagnating as capital investment disappoints. However, with BMI's country risk team anticipating five more years of political deadlock as the most likely scenario, the potential for progress is unlikely ( see our online service, October 5, 'Scenario Analysis: Assessing Risks To Outlook'). As the 2014 deadline for the National Development Programme looms, it seems unlikely that many projects will have been completed.

This article is tagged to:
Sector: Infrastructure
Geography: Kuwait

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