GCC partnership contracts worth USD 628 bln during the last decade

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Partnership project contracts between GCC public and private sectors awarded in the infrastructure sector during the last ten years is worth more than USD 628 billion, indicated a Kuwaiti economic report on Friday.

The report, prepared by KFH Research Ltd, a subsidiary of Kuwait Finance House, indicated acceleration in the pace of partnership projects between the public and private sectors during the last ten years in the GCC region, as a result of the prosperity of infrastructure projects and increased government spending associated with such projects.

The UAE and Saudi Arabia represent the largest markets for partnership models between the two sectors, particularly in the energy and water projects compared to a lesser extent in Kuwait, added the report.

An increase is expected in the partnership contracts between the two sectors in the region during the coming period due to the recovery in the project finance market and the clients’ understanding of this partnership concept.

The report also points out that since last September; over 50 contracts for the partnership between the two sectors were signed in the Gulf region. These projects require investments of more than USD 60 billion.

The report also addresses the fact that Kuwait has begun looking forward to this partnership in practice, not only for the government’s need to funding, but also to benefit of the expertise available to the private sector. The government proposed some 32 projects in various sectors requiring investments worth USD 28 billion.

The report mentions that long term projections show an increase of government investment on infrastructure projects in the Gulf countries and the desire of most governments to adopt economic reforms in order to promote partnership projects. The GCC is a relative newcomer to the private partnership model (PPP). It was not until 1994 and the signing of the Al-Manah independent power project (IPP) in Oman that the region had its first infrastructure PPP. Even then, it was another four years before the GCC’s inaugural PPP programme was successfully launched in Abu Dhabi.

The restructuring of the Abu Dhabi utility sector proved to be a watershed for PPPs in the Gulf. Consequently, the newly created Abu Dhabi Water Electricity Authority (Adwea) succeeded in removing many of the myths surrounding the build-operate concept in the Gulf.

Oman relaunched its own utility privatisation programme in 1999 and was followed in 2000 by Qatar and in 2003 by both Bahrain and Saudi Arabia. In 2009 and 2010, the last two bastions of state generation, Kuwait and Dubai, announced their intention to pursue the private power route.

Ever since the Taweelah A-2 experience, governments have looked to extend the PPP model into other areas of infrastructure delivery. In 2002, the region’s first sewage treatment plant (STP) PPP was awarded at Sulaibiya in Kuwait.

In total, the GCC has concluded just over 100 PPP-type agreements, of which half can be classified as management contracts. Often seen as a first step towards privatisation, management contracts have been used extensively in the transportation sector with the overwhelming majority being awarded on regional port projects.

The two biggest markets for PPPs have been the UAE and Saudi Arabia on account of the considerable private investment in new private power and desalination capacity. As of September 2010, the UAE had signed off an estimated USD20 billion worth of PPPs, with some USD7 billion accounted for by Abu Dhabi’s utility sector. In Saudi Arabia, power and desalination’s share of the PPP market was even higher, making up over 90 pct of the USD 16.4 billion total.

In contrast, Kuwait had the lowest level of PPP transactions, having concluded just one major scheme, the estimated USD 400 million Sulaibiya wastewater project. In terms of PPP deals concluded, Saudi Arabia has the highest number at 45.

Perhaps the most striking aspect of the renewed activity has been the sudden enthusiasm of both Kuwait and Dubai for the PPP model. Following its establishment in Kuwait in 2008, government-owned Partnerships Technical Bureau (PTB) rolled out in mid-2010 a PPP programme comprising 32 projects and requiring investment of USD28 billion.

Transportation, real estate, healthcare and utility projects all feature on the list, with the largest being the estimated USD10 billion Kuwait national rail scheme.

With huge government surpluses, securing finance is not the overriding factor behind the PPP push in Kuwait, even though the PTB estimates that about USD4 billion a year will have to be spent on infrastructure for the foreseeable future.

Rather, it is seen as an attempt by the government to deliver projects much more efficiently, grant the private sector a greater economic role and assist with the diversification of the local economy.

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