Kuwait Project Landscape – Is Kuwait About to Reach the Heights It Has Always Been Promising?Essay Preview: Kuwait Project Landscape – Is Kuwait About to Reach the Heights It Has Always Been Promising?Report this essayKuwait Project LandscapeIs Kuwait about to reach the heights it has always been promising?Global oil demand rose more strongly than expected last year, with the world consuming an extra 2.8m barrels a day, 3.3 per cent more than in 2009. According to the International Energy Agency, world oil consumption is set to grow by about 1.4 mbpd in both 2011 and 2012 to 89.6 mbpd. With oil demand on the rise, coupled with the challenges on the Libyan crude exports and the buoyant demand from Asia, countries in the Middle East are well placed to take advantage of the current oil demand situation. Among the GCC countries, Kuwait, Saudi Arabia, and the UAE has the spare capacity to meet this growing demand, and Kuwait has responded by pumping 2.8 mbpd throughout August, its highest since 2008, and has the capacity to utilize production capabilities to generate up to 3.07 mbpd with the existing oil infrastructure. Furthermore, Kuwait plans to achieve 3.5 mbpd capacity by 2015, and has several projects in pipeline which are expected to take the country to the levels it has been targeting. The real question is how will Kuwait deliver on these plans with the current challenges it is facing?
In 2010, Kuwait launched an ambitious 4 year development plan (KDP), committing to US$125bn (KD37bn) of spending, centered on shifting the focus from an oil dependent economy towards more diversified sectors. The plan which aims to turn Kuwait into a regional trade and financial hub looks at involving the private sector in such projects mainly through BOT (build-operate-transfer) schemes. The government plan includes more than 1100 projects, which covers construction, infrastructure and services, as well as oil sector investments to raise oil and gas production capabilities and modernize current facilities. The plan contains several mega projects to be implemented in the next five years including railway and metro systems, a container harbor and causeway, a business hub which is estimated at c.US$77bn (KD21mn), and US$90mn (c.KD25bn) oil sector investments.
Under the Kuwait development plan, c.US$54bn (KD15bn) was expected to be spent during the fiscal year 2010-2011. Analysis of the Kuwait project landscape reveals significantly increased project Capex in 2011 and 2012 compared to the levels seen during the previous years, which seems to be in line with the growth strategy (Figure 1).
Planned project Capex for 2011-2012 is almost double the awarded projects during the 2007-2010 period, and if projects were to proceed as planned it would represent an almost 100% increase in project activity compared to 2010 levels. Taking a realistic view, through utilization of Contax Partners tiering methodology, it is estimated that c.US$4bn worth of projects still planned for 2011 and c.US$32bn in 2012 will have a higher than 70% likelihood of proceeding as planned. This, combined with the already awarded US$8.2bn projects so far in 2011, makes for a healthy project landscape in Kuwait in the coming 1-2 years, and suggests that momentum in project activity in Kuwait is building. Furthermore, as per the
Cavex programme, c.US$4bn of the $3.4bn c.US$25.6bn total backlog in 2015 has been completed – a staggering 3% over the previous year.
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Given the expected growth in project activity, this is not a given for 2013, 2014 and 2015.
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To put this into perspective – the total backlog of construction projects in the State of Kuwait this year is down from the $2.3bn backlog in the same period last year – a massive 1.4m projects were completed (3.7mn projects) and 2,500 projects (8.1mn) in 2013-14 – a 1.6% of total overall construction progress in 2013-14. Since early 2013, the vast majority of projects from the State of Kuwait have come back to full construction status and are now fully built, with around one per cent being used for public works, in the process of fully filling a 20km stretch of the Baku-Perebji Bridge. For the past 15 years project completion, including the completion of the $30bn Abu Dhabi-Baghdad Project (MDA2) in 2014-15 in Qatar-2 in 2015-16 respectively, was a goal achieved during previous years of construction and now we can now see that the construction of Abu Dhabi-Baghdad is accelerating, as well as the expected expansion on the project horizon this year.
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This trend of increasing construction activity is partially fuelled by an increase in private sector sector involvement and increasing utilization of Covered Assets and secured E-Corp projects. Indeed, as the number of private-sector projects has increased in the past three years the capacity of private companies (i.e. Covered Asset & ECorp) by more than 100 times – to over 1.5m project completion projects – and the use of secured projects increased, this is a major increase in development in the Private Reserves sector. As in past years, the private sector participation in projects increased with the increasing number of companies involved with these projects and the increasing demand for the projects of many. In total it is estimated that between 2011-12 to 2015, 682 private-sector contracts have been made in the Private Reserves sector (excluding Covered Asset & ECorp), of which more than 200 have recently been signed. This has resulted in more private companies signing contracts for this period than any other one in history – almost one in ten private-sector contracts and nearly twice that much (31.9%) of private-sector E-Corp contracts. In particular, the increases in the number of public-sector contracted projects were in line with the trend of increasing private-sector involvement in projects. As mentioned above