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Kuwait infrastructure development seen to support projects market KIA second terminal to be completed by Sept 2016

KUWAIT CITY, April 25: Kuwait has a total of seven airports, four of which have paved runways. The country is planning to invest $698.5mln in the redevelopment of the Kuwait International Airport (KIA) and aims to increase the annual capacity of the airport to 20mln passengers. The redevelopment will focus on improving airport buildings, fire stations, rescue centres and service roads. Construction of a second terminal — built to the south of the existing terminal — is expected to be completed by September 2016. Built with an investment of KD900mln ($3.3bln), the terminal will initially have an annual passenger handling capacity of 13mln, with plans to increase this to 25mln and 50mln through further development. At the end of the overall $6bln expansion project, the airport will have eight gates, construction of fours of which was completed in September 2012. It is hoped that this project will help make the airport a regional hub for the Gulf peninsula.

Increasing levels of air traffic in Kuwait have resulted in a 7 percent rise in the number of travelers using Kuwait International Airport. New airports are planned near Harir City and the new Boubyan Island port, while the contracts are said to be worth a total of KD11mln ($39mln). This growth potential has attracted Turkish construction company TAV Construction to seek for new airport concessions in Kuwait, alongside Bahrain. TAV is a subsidiary of Afken Holding. There are no navigable rivers in Kuwait, but the country does possess 499km of coastline along with three major commercial seaports: Ash Shuwaikh, Ash Shuaiba and Doha. The Kuwait Port Authority (KPA) has overall responsibility for managing the country’s port system. The country’s oil port is situated at Mina al-Ahmadi, which is 40km to the south of Kuwait City. Mina al-Ahmadi has tanker berths, liquefied petroleum gas (LPG) berths and bunkering facilities, and is capable of handling the very largest of the world’s oil tankers. It has a loading capacity exceeding 2mn barrels of oil each day.

Kuwait’s Boubyan Island port project will turn Kuwait’s largest island — Boubyan — into a commercial seaport, generating a substantial increase in Kuwait’s port capabilities. However, this project has created some tensions, with the proposed construction of a new port in Kuwait threatening to spark a diplomatic row between the country and neighbouring Iraq. The project was suspended in mid-2012 following discussions, but it is likely it will proceed with delays. Indeed, in July 2013, Ministry of Public Works, State of Kuwait, awarded AECOM a contract to carry out feasibility study for a 40km deep water navigation channel for the port development on Boubyan Island. Local consultant SQC International will provide AECOM technical assistance and baseline environmental data. Starting from August 2013, the feasibility study is expected to take 11 months.

The residential/non-residential construction sector is set to benefit greatly from the government’s $12.6bln infrastructure stimulus. Kuwait was one of the first countries in the region to announce an increase in social spending and, buoyed by elevated oil prices, we believe the government is well-placed to sustain its social spending commitments. The deal is expected to boost spending and building on social projects and will play an increasingly critical role in stimulating the country’s wider economic activity. Financing worth $20.5mln will be directed towards infrastructure for the first phase of a project to construct five major blocks in the Funaitees area. The first phase will entail the installation of subsidiary roads, traffic signs, street lights, and water and sewerage networks.

Industrial construction is also on the rise as Kuwaiti contractor Mushrif Trading and Contracting Company was awarded a KD84.88mln ($298.3mln) contract to develop a new infrastructure project. Mushrif will be responsible for the design and construction of the Shadadiyah Industrial Area. The company expects to report an 8.8 percent profit from the project. Kuwait is following Qatar’s lead and prioritising sports-related construction schemes. Social housing is another major focus, and the country is pushing forward with a slate of large-scale residential construction schemes. One such project is the Sabah al-Ahmed Urban Housing Project, which will involve the construction of 11,000 residential units to house 100,000 people. The aim is to tender the contract as a build, operate, transfer (BOT) scheme.

Education is emerging as a major new thrust of government policy. Kuwait has the region’s second-largest higher education building programme, which is centred on the $3bln Sabah al-Salem university project. A $245.1mln contract to build another university complex in Kuwait has been awarded to UAE-based developer Arabtec. This is the latest example of the firm implementing its diversification strategy as it struggles to escape weakness within its domestic market. In pursuit of this policy, Kuwait signed two agreements with Hungary towards bolstering education and technological investments. Hungary’s State Secretary for Foreign Affairs and External Economic Relations Peter Szijjarto revealed that the educational agreement aims to promote research and to facilitate the exchange of scholarships, students and professors between the two countries.

The country’s healthcare development plan centres on the construction of eight public hospitals by 2016, in order to deal with the heavy pressure placed on the healthcare sector. Other developments, such as a $160mln project to build nine towers to be annexed to hospitals, adding 2,000 hospital beds, suggest that there is political support for the necessary healthcare drive. There is also a series of planned investments to overhaul medical facilities and health centres. Social housing is a priority for the Kuwaiti government, which plans to use PPP structures to deliver low-cost housing. Kuwait’s is on track to construct 80,000 housing units between 2010 and 2016 are part of the development of the Al-Khairan and Al-Mutlaa residential cities. Reports of deals worth $1.81bln — including four residential areas — suggest that the Public Authority for Housing Welfare (PAHW) is serious about meeting its ambitious targets, although the involvement of private sector operations and capital will be contingent on the level of private sector involvement in the developments.

Alongside the 80,000 housing units, Kuwait is also looking to the private sector to back major high-end residential housing projects. One of the biggest real estate projects is the so-called Pearl City, which will comprise 100,000 waterside residential units in the south-east of the country. News that the government plans to build three new residential cities in the southern part of the country, at a combined cost of $441mln, is in line with our view that social spending will be a key focus for the government. Housing will therefore underpin much of the expected growth in the residential/non-residential construction over the next few years.
Conclusion and Outlook

Government stimulus measures continue apace and we expect the Kuwait projects market will perform strongly this year. Overall, we continue to reiterate our positive stance on the sector, and now are revising sector growth to 3.9 percent (from 3.6 percent) and 5.7 percent (3.4 percent) y-o-y in 2013 and 2014 respectively. As much as $13.7bln worth of contracts are scheduled to be signed in the 1Q2014, followed by another $9.5bln before the end of the year, taking the total to $23.2bln. Oil processing will form the bulk of the awards at $9.3bln followed closely by upstream production with $8.4bln. Pipelines add another $5bln.The processing contracts form the backbone of two of Kuwait’s most important and ambitious schemes, the Clean Fuels Project and New Refinery Project, both in the downstream sector and with budgets in excess of $15bln each.

By KFH Research Limited

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