In the January edition of Train Times we said that "Kuwait has been an enthusiastic supporter of PPP structures but progress to date has been faltering". A number of projects were at various stages of development, including the USD 7 billion Kuwait Metro project and the USD 10 billion Kuwait National Rail Road project.

Of these two projects, the Kuwait Metro was the most advanced. In procurement with bidders shortlisted for a package which includes the provision and maintenance of rolling stock, a depot and control systems together with system integration services, it was widely believed to be stalled pending completion of the Az Zour Independent Water and Power project. As we reported last month, promising news emerged on this project in January so it was anticipated that there would be considerable movement on the metro project in 2013.

The Kuwait National Rail Road was less advanced although a feasibility study was being prepared in respect of this project.

All this seemed quite promising until we received the disappointing news that the Partnerships Technical Bureau, the organisation which is responsible for promoting PPPs in Kuwait, had stopped work on a number of projects whilst the Communications Ministry, to which the PTB reports, undertook a review of some of the projects in the pipeline. As a consequence both the Kuwait Metro and the Kuwait National Rail Road have been put on hold.

What seems to have happened is that a review was ordered late in 2012 by Salem al-Othaina, the Communications Minister. The issue being considered is whether the projects should be procured as PPPs or whether a more traditional procurement approach should be adopted. There has been some speculation that Salem al-Othaina, who has not been in post long, ordered this review in order to ensure that he had a proper grip on what is going on.

Those involved in the review will no doubt consider the various perceived advantages and disadvantages of a PPP approach as compared with traditional procurement. Those in favour of PPPs will point out that although PPPs introduce financing costs these can be offset against efficiencies which the private sector brings to the process. The pro-PPP lobby will also argue that because the PPP provider is generally paid for providing a service, it will want to ensure that it properly maintains the system for which it is responsible (in this case trains, a depot and signalling, etc) for the duration of the project (which could be decades) thereby preserving the quality of the service provided. This contrasts with the traditional approach where sums earmarked for lifecycle costs can be diverted for other purposes when public sector budgets come under pressure. Finally, the PPP enthusiasts will point out that it is generally possible to achieve greater risk transfer to the private sector if a PPP approach is adopted.

Those in the traditional procurement camp will query why a country which can fund its own infrastructure would want to incur financing costs. They would also point out that traditional procurement is generally quicker and gives the beneficiary (in this case the PTB and the Ministry of Communications) more control and flexibility. They may also argue that although PPPs can achieve greater risk transfer, this is generally achieved at a price.

These issues have been well rehearsed in the context of PPPs around the world but those in favour of the PPP approach may use another, more novel, argument to strengthen their case. A PPP structure would involve private sector investors taking a direct financial interest in the project both in terms of equity and debt. Depending on the duration of the project, this financial exposure to the project could last for 30 years or more. Being a small country with some large and influential neighbours, Kuwait could find that having foreign investors with a stake in key infrastructure assets could be to its benefit if it found itself in need of international support.

Although the Communications Ministry has ordered a review of four projects, there are other projects being promoted by the PTB for other ministries and these are not affected. The Umm al-Hayman waste water project should come to the market in March and the PTB appears to be directing a lot of focus onto this project in order to build confidence in the Kuwaiti PPP market.

It is to be hoped that a decision to proceed with these transport projects either as PPPs or on a traditionally procured basis is forthcoming soon

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