From build to billed
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Kuwait is finally realising its plan to improve its infrastructure, with private investment now part of the process. James Swift finds out how the legal profession is playing this one
Lawyers described Kuwait as a graveyard twice during the research for this article. The first time was in relation to international firms. “We’ve seen firms pack up after six months, let alone six years,” says one lawyer. The second time it was in relation to projects.
Kuwait has a history of letting political infighting frustrate attempts to get things done. A project for a 16-mile causeway linking Kuwait City to the Subbiya area in the north, for instance, has been delayed by 10 years due to squabbling between the government and the National Assembly.
Is Kuwait’s wait over?
But the country may be about to leave that reputation behind. In February 2010 Kuwait’s parliament approved a $125bn (£77bn) five-year development plan. Planned projects include metro lines, airport expansion, a new city, hospitals, roads and a port at Boubyan Island.
So far the right noises are being made. The government has not always embraced private investment, but in 2008 a PPP law was passed, inviting private sector capital and expertise. In 2009, as a way of avoiding conflicts, the Partnerships Technical Bureau (PTB), an arm of the Finance Ministry, was created to coordinate and procure projects.
However, there are some in the region who remain sceptical and their scepticism has not been assuaged by what they have seen of the tender process so far.
Kuwait has needed a push in infrastructure for some time. The country was a leader in the Gulf during the 1970s, but a drop in oil prices and the Iraqi invasion in 1990 took their toll. The country stagnated while Dubai and Abu Dhabi flourished.
“The new economic plan stems from a political decision that the country needs to develop its economy,” says DLA Piper Middle East head Abdul Aziz Al-Yaqout. “Kuwait had a big push in the 1970s and 1980s, but that’s over 30 years ago now. We need new harbours, highways and power plants. The country’s facing a power shortage problem and we need to diversify our economy - for this we need infrastructure.”
This drive for projects has already transformed many law firms’ priorities.
“There was a time when not only would I not have been concerned about a port project, but it wouldn’t have even come under my radar,” says David Pfeiffer, managing partner at SNR Denton’s Kuwait office. “Now I’ll spend 40 hours on a proposal for one. Kuwait’s changed remarkably.”
Two advisory roles for the PTB on tenders have already been awarded. The first, in March 2010, was for the Al Zour Independent Water and Power Provider project. The advisory contracts went to a consortium comprising BNP Paribas, Chadbourne & Parke, ASAR-Al Ruwayeh & Partners and Lahmeyer International.
The second, last November, was a $7bn project to create the country’s first public railway system. Ashurst, along with Ernst & Young and construction company Atkins, picked up a joint role advising the PTB on its management of the tender process for the Kuwait Metropolitan Rapid Transit System.
Everyone agrees that the PTB has been a step in the right direction, but some believe it is understaffed, while others point to problems in the tender process.
“Bidders are frustrated with a number of aspects,” says one Kuwaiti lawyer. “Expression of interest requests are too short with too little information on the scope of tenders for potential bidders. Request for proposal packages are costly given the uncertainty in the process; bid bonds have been 10 per cent of the value of the bid, which is very high, and tender due dates continue to be extended with no reasonable explanation.”
Under the tender process potential advisers are required to submit applications to the PTB as part of a consortium, and those selected to advise the PTB are barred from acting for any investors or contractors involved in the project for five years. Consequently, some firms are holding off until the projects themselves are being tendered for.
“When the contracts to build these projects come in, that’s when things will become interesting for international firms,” says Al-Yaqout. “That’s where the meaty work is.”
The PPP law has also come under fire. The new law demands that any project worth more than KWD60m (£132.46m) be carried out by a special-purpose vehicle set up as a joint stock company. Shares go to companies listed on the country’s stock exchange, the company implementing the project as well as to Kuwaiti citizens. This raises concerns over the amount of control a company would have over a project.
“The law’s not ideal,” admits one Kuwait-based lawyer. “I looked at it when it first came out and found some issues. There are some concerns about control and what kind of security package a company can have. It’s going to be difficult to do these deals because of the way they do the laws, but then that’s half the fun.”
There are still glitches to iron out, but the signs of life are unmistakable.