Kuwait’s National Assembly approved a KD30.8bn ($107.1bn) four-year (2010-14) development plan on 2 February, raising hopes that long-stalled major energy projects can now push ahead. Surprisingly for Kuwait’s often fractious parliament, the bill was agreed almost unanimously, with 53 of the 56 legislators giving it the thumbs up. The plan is broad-based, encompassing oil and non-oil projects, and a key aspect is that it foresees hiking the private sector’s contribution to Kuwait’s economy.

It envisages an almost equal government/private sector investment split of KD15.6bn and KD15.2bn respectively, at annual averages of KD3.9bn and KD3.8bn, said Secretary General for Planning ‘Adil al-Wiqayyan, noting that the plan includes 230 policies. Also on 2 February, the cabinet approved spending KD4.78mn ($16.6bn) on the fiscal 2010-11 development plan, which begins on 1 April.

While details and timetabling of projects have yet to be released, oil industry experts said that they expected the $107bn plan to encompass all of the flagship energy projects that have been stalled over the last few years. “I think it includes everything. It’s a bottom up plan…They’ve taken all the ministries’ plans and decided they’re now going to push these through,” said one oil expert.

These include Kuwait’s proposed 615,000 b/d fourth refinery at al-Zour, the clean fuels project, and non-associated gas and heavy oil developments, (MEES, 11 January, and 9 November 2009). Many of Kuwait’s projects, both upstream and downstream, have been canceled, delayed and postponed over the last two years as a result of the acrimonious relationship between the legislative and executive branches of government, with parliament particularly suspicious of any involvement by international companies.

Talks Over JV Cancellation
Such clashes were also behind cancellation of the $17.4bn strategic petrochemicals joint venture with Dow Chemical (MEES, 19 January 2009). The Kuwaiti government is now in unofficial talks to try and avoid paying a $2.5bn penalty for scrapping the deal after the US firm decided to pursue arbitration. Oil experts are hopeful that the large private sector  role envisaged in the new four-year plan could herald a new beginning for Kuwait and allow greater participation in its oil sector by international players. Kuwait Oil Company (KOC) does not have the manpower or expertise to implement the country’s more technologically challenging development plans. In addition to oil projects, the budget also includes a number of major infrastructure initiatives, such  as the Silk City business hub, a 25km causeway, railways, and development of a new financial center, aimed at competing with Dubai and Bahrain.

Efforts to implement the four-year plan are largely being spearheaded by Prime Minister Shaikh Nasir Muhammad al-Ahmad al-Sabah and Deputy Premier for Economic Affairs Shaikh Ahmad Fahad al-Sabah. There is a push by Kuwaiti technocrats to attract the needed expertise, and recently the government advertised in The Economist seeking local and international talent for over 24 positions, including directors to head up units tasked with strategy, policy, communications, delivery and information. Local observers detected the input of former UK Prime Minister Tony Blair, who signed up as a consultant to the Kuwait government a year ago.

The recruitment drive suggests that there is some momentum behind the current plans, said one Kuwaiti consultant. “This time around I think they’re serious and they’ve realized that they’ve got to demonstrate action,” he said. He points out that the assembly’s approval of the four-year plan also suggests that members of parliament are getting tired of being pilloried for derailing Kuwait’s economic development. However, old rivalries can easily resurface, and any optimism is understandably guarded. Concerns center around the effectiveness of Minister of Oil Shaikh Ahmad ‘Abd Allah al-Sabah and what part he will play in the plan’s implementation. Last year the minister had to issue a clarification to KUNA that Kuwait is still aiming to boost crude production capacity to 4mn b/d by 2020, after suggesting the target had been abandoned (MEES, 12 October). After this  U turn, he also faces questioning in the assembly over contract losses.

Progress Despite Challenges
The country’s highest energy policy body, the Supreme Petroleum Council (SPC) has also been through challenging times, faced by parliamentary opposition to its energy initiatives, and has yet to appoint new advisory members to replace those that quit (MEES, 25 January). However, in addition to the passing of the development plan, Kuwait has made progress in a number of other areas. Last week parliament approved a bill to set up a stock market watchdog. Delayed for a number of years, this is aimed at improving transparency and attracting foreign investment. Also, Kuwait took tentative steps towards privatization when it asked advisers to bid last year for its first independent water and power project (IWPP). The process, which is similar to the IWPP program employed effectively in neighboring Gulf countries, is being overseen by the recently created Partnerships Technical Bureau (MEES, 21 September 2009).

Furthermore, Kuwait typically underspends on budgeted projects, but this year it will improve on recent averages, said one economist, suggesting that the authorities may be cutting through the red tape which has paralyzed some of the country’s projects in the past. “They’re way ahead of the usual pace for the current fiscal year,” he comments. He said that the next step for the four-year plan should be to “flesh out the details and tie it to this year’s budget.” Based on an oil price of $43/B, the fiscal year 2010-11 budget, in addition to envisaging spending of $16.6bn on the development plan, foresees total spending of KD12-15bn ($41.7-$52bn). However, it is unclear at present how much of the oil spending will be included in the 2010-11 budget, which does not typically include oil projects. Included in the 2010-11 plan is the setting up of five shareholding companies and public-private partnerships (PPP). The shareholding companies will be centered around warehousing and trading activities in Northern Kuwait, health insurance, low cost building, electricity generation, and development for al-Khairan City.

Meanwhile, although parliament and the executive branch of the government appear, at least initially, to agree on the four-year plan, they are expected to remain divided on other major issues facing Kuwait. On 6 January parliament approved a bailout worth KD6.7bn ($23bn) for its indebted citizens, despite strong government opposition. There have been no recent developments on the bill, and before it can go into effect it must be approved by Kuwait’s cabinet and ruler Shaikh Sabah al-Ahmad al-Sabah. The government was expected to recommend that the amir rejects the bill (MEES, 11 January).

Source: Yemen authorities; and IMF staff estimates and projections.
1. Core CPI is defined as the overall CPI less the CPI for qat.
2. Includes statistical discrepancy.
3. Gross reserves minus commercial bank and pension fund foreign exchange deposits held with the central bank.