With the total value of project finance in the region plummeting to $20 billion in 2009 from over $40 billion a year ago, the regional governments are shifting their focus to the Public-Private Partnerships (PPPs) model to fund infrastructure projects, according to report issued by KAMCO.
“Regional governments, including Kuwait, are turning to new financing strategies to fund crucial infrastructure projects with PPPs being an increasingly popular model in the region,” KIPCO Asset Management Co (KAMCO) in its latest report issued on Sunday said.
“After a challenging year in 2009 investors are more optimistic about the prospects of the coming couple of years,” it added.
“This optimism springs from the list of large projects expected to be executed during the period. The lending power of some of the major banks may have been affected by the global financial crisis, but the infrastructure needs of Kuwait and the region are still present,” the report said.
“During February of this year, the new economic development plan received its final approval from the Kuwaiti Parliament. This bill has great significance to the Kuwaiti economy since it is the first development plan to be approved since 1986. This new plan includes developments on some new projects such as the Kuwait City metro and railway and some long awaited projects such as the multi-billion dollars Silk City business hub project, Boubyan port, the Subiya causeway, as well as improving education, health-care, power and transportation systems. The final cost estimate of the bill was reduced to $110 billion, with the government and the private sector contributing roughly equal portions,” it added.
“Creation of durable and high quality infrastructure is a prerequisite for rapid economic development and requires sustained investments supported by technological innovation, a skilled workforce and excellent project management. The task of pooling together all these resources often proves to be a burden far too heavy for the government to carry alone. This realization has brought together the public and the private sector in a mutually beneficial relationship in the form of PPPs to execute not only infrastructure projects but also engender innovative strategies for social development,” it said.
According to report, the basic intent of a PPP is to encourage the private sector to capitalize on its capacity to raise capital and its ability to complete projects on time and to budget, for the welfare of the community, without having to compromise on its profit-seeking motive. At the same time, it added, the public sector would retain its responsibility to provide goods and services to the public at affordable rates. “For Kuwait, this will enhance the private sector’s expertise and increase its production capacity.”