PPPs-for-progress-in-Kuwait

PPPs can bring significant efficiencies and economic benefits to Kuwait.

Hassan CHOUDHRY CFO UMM AL HAYMAN FOR WASTEWATER TREATMENT COMPANY

PPPs for progress in Kuwait

May 16, 2024

Hassan Choudhry, CFO of Umm al Hayman for Wastewater Treatment Company (UAH), talks to The Energy Year about the key role UAH plays in delivering water for Kuwaiti agriculture and industry and how PPP schemes benefit the Kuwaiti public.

How do you think PPP schemes are impacting government activities?
Kuwait has a growing population, and ambitious targets set by the Kuwait Vision 2035 make infrastructure projects a necessity. To meet the vision, the government has a good pipeline of key strategic infrastructure projects which includes phases two and three of the Shamal Az Zour power generation and water desalination plant, the Khiran power generation and water desalination plant, Shagaya Renewable Energy Park and the North Kabd wastewater plant.
Based on the pipeline there is a great understanding that PPPs can bring significant efficiencies and economic benefits to Kuwait. However, the timely award of PPP projects remains essential to building and maintaining confidence among international investors and lenders.
PPP projects assist the economy by removing part of the investment burden from the shoulders of the government since it is the successful bidders who fund the projects in addition to bringing the technology and implementing the design. The initial risks and the development requirements lie with the investors, which frees the government to focus on strategy. It is a sensible scheme that works well both economically and operationally.

What are the main benefits that the PPP model can bring to projects?
It is more cost-effective because efficient construction is in the investor’s best interest. PPPs also create employment and training opportunities for Kuwaitis and bring them financial benefits because, by law, 70% of the workforce utilised in PPP projects has to be local.
They also bring new technology to the country, building know-how and technical capabilities among the local population. In all, PPPs make the system more competitive and deliver infrastructure that is most effective and useful for the country.

Can you walk us through the key aspects of the Umm Al Hayman project?
The Umm Al Hayman Wastewater Project is Kuwait’s first independent wastewater facility built under PPP law No. (116) of 2014 and it is one of the largest facilities of its kind in the world. It will treat sewage from southern Kuwait and extract water that can be used for agriculture and various other sectors, including oil and gas.
The dimensions of the project, which is being carried out by German company WTE Wassertechnik (WTE) as a one-stop solution, are enormous. The Umm Al Hayman Plant will produce 500,000 cubic metres per day of treated sewage effluent (TSE) water and composting material, which will assist local agriculture and address crucial food security issues and also serve as a clean input for industry, specifically the oil and gas sector. It will serve a population equivalent of approximately 1.7 million people.
The treatment plant uses a standard secondary treatment approach followed by cloth filters, UV and chlorine disinfection as well as extensive sludge management elements. The scope of the project also includes a 450-kilometre network of wastewater and TSE pipelines, pumping stations, sub-stations, 39 treated effluent reservoirs and biogas production. It will have a 6-kilometre emergency sea outlet of which almost 2 kilometres are under the seabed.
Around 120,000 wet tonnes of sludge will be processed per day, creating a valuable source of composting material for agricultural use, while the generation of biogas through digestion will create a valuable source of internal energy that can supply approximately 40% of the plant’s overall power requirements.

 

What is your arrangement with the government and where does the project stand now?
The project is divided into a build-operate-transfer (BOT) scheme that includes operations and maintenance (O&M) services for 25 years and a design-build-operate (DBO) portion that includes O&M services of the existing facilities for three years.
The output from the plant is procured by the MPW [Ministry of Public Works] with guaranteed capacity and variable payments to the project company. The DBO is paid by the MPW to the project company based on the progress of the works including the O&M services rendered for the various DBO assets.
At this stage, the plant has been completed and is producing TSE based on the contractual specifications, whereas within the DBO portion, major assets have been completed or are in the commissioning stage. The pumping stations, substations, the wastewater network from Sabah Al Ahmad Sea City and the remaining elements are progressing based on the approvals from the MPW.

What is the ownership structure of the various project elements?
The project company is 40% owned by a private consortium comprising WTE and International Financial Advisors. The remaining 60% is jointly owned by the Kuwait Investment Authority, which holds 10%, and the Kuwait Authority for Partnership Projects (KAPP), which holds 50% on behalf of the Kuwaiti nationals.
The BOT scheme is funded by the project company through 20% equity and 80% international and domestic funding through a consortium of lenders. The DBO Scheme is executed as a typical EPC contract where the work is funded by the MPW based on the progress achieved.
The project company has an umbrella agreement with the MPW that includes both DBO and BOT work schemes. The project company has subcontracted EPC work for the plant and the DBO separately and, similarly, there are two separate O&M service contracts for the plant and the DBO.
O&M services for the plant initiate upon completion for a period of 25 years. The O&M services for existing DBO facilities have already commenced and the remaining will be supplied for a period of three years upon completion of the respective DBO assets.

What opportunities can PPP schemes provide in Kuwait and what are the main challenges to implementing them?
PPP schemes can offer several opportunities for infrastructure development and service delivery in Kuwait. Within the mentioned infrastructure project portfolio, these projects can help meet the growing demands of Kuwait’s population and support economic growth.
Through these projects, the country can boost innovation and efficiency in project design, construction and operations as the private companies often bring advanced technologies and management practices that can improve the quality and cost-effectiveness of infrastructure and services. The risks and benefits are shared whilst also encouraging local procurement and job creation, bringing opportunities for economic development.
The PPP law is still not fully understood and the authorities must do more to build awareness and advocacy among different departments. There needs to be a paradigm shift and a transition from working with typical EPC projects to PPP projects. The public and private sectors have to work together as partners in creating a shared value.
Political and institutional capacity constraints can hinder the successful implementation of PPP projects, so effective coordination between government agencies, transparency in decision-making processes and capacity building within the public sector are crucial for PPPs to succeed.
A way forward would be to create and empower a specific government agency that could make decisions on technical, commercial and legal matters, easing the bottlenecks often faced by such projects and facilitating efficient execution. In this context, I understand that the KAPP is already working on updating the 2014 PPP law to address the challenges that have emerged to date.

What are the biggest benefits the 2014 PPP law has brought, particularly compared to other GCC countries?
Kuwait’s framework addresses the essence of PPP projects. Not only does it increase the scope for Kuwaiti participation, but it also makes projects more transparent, highlighting the benefits of collaboration between the private and public sectors.
In the GCC, the ownership of PPP projects does not change after completion. In Kuwait, when a PPP project is completed, the project company is mandated by law to become listed in the Kuwait Stock Market. The 50% stake in the project company that is held by the KAPP is distributed to Kuwaiti nationals and can be sold in the Kuwait Stock Exchange at its effective fair value.
Once listed, the underlying financial and non-financial information about such projects becomes public so that investors can make informed decisions. Typically, these projects offer a guaranteed rate of return which can reach double digits. It’s like putting your money in a fixed bond for 25 years with healthy dividends expected every year.
The stock market plays a vital role in the economy of any country, and when PPP projects are listed the economy gets a boost. This is one of the best aspects of Kuwait’s PPP framework. It captures, in essence, what I like to call the “people-private partnership.”

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