We are fast approaching the first anniversary of Kuwait's public private partnership programme for the implementation of a prodigious infrastructure development plan spanning power stations, ports, railways, labour cities, a revamped international airport and numerous hospitals. According to the Partnerships Technical Bureau in Kuwait City, 13 PPP projects have so far been launched – of which nine are at feasibility stage and four have entered the procurement process.
The Bureau prescribes that for all contracts worth in excess of KWD250 million ($905.8 million), and for those between KWD60 million and KWD250 million, absent special circumstances, the project vehicle or special-purpose vehicle must be a publicly-quoted joint stock company in which Kuwait private shareholders will secure (through IPO) 50% of the shares, the Kuwait government 10% and the bidding investor(s) the balance of 40%.
In exchange for this loss of customary control, the investor will have an enhanced concession period of 30 (and in some cases 40) years. In rare cases there may also be a state-backed guarantee to secure a minimum income yield off the completed project. The investor may be able to make this stack up, but what about the view of its banks?
In conventional project finance, the lenders will commonly be familiar with all participants in the special-purpose vehicle and indeed will draw comfort from their presence as the providers of project equity. In this case, the lenders' true borrower will be a minority shareholder with control technically vested in the hands of a fluctuating body of strangers in a corporate governance environment that has remained largely unchanged for 50 years.
In addition to this, security for the lenders' advances will be confined to pledges of project contracts and assignments of insurance and income streams: security over the project site, structures and equipment is not available under the PPP law. The Kuwait government's historic policy of protecting the commercial interest of the Kuwaiti people and its restriction of foreign ownership rights in Kuwaiti assets is consistently applied therefore in the structure of its PPP programme. It remains to be seen what effect this consistency will have on the achievement of financial closure in the programme's projects.
Anthony J Coleby
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