In conversation with Kapil Kumra

In what manner do you think sustainable financing policies will impact infrastructure projects in Kuwait?

The banks in Kuwait are aligned with Kuwait’s commitment to be carbon neutral by 2060 and have formulated sustainable financing policies. Many banks have regionally and internationally signed up to be part of the net-zero alliance. This is expected to provide better and more competitive financing for sustainable infrastructure projects. Many of the planned renewable power and wastewater infrastructure projects in Kuwait can expect larger liquidity of funds available from the local, regional, and/or international banks at competitive terms.

Is there a gap in the availability of capital and investible projects in Kuwait? If yes,  what is leading to this gap and what challenges do you foresee in bridging it?

Kuwait Vision 2035 envisages large investment in the nation’s economic infrastructure via the construction of new airports, ports, roads, industrial areas, residential developments, hospitals, a railroad, and a metro rail. Infrastructure investments have been largely financed by the government. It is increasingly being acknowledged that alternative sources of financing and private sector involvement are needed to fill the gap in infrastructure development.

Kuwait Vision 2035 aims to increase private sector participation in Kuwait’s economy by creating a more investor-friendly environment.

Public-private partnership (PPP) is emerging as the preferred path for bringing in private investors to fund major projects and, perhaps as importantly, bringing in private sector expertise and efficiency to the table. Making greater use of the PPP model in infrastructure delivery will help in reducing public financing pressures while also promoting development.

In PPPs, private parties are largely responsible for the design, construction, operation and maintenance of an infrastructure asset, implying that they are assuming bulk of the development, finance, construction

and market risks associated with the project. The government has established a clear regulatory framework for implementing PPP projects, the laws and regulations established high levels of transparency and certainty throughout the PPP process — both key to the success of a PPP program. The new PPP law creates a greater degree of certainty, reliability and flexibility for foreign contractors, investors and lenders that participate in PPP projects in Kuwait.

The Kuwait Authority for Partnership Projects (KAPP) serves as the main body responsible for PPP projects’ implementation. KAPP aims to utilize private sector skills and expertise to maximize value for money and service quality. KAPP is currently in the process of initiating several high-impact projects in the power, water/wastewater and communications sectors.

Most projects are financed using a combination of equity and debt on a limited recourse or non- recourse basis. Banks will remain important financiers, particularly in the early stages of new projects. However, boosting infrastructure financing will require broadening of the potential group of investors and a broader mix of financial instruments.

Pension funds, insurance companies and other long-term institutional investors have very large and growing long-term liabilities and need long- term assets in their portfolio, very little of which is allocated to infrastructure. Alternative financing, in the form of infrastructure investment funds and bonds, can also help in tapping into some of the vast resources for international capital markets.

Rising climate awareness, strong environmental policies and regulations, and the demand for green and infrastructure projects in the region will likely support the development of the green finance market. This will likely comprise a diverse combination of conventional green bonds and green sukuk, which could lower the cost of capital and help provide massive amounts of funding for projects in the pipeline.

How do you expect global recessionary trends to play out in terms of financing considerations for local infrastructure projects in Kuwait?

On the positive side, Kuwait has an ambitious pipeline of development plan projects that would probably need implementing regardless of the state of the world economy. Power, water, waste treatment, housing, transportation and even the oil sector come to mind.

While the government does indeed hope to secure private financing and investment from both local and international actors, its plans are unlikely to be derailed by the absence of private financing were that to happen. And yes, while the government’s purse strings could be tighter if international oil prices lower perhaps due to a global recession ultimately, many of the projects are fairly essential and will need to be undertaken in due course anyway. Of course, if the global economy is weak, then investor appetite and ultimately financing flows would be expected to be somewhat subdued; but with the right incentives,

local investors and banks could step in as well, and even be backed by the government guarantees. Kuwait’s credit rating is a solid A+/AA- (S&P/Fitch), and with ample fiscal/external reserves and extremely low public debt, the sovereign is investment grade.

Ultimately, in terms of financing considerations, financiers and investors will probably put a greater weight on local rather than international conditions when assessing the suitability and returns on infrastructure projects — the business environment, regulations, incentives and, importantly, the capacity of the government and political system to approve, facilitate, accelerate and deliver on projects on time.

Note: The comments are personal views and not that of National Bank of Kuwait SAKP.