Where are the construction contracts in Kuwait?

Where are the construction contracts in Kuwait? – includes related article on U.S. trade show in Kuwait

Where are the Construction Contracts in Kuwait?

Summary

The U.S. Commercial Post in Kuwait reports that the construction industry accounts for more inquiries and visitors than any other sector. The companies that have visited the country find that the anticipated $100 billion estimate for reconstruction has been pared down to a more realistic 25 to 35 billion dollars. Major rebuilding projects are estimated to be only $5 billion over the course of the next 5 years, chiefly because buildings and infrastructure are in relatively better shape than expected. The Kuwaiti Government has not focused on a scope of work for these projects. Reconstruction of petroleum production facilities offers the largest potential for U.S. suppliers with identified projects valued at $1.5 billion. Most of the required work in the public sector will be renovating existing facilities. The private sector will require refurbishing and cosmetic work. Many U.S. firms, particularly smaller or new-to-market, might find it advantageous to initiate joint ventures with Kuwaiti firms.

American construction firms of all sizes and specialties are asking how they can be involved in the reconstruction of Kuwaiti. To best answer this question, a company must focus on what are Kuwait’s immediate short-term needs and what are the long-term needs. Companies should also examine governmental infrastructure requirements versus the infrastructure requirements of the private sector.

The level of war damage and the correlated business opportunities are not nearly as large originally anticipated. The coalition forces did not destroy Kuwait to save it. The estimated $50-100 billion reconstruction effort will not materialize. The current estimate has been pared down to $25-35 billion, a more realistic assessment. There are several billion dollars in reconstruction required, but not the huge bonanza mentioned by the newspapers. The majority of the reconstruction spending will not be by the public sector, but by the private sector – individual businesses and homeowners.

Petroleum Facilities

Bechtel is the prime contractor for the Kuwait Petroleum Company (KPC) supporting the fire fighting teams. Contracts will be sub-contracted through Bechtel or direct from KPC. It is also prime contractor for the KPC’s production recovery program. Bectel’ much of the work is collateral was damage or Iraqi vandalism to wellheads and control systems. Some light structural work is needed for storage tanks and pumping stations. The estimated work is projected to be $1.5 billion over the next two years.

In addition there will be major repair work at KPC’s refineries and export facilities. The current speculation is that KPC will break this work into individual projects to be awarded later this summer.

Water Supply

Only relatively minor repairs are required for specific line breaks. The majority of the system is operational. There is no current plan to repair or replace the destroyed desalination/power plant at Shuwaikh port, because of an anticipated reduction in the general population. The work needed is in the area of operations and maintenance and is estimated to be $105 million over the next three years.

Electricity

Before the war, the Kuwait electrical system was considered to be very modern. It had an interlocking computer-controlled grid with multiple redundant circuits to permit automatic switching and avoid loss of service when problems occurred. The six oil-fired electrical generating plants had a total capacity of 7,320 megawatts (MW) of power and co-located desalination plants had a capacity of 166 million gallons of water per day (MGD). Total on-line capacity at any one time was 5,000 MW, which was more than adequate to meet a record peak demand of 4,500 MW. The remainder of the physical plant consisted of a control center at Jabria, through which all power was routed and distributed using approximately 4,000 transformer sub-stations and 3,000 miles of above and below ground high voltage transmission lines. Fuel was provided to the power plants through pipelines leading from the oil refineries.

Damage assessments of the power plants, control center and transmission lines have been completed. Assessment of the sub-stations are under way. The extensive steps required to restart the two doha plants, including testing and developing plans for by passing damaged portions of the equipment, are still on-going. Repair of the transmission lines to restore basic service is progress. Fuel supply systems have been sufficiently repaired to allow limited generation of electricity. The Kuwait government has not focused on a long-term renovation program. This will probably be decided next fall. The estimate range from US dollars 1-2 billion over a five year period. The extent of future work is dependent on how much capacity they determine they will need for the projected population.

Sanitation

The system was re-activated April 30, 1991. Lifting stations are serviceable. Repairs will be limited to those specific problems as may develop. Most of the work involves maintenance and repair of existing systems.

Roads

A survey of the road and highway system is complete. Less than 10 bridges will have to be replaced. Asphalt replacement/repair of the motorway near the Saudi/Kuwaite border is underway. Minor repairs of cluster bomb pockmarks on motorways can be accomplished in-house. In general, little work is needed except for maintenance.

Airports

New construction and major repairs to existing terminal support and hanger buildings is required. Terminals need repair/replacement and this activity has already begun. The cargo building needs major repair. The airport became operational April 30, 1991 for limited regularly scheduled commercial flights. This represents a good business opportunity. Most of the requirements will be for equipment and system upgrades. Estimated value is $700 million. Before the war the government was considering before the war the building of a new airport. It is not known to what extent the government might rejuvenate this idea.

Public School Buildings and Colleges

A survey is underway. Prior to September over 400 school buildings need to be cleaned and minor repairs accomplished, e.g. replace light fixtures, replace plumbing fixtures, general cleaning and painting. Another school requirement is for equipment and furniture, with the values estimated at $50 million. Kuwait University repair and refurbishment is estimate at $15 million. It is expected that the vocational schools also will be opening in September.

Hotels

The Kuwait International is in full operation but requires some interior redecorating. The Sheraton Hotel is standing but totally gutted, with major repairs required. The Meridien Hotel is partly damaged on its first two floors, but is operating on a limited basis. It needs major refurbishment and repair, especially the entire lobby and mezzanine which was destroyed by fire. The Holiday Inn and Plaza Hotel both require minor repairs. The Airport Hotel was totally gutted. It needs major repairs if it is determined to be structurally sound. The Khiran Beach Resort requires minor clean up and repairs. The SAS Hotel main building was destroyed by fire. The SAS Villas are operational.

Housing

Neither the Government of Kuwait nor the private sector have plans to expand the housing stock. There is currently a large inventory of vacant housing, because many of the former residents have not returned. Although there was widespread theft and vandalism by the invaders, most of the buildings were left in repairable condition.

The prefabricated housing market appears to be very soft. During the “Direct from the USA” trade show in June, one participant who was exhibiting prefab houses commented that it was very difficult to interest serious Kuwaiti agents. In addition, the ministries of housing, interior, public works, and planning have been inudated with unsolicited proposals for prefab housing. The most likely market for prefab housing would appear to be contracting companies setting up base camps.

Beachfront Property

The whole Kuwait beachfront was fortified and mined by the Iraqis. Removal of the mines and unexploded ordinance is on-going. The majority of homes were at least trashed, or in many laughable cases “fortified”, if they did not sustain outright structural damage. There is an excellent opportunity for firms to make contract with individual homeowners and businesses for repairs to homes, boat launches and marinas, and commercial stores. Additionally, there is a huge need for new furniture, window dressings, and other home and business furnishings. Only top-of-the-line items should be offered to discriminating Kuwaiti buyers. Much of these costs may be recoverable by the Kuwaitis from insurers.

Industrial Facilities

The majority of facilities require minor repairs and significant cleaning and debris removal efforts. A few facilities have been totally gutted by theft and vandalism on a case-by-case basis. Much of these costs may also be recovered from insurers because of the nature of the damage rather than the result of war.

Ports

The construction-related activities available in the commercial ports of Kuwait can be divided into two areas – marine salvage and facility reconstruction. Marine salvage in the Port of Shuaiba is limited to two known vessels of relatively small size, neither of which hampers the operation of the port. In the Port of Shuwaikh there are a number of submerged objects, one of which is an offshore supply vessel in the 100-128 foot range. In addition, there is a cement ship aground which requires removal. Both ports are free of mines and ordinance.

The general condition of the quays, breakwaters, and bulkheads of both ports are generally good. There is significant restoration work to be done at Shuwaikh to make it operational. Some of the wharf stand-off structures have been heavily damaged as well as a number of buildings. Many of the buildings at both ports, some admittedly non-essential, have been degraded due either to Iraqi vandalism or combat collateral damage. Most of the off loading equipment in both ports requires repair and in some cases replacement. Current estimate of work is approximately $61 million.

Other Observations

The following observations come from various knowledgeable local sources:

In general there is a greater need for repairs to buildings and infrastructure installations than for new construction. For example, there are about 600 substations in the electrical grid, only 6 of which were completely destroyed. Most required repairs which are in-progress. The total electrical output was about 7500 MGW before the war, but the post-war goal in 3500 MGW. The difference is understandable because the pre-war population was about 1.7 million, projected to reach 2 million by 2000. Today there are about 400,000 people in the country and the government plans to restrict the population to 1-1.2 million. It is expected that it will take the rest of the year for the population to return and the population inflows should not strain power outputs. The same analysis can be applied to the water distribution system.

The first assessment of an American representative of a major construction company was that there did not appear to be a need for numerous and massive reconstruction projects. The need was observed for interior and renovation work as something to be handled by small to medium sized construction companies. This work seems to also be within the scope of many smaller Kuwaiti contracting companies. Some Kuwaiti architectural and engineering firms are sophisticated enough to have foreign offices. It was recently learned that the Kuwait International Hotel will be completely renovated starting June 10, 1991 for the GCC (Gulf Cooperation Council) meeting on December 2, 1991. This is the hotel the U.S. Department of Commerce used for the June 3-9 trade show. A Kuwaiti firm, KEO has won the contract design and manage the project. It is conceivable that Kuwaiti firms could do a large share of this kind of work.

Also noted is that a number of large Saudi Arabian owned architectural, engineering, and contracting firms are using old family and trading ties, as well as their participation in the war effort to penetrate the market. The Saudi home market seems slow and they are moving aggressively in Kuwait. Language and cultural ties are important. Some American firms which have developed Saudi corporate linkages are using their Saudi contracts to participate in the market. U.S. commercial officers have seen at least two examples of U.S. firms being sponsored by their Saudi partners to achieve entry into Kuwait.

There may be some big projects announced in 1992, after the new Kuwaiti ministers are in place and possibly after elections. These are not new project ideas but ones that were developed in the Kuwait long-term plan before the invasion.

Prior to the war there was a shortage of about 35,000 housing units for bona fide Kuwaiti citizens. At one time the Government considered building a planned city at Subyia near Bubiyan Island. This would push population growth to the West and North. If this city were to be built, a spectacular bridge may be required across the bay.

Kuwait University is old and inadequate. Renovating or replacing it could be a billion dollar project. It is interesting to note that the government is focusing on repairing the vocational schools first. To date, there has not been much said about the university.

Lastly, there is definitely a need for an industrial waste site. As damage assessment progresses, more and more hazardous materials are being discovered, including PCB’s. There is also a big requirement for maintenance and repair firms. This cost of this work is estimated at $45 million.

COPYRIGHT 1991 U.S. Department of Commerce

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