Transport development plans strengthen Kuwait as a trade centre

Driven by measured government-backed investments, despite the downward pressure from oil prices, the Kuwait transportation sector continued to grow in 2016-17. Improving connectivity regionally and globally – via air, land and sea links – is viewed as a state priority and a promising mechanism to drive non-oil economic growth.

In support of government objectives, such as enhancing local and regional integration, boosting trade volume and creating new job opportunities, several major infrastructure projects are under way in the country, including the expansion of Kuwait International Airport (KWI) and the construction of the Sheikh Jaber Al Ahmad Al Sabah Causeway. These fall under the KD34.15bn ($117.7bn) Kuwait Development Plan (KDP) 2015-20 framework, which aims to push through major economic reforms, implement a pipeline of bold projects to empower the private sector, and establish Kuwait as a regional trade and financial centre by 2035.

Several huge projects that have experienced delays in the past, including the Kuwait National Rail Road (KNRR) and the Kuwait Metropolitan Rapid Transit (KMRT) system, are showing signs of planning progress. Furthermore, work is well under way on other projects, including major overhauls of road infrastructure and the first phase of development at Mubarak Al Kabeer Port, which will be one of the largest container ports in the Gulf region when complete. Ultimately, these investments will reshape the transport and logistics sectors in Kuwait and position it as a regional transport centre with excellent logistics infrastructure.

Road Infrastructure

Kuwait is in the process of developing a network of new roads and highways to resolve congestion issues, enhance traffic capacity, and improve access to universities, hospitals and other main government buildings. These projects are generally tendered, implemented, supervised and paid for by the Ministry of Public Works (MPW), in close collaboration with the Ministry of Interior Traffic Department, the Public Authority for Housing Affairs and Kuwait Municipality, which holds the master plan for growth and development in the city.

Major expressway construction projects under way in the country include the Jamal Abdul Nasser Road Project, the Jahra Road Development Project and the Sheikh Jaber Al Ahmad Al Sabah Causeway, which is one of the largest infrastructure projects under development in the GCC region.

Both the KD242.42m ($801.9m) Jamal Abdul Nasser Street Project and the KD264.76m ($875.9m) Jahra Road Development Project aim to transform and upgrade existing streets that run through the downtown area of Kuwait City. The roads had been unable to adequately accommodate traffic and have been under major renovation since 2010, intended to transform them into motorways with a series of complex bridges and elevated highways.

Both projects are now nearing completion. The Jamal Abdul Nasser Road Project was 78% finished in September 2016 with all planned renovation works – including causeways and turning points – on schedule for completion in 2017, according to the Road Engineering Affairs Sector at the MPW.

Large-Scale Road Scheme

Work on the Jahra Road Development Project, one of the world’s largest elevated road schemes, began in September 2010. The project is located in the western region of Kuwait City and extends from the Jahra Gate to the United Nations Roundabout.

In its original state, the road had been one of the core transport routes running through the heart of the city. To ease the flow of heavy traffic and cut down on congestion in the area, the renovation will increase the number of traffic lanes from the existing two to 12, creating a two-level grand unified motorway that separates local service traffic from through traffic. A 4-km section of the new road was opened by the MPW in February 2016.

Sheikh Jaber Causeway

The KD738.75m ($2.4bn) Sheikh Jaber Al Ahmad Al Sabah Causeway, links Kuwait City from Shuwaikh Port to the Al Sabiyah new town area across Kuwait Bay.

The causeway is made up of two discrete elements: the Main Link, which is a 27-km marine bridge structure that spans across Kuwait Bay between the capital and the Al Sabiyah area and Doha Link, which crosses the south of Kuwait Bay linking Shuwaikh Port with the Doha motorway.

Roughly 71% of the Al Sabiyah link had been completed by early January 2017, along with 51% of the Doha link. Construction is reported by the MPW to be proceeding according to the pre-set timeframe, with a scheduled opening in November 2018.

The highway is poised to be one of the world’s largest sea bridges, facilitating the planned development of the Madinat Al Hareer (Silk City) urban area in Al Sabiyah. It will reduce the journey to the capital from 104 km to 36 km, and from 90 to 30 minutes, according to the MPW.

The causeway also supports commercial traffic and a growing transportation network by connecting to Al Sabiyah highway, which leads to the Mubarak Al Kabeer Port development.

The MPW is the owner of the project, with South Korea’s Hyundai Engineering and Construction and Kuwait’s Combined Group as the main contractors.

Public Transportation

Kuwait first began promoting public transportation in September 1962 with the establishment of Kuwait Public Transportation Company (KPTC). Today the KPTC national line is one of three licensed public bus services operating in the country, along with private company Citybus, launched by Kuwait-based Boodai Corporation in 2002, and Kuwait and Gulf Link Transport, an operator that came on-line in 2005-06.

Public transportation in Kuwait is not regulated by the government. The three bus companies conduct their own route planning, operating where there is higher demand for ridership, and employ no common or specific standardisation of bus types beyond the obligation to meet GCC standards. The limited focus of the country’s three operators on areas of higher ridership demand is among the most significant problems with the public transport network.

“You need coverage in areas of the country where returns are poor,” Abdulla Naser, executive director for transport affairs at KPTC, told OBG. “We try to cover as much of Kuwait as we can in terms of operations, but there is always a push to concentrate on areas with higher demand and higher ridership to generate a higher return. We have updated studies to cover the whole country with networks of buses, but it is currently too costly to implement. Projected revenues would not cover the expenditure. This is a problem for public transportation in the country.”

Only an estimated 5-6% of the population uses public transport. In 2015 the three operators in the country sold approximately 90m tickets between them, down from roughly 100m the year before and 127m in 1989, when KPTC was the only operator in the country and the population of Kuwait was roughly half what it is today.

The decrease in ridership over time is the result of various factors. Both cars and petrol in Kuwait remain very affordable, and the country has among the world’s highest per capita vehicle ownership rates. In addition, bus is often perceived as an overcrowded mode of transport that only services certain higher-volume routes.

Fleet size and age also varies widely between Kuwait’s three licensed operators, as do fleet renewal strategies. Citybus has recently introduced approximately 50 Chinese-made buses with Euro 3 engines, and KGL is on the verge of introducing roughly three times that number. National line KPTC operates 460 Daewoo and Mercedes buses that range in age between five and 10 years old. With a fleet lifespan of seven years, the company has developed a preliminary strategy for the procurement of new vehicles and automated operating systems. By early 2017 KPTC had submitted a budget review and was awaiting direction on fleet renewal from the company’s co-owner, the Kuwait Investment Authority, the country’s sovereign wealth fund. Procurement is unlikely to move forward before 2018.

Challenges in launching a procurement programme at the national bus line include internal financing issues, and uncertainty over the yet-to-be-developed operating requirements of the recently established Transport Authority.

Currently in the process of developing a governance structure and appointing an executive board, the Public Authority for Roads Transportation (PART) is expected to provide increased clarity in the sector over time. Germany-based management consultancy Roland Berger is assisting with development of the authority’s strategic plan, and no major regulatory developments are anticipated before 2018.

Once operational, PART will function as an independent authority similar to the Civil Aviation Authority and the Port Authority, providing regulatory oversight over land transportation, including: public and private licensing; inspection; registration; and the future construction of highways, roads, the metro and the railway.

Rapid Transit System

To address the growing congestion on the country’s roads, Kuwait is in early-stage planning for development of the KMRT. At a preliminary estimated cost of KD2.1bn ($6.9bn), the 160 km-long, 68-station KMRT development is intended to support an integrated rapid transit network and increase public transport mobility in the metropolitan area of Kuwait City.

The project is scheduled to be developed across four infrastructure packages and a systems and rolling stock contract, all of which will be structured as private-public partnerships (PPPs).

Plans for a metro were first announced in 2006. The Supreme Council for Planning and Development conducted a prequalification for the project in 2010 and expressions of interest were invited in 2012, but the project was subsequently put on hold. New advisers for the planned Kuwait City Metro were appointed in 2016, and a feasibility study prepared by international consultants has since been approved by the state’s relevant bodies.

In late December 2016 PART disclosed that initial studies regarding the metro project had been concluded and noted that a tender for consulting firms to oversee the evaluation of technical offers would be issued in the first quarter of 2017. Senior sources have suggested that the project is likely to be delayed beyond the projected 2018 start date, which would likely slow progress on the National Rail Road connection to the GCC network as a result.

KNRR

The KNRR network is among the country’s key infrastructure development initiatives, intended to link KWI, seaports and other GCC countries with 511 km of two-way tracks.

The vision for the network consists of a north-south line and an east-west line. The first phase will be the north-south route from Al Nuwaisib on the Saudi border to the freight depot, with a branch to a passenger station at Kuwait City, where interchange will eventually be provided with the metro’s Red Line. The north-south line would subsequently be extended to the Iraqi border.

Government objectives for the project include enhancing Kuwait’s regional integration, boosting trade volume and creating new job opportunities.

“We know it’s going to happen. We know we need to provide another means of transportation,” Talal Al Othman, assistant undersecretary and head of minister’s consultants office at the MPW, told OBG. “The optimistic plan is to link railroad tracks as far north as Basra. If we can link these, that means we have an alternative to trucking everything to Iraq, and also to Saudi Arabia and Oman.”

The KD3bn ($10bn) project will be executed in build-operate-transfer agreements with the private sector, alongside the Kuwait Authority for Partnership Projects (KAPP), formerly the Partnership Technical Bureau, acting as government lead on service procurement. The six packages will ultimately compromise: design; construction; funding and major maintenance of all infrastructure; a routes and railway system; terminals in Kuwait; and operating the cargo train company.

Progress Report

The long-distance railway system was originally scheduled for completion in 2018 but, like other major projects in Kuwait, has experienced delays. The one section of the railway that has been approved and was under way in early 2017 is the Mubarak Al Kabeer Port track.

Since late 2016, KAPP has been busy contracting technical, legal and financial project advisors for the project, and in March 2017 extended the previously announced deadline of the first quarter of 2017, to receive further expressions of interest from companies wishing to take part in the KNRR. A tender for public bidding is currently scheduled for the second half of 2017, with requests for quotations planned in the third quarter and requests for proposals in the fourth quarter. The tender is reportedly being issued to show Kuwait’s commitment to the broader GCC rail project, designed to link all of the Gulf states via a 2100-km rail network.

Future progress on the national project is closely connected to progress on this international initiative, which in turn is likely to depend on the ability of each state to meet investment goals in an environment of lower oil revenues.

At a meeting of GCC transport ministers in 2016, the original 2018 launch date for the Gulf rail initiative was pushed back three years to 2021.

KWI Expansion Programme

To alleviate growing congestion at Kuwait’s main airport and support the goals outlined in the KDP 2015-20, the government is carrying out a comprehensive expansion strategy aimed at both increasing passenger capacity and receiving larger airplanes at KWI.

Expediting development of the airport is necessary to address overcapacity issues tied to rising passenger and airline traffic. Official statistics show that total passenger traffic at KWI reached 10.8m in 2016, up from 4.8m in 2004 and well above total capacity of 7m, according to the Kuwait Central Statistical Bureau. Scheduled aircraft movements over the same period rose from 37,166 to 96,000.

A major driver for the growth in traffic has been the Directorate General of Civil Aviation’s (DGCA’s) Open Skies policy, introduced in 2006 and aimed at liberalising the bilateral arrangements governing air traffic operations with other countries. The policy is in support of government development strategies for Kuwait, and has prompted several new and existing passenger and cargo carriers to increase flights to and from the country.

The centrepiece of the planned expansion at KWI is a KD1.3bn ($4.2bn), 708,000-sq-metre passenger terminal that, when complete, will make KWI one of the largest airports in the world.

Terminal 2 has a trefoil design plan, comprising three symmetrical wings of departure gates designed to accommodate all types of aircraft, while increasing the total number of gates at the airport to 51 from the current 21. Terminal 2 will boost annual passenger capacity from 7m in 2016 to 25m upon completion, with room to expand capacity to 50m passengers and 6m tonnes of cargo per year.

Plans to increase the airport’s capacity were first drawn up in 2010, with designs for the project unveiled in October 2011. Political gridlock postponed progress before Limak Group of Turkey and its Kuwaiti agent partner, Kharafi National, were awarded the contract in 2016.

Under the terms of the contract, Limak was given six years to complete the project, with an additional two-year maintenance contract. This timeline was shortened in early 2017, with Abdulrahman Al Mutawa, the minister of public works, confirming a four-year schedule to completion.

Work on the passenger terminal is reportedly progressing as scheduled since construction began in December 2016. The project is managed by the MPW, in cooperation with the DGCA.

Jazeera Terminal

In addition to the Terminal 2 development, a second 55,000-sq-metre Support Terminal is being built at KWI and is projected to increase capacity by 5m passengers per year. The terminal, a joint Turkish-Kuwaiti KD52.89m ($173.2m) project, will add 14 gates for departing planes and 10 gates for arrivals, and is expected to be operational in the first quarter of 2018, according to the DGCA. Kuwait-based Gulf Consult will manage operations on behalf of the DGCA alongside the main contractor and subcontractors pursuant to the terms of the build and operate contract.

The smallest terminal under development in the KWI expansion plan is being built by low-cost Kuwaiti airline Jazeera Airways. The carrier’s plans to build a terminal and ease congestion at KWI were put on hold in 2014, and only in July 2016 did the Kuwait Council of Ministers grant approval for the land needed to build a dedicated terminal as well as parking lots at KWI. The terminal will be built at a cost of KD14m ($46.3m) and contribute capacity of around 2m passengers per year for Jazeera Airways.

Kuwait Airways Expansion

Kuwait’s national carrier, Kuwait Airways, is among the oldest airlines in the Gulf region, and the airline is currently in the early stages of a five-year transformation strategy, which was launched in September 2016. From a service perspective, the carrier’s strategy is focused on increasing flight frequency and adding routes to the airline’s network, which expanded to 36 destinations in 2016, with 26.1% more passengers handled year-on-year. In addition, the airline has turned all but one of its routes into direct, non-stop flights in an effort to reduce flight and connection times for its passengers. In support of the new developments at KWI, Kuwait Airways will play a lead operating role in Terminal 2, carrying a significant percentage of the passengers travelling through the airport. This figure stood at 32% in 2016, up substantially from 11% the previous year.

The national carrier has expanded its fleet and by April 2017 had taken delivery of six out of 10 extended-range Boeing 777-300ER aircraft on order. All 10 new planes are due to be in service by the end of the third quarter of 2017, initially serving existing long-haul destinations such as London, New York, Paris and Bangkok. The aircraft are the first of 35 planes on order that the national carrier believes will make its commercial fleet the youngest in the world by 2021. Other new additions include 10 Airbus A350s and 15 Airbus A320neos, scheduled to begin delivery in 2019.

Maritime Segment

Kuwait has two modern commercial ports at Shuwaikh and Shuaiba, which handle the bulk of its merchandise cargo traffic. A third port for small ships is situated near Shuaiba at Ras Isheirej, and three industrial ports at Mina Ahmadi, Mina Abdullah and Mina Al Zour handle oil industry exports near the country’s refineries.

Kuwait’s secondary commercial port at Shuaiba is located 45 km south of Kuwait City and made up of 20 commercial and container berths, as well as a crude oil export pier operated by Kuwait National Petroleum Company. The Shuaiba container terminal is already considered one of the more modern container terminals in the Gulf, and the Supreme Council for Planning and Development was reported in 2017 to have recently tendered a project for very early design stage consultants for a new development and extension programme planned at the port.

The most significant recent activity in Kuwaiti maritime transportation has been the delayed launch of a new $16bn container port project at Mubarak Al Kabeer. The port is located on the east coast of uninhabited Boubyan Island and offers road links to Kuwait, Iraq and Saudi Arabia. Upon completion, Kuwaiti authorities envision that the port will serve as the primary container port and main entrance gateway to the northern Gulf region and hinterland countries.

A contract for the design and construction of the first phase was awarded in 2010 to South Korean contractor Hyundai Engineering & Construction, but progress was significantly delayed by sovereignty disputes with neighbouring Arab countries. Work is now well under way, with the first phase expected to deliver four container berths at a combined capacity of 1.8m twenty-foot equivalent units (TEUs), as well as a small boat harbour for the accommodation of pilot boats, tugs and other small craft. On completion of the third and final stage, the port is expected to comprise 18 operational container berths with a combined capacity of 3.6m TEUs per year.

Road and rail bridges providing access across Al Sabiyah Creek, which separates Boubyan Island from the Kuwaiti mainland, have been completed, and preliminary work is under way on construction of a railway track to eventually connect the port to the KNRR and the proposed railway.

Shuwaikh is currently the country’s main commercial port, and was designated in June 2016 to serve as a launch pad for the implementation of GCC Customs Union procedures. Congestion and delays at the port in the past have resulted in operational constraints and higher costs for affected carriers.

“As ship sizes increase to meet growing demand, while bringing costs down at the same time, infrastructure must be expanded to keep pace,” Bader Al Khashti, managing director of Kuwait Oil Tanker Company, told OBG. “This has driven the expansions of ports and shipping lanes globally, with the Suez Canal expansion being a significant improvement in terms of speed of transit, though the depth remains an issue for the largest ships when at full capacity.”

Logistics

The importance of foreign trade to Kuwait’s economy, and the opportunity to capitalise on the country’s central location in the Gulf, make the logistics sector a strategic priority in Kuwait’s latest master plan, which seeks to develop the country into a regional transport centre with excellent multi-modal logistics infrastructure.

Logistics services in the country are expected to benefit from the major infrastructure projects initiated as part of the KDP. These key projects include port upgrades, the new Mubarak Al Kabeer Port development, airport infrastructure upgrades and planned developments on the new national railway.

The growing population of the country, and increasing import and export volumes, underscore the need for investment in warehousing services in particular. Private sector logistics service providers control a considerable part of the supply of inland warehousing space in Kuwait, and reported continued strain on limited facilities in 2016. Government efforts to increase the supply of new warehousing facilities are expected to gradually expand capacity, while leaving sizeable market space in warehousing and warehousing related value-added services for local and international investors.

For logistics service companies operating in Kuwait, the country is well positioned but lags behind regional logistics hubs like Dubai, where system and process development is focused on improving quality of service and transitioning legacy systems to e-services. By contrast, originals and hardcopies are still required for many Customs transactions in Kuwait.

Outlook

Recent developments on delayed transportation infrastructure projects in Kuwait are promising. Though the country has been forced to prioritise certain projects in light of lower oil prices, important development programmes are making progress to alleviate congestion issues on the capital’s roads and at KWI.

The economic downturn has also provided an opportunity for the government to rationalise regulation and increase private sector engagement through the PPP programme and privatisation laws.

Though more remains to be done around foreign ownership and regulation, particularly in regard to land transportation, the government has shown every indication of following through with pledged commitments to the country’s strategic transport infrastructure. The impact of cost containment imperatives will be reflected in increased opportunities in other projects for private sector participation.