Finance Ministry Studies Renewing Contracts for Expired BOT Projects Until Handover to Winning Bidder

- The new rent assessment is based on the project’s budget measurements over the last three years.

- The list includes 23 projects, some of which have completed their contracts and others nearing completion, across commercial, real estate, and market sectors.

- Three years is the expected period for temporary contracting, based on the experience of East Market and Al-Muthanna.

- Contracting includes retaining management, operation, and maintenance responsibilities with the investor.

- The initiative provides a procedural solution for the state and the investor, with legal approval via a “fatwa.”

- Activating private sector partnerships reduces reliance on rapid appointment of managers.

- Maintaining open cash flow lines for the public treasury and improving fixed rent values for over two decades.

As part of the economic and financial reform program and the optimal utilization of state assets to boost revenues, the Ministry of Finance is considering implementing a new contracting mechanism with investors to manage, operate, and maintain projects established on state land under “BOT” (Build-Operate-Transfer) contracts whose terms have expired.

According to the proposed mechanism, investors with expired projects will be allowed to renew their contracts until the completion of the bidding process and the handover to the winning investor, as planned. This will involve additional rental values, the accounting structure of which will be determined based on fair estimates that reflect the nature of the existing project rather than the land allocation price.

The Ministry’s initiative, whose new format has reached advanced stages of implementation, aims to maintain the commercial operational status of approximately 23 expired “BOT” projects, some of which are nearing completion under their original investors. This will be achieved by signing new contracts with these investors at new rental rates, in exchange for allowing them to manage, operate, and maintain these projects. The new contracting mechanism is likely to be launched from a commercial complex.

The Ministry’s initiative aims to preserve the financial and investment viability of major projects by enhancing their competitive attractiveness to investors interested in injecting investment liquidity into operational sectors. Additionally, it seeks to maintain the operational, tourism, commercial, and financial identity of these projects until their handover to the winning investor. This is particularly important as these projects include tenants and investors contracted with the original investors. Furthermore, most of these projects represent tourist and commercial destinations, amplifying the importance of the Ministry’s decision to maintain their operation until further notice.

The list of projects eligible for temporary contracting with their investors includes commercial complexes and real estate. In principle, temporarily renewing their contracts will increase the rental returns derived from these fixed-income contracts for the public treasury for over two decades. This preparation period takes approximately three years, based on the experience of East Market and Al-Muthanna Complex, from their withdrawal. This period is used to invite specialized local, regional, and international consulting offices and alliances to submit technical and financial proposals for consulting services, including preparing feasibility studies and tender documents for these projects, ensuring viability, transparency, and governance of the tender process for all stakeholders.

In practice, there are more than one accounting scenario in this regard. However, the most acceptable and justified approach for Ministry officials is to determine the rental value in temporary contracts based on the financial statements of the projects over the last three years. This means the investor must provide an income statement from approved accounting auditors for their project over the last three years. Based on the accounting analysis of the submitted figures, the expected increase will be estimated to average between 20% and 30%.

A Kuwait Finance Ministry official explained that there are significant accounting and investment differences between the value assigned to a project when it is allocated as land and its current rental income as an established, revenue-generating asset, which by law and practice belongs to the state. Even if the original investor continues to manage and operate the project temporarily after the contract expires, the proposal offers a legal and procedural solution for both the state and the investor, having obtained approval from the Fatwa and Legislation Department for its implementation in accordance with the law.

The Finance Ministry’s temporary re-contracting with investors of expired projects falls under a broader operational strategy led by the ministry, aiming to enhance the efficiency of state projects built on state-owned lands and their returns, aligning with its policies for economic and financial flexibility, while simultaneously strengthening the competitive position of these projects when re-offered in public tenders.

Practically, the temporary renewal of contracts with investors of expired projects ensures their continued management and operation until handover to the new investor. Additionally, this mechanism boosts non-oil fixed revenues for approximately two decades, keeps rental cash flows for developmental projects open for longer, and prevents interruptions during the preparation period for public tenders.

This measure is further reinforced by the fact that expired or expiring state-owned land contracts include commercial and real estate complexes and central markets located in areas with high consumer, tourist, commercial, and residential demand. By approving a temporary contracting mechanism, the Finance Ministry has successfully established a sustainable operational framework for all state-owned land projects upon expiration, whether current or future, by activating value-added partnerships with private sector companies instead of relying on rapid assignment to project managers.

Developmentally, this measure serves as a cornerstone for strengthening public-private partnerships to achieve sustainable development, in line with the state’s plans to activate all drivers and targets of “Kuwait Vision 2035.”

As a result of this anticipated implementation, the Finance Ministry expects the public treasury to collect substantial amounts from the continued revenues of these projects during the preparation period for their re-offering, considering that all of them were developed on state-owned lands over the past two decades, making uninterrupted investment in them increasingly important.

According to previous statements by officials from the Public-Private Partnership Projects Authority earlier this year, a general tender was launched for preparing consultancy studies for re-offering 23 projects located on state-owned real estate, in cooperation with the Ministry of Finance, in accordance with the provisions of the Partnership Law and the procedures of Public Tenders Law No. 49 of 2016 and its executive regulations.

It was noted that the list of projects with expired or expiring contracts spans several sectors.