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14

Persian Gulf Countries Seek Credit For New Infrastructure Projects

The countries of the Persian Gulf are turning to Western banks such as Citigroup and HSBC Holdings and other lenders to finance more than ten billion dollars of projects and acquisitions this year as their traditional source of income, oil revenue, begins to wane after three decades of plentiful supply.

The countries of the Persian Gulf are turning to Western banks such as Citigroup and HSBC Holdings and other lenders to finance more than ten billion dollars of projects and acquisitions this year as their traditional source of income, oil revenue, begins to wane after three decades of plentiful supply.

Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Bahrain and Oman may need as much as $200 billion during the next ten years, says David Moleshead, the director for investment banking at HSBC's Middle East headquarters in Dubai. The region's population growth that is at the three percent per annum level requires that huge investment be placed into new desalination and power plants in order to cope with the surging levels of demand.

?Oil, gas, power and water projects will continue to boost demand for credit,? said Ahmet Bekce, a director at Citigroup, the Gulf's biggest lender and the world's top financial services institution. ?These countries need more power and water in order to raise living standards.?

Oil sales, which bankrolled the Gulf states' ruling families in the 1980s and 1990s, may fall by more than eleven percent during 2002 to $91 billion as crude prices and output decline, according to the Centre for Global Energy Studies, the London based energy think tank. That increases the need for credit as monarchies bring more diversity to their economies.

Saudi Basic Industries, the region's largest petrochemical producer, will borrow $1.1 billion from a group of banks to buy the petrochemical business of DSM, the second biggest Dutch chemical maker. The loan was arranged by JP Morgan Chase in the neighboring Qatar, the government plans to invest about three billion a year for five years into new power projects.

Western banks are vying for business in the area as European companies scale back borrowing
following the economic slowdown. In the past year, Western Europe's loan market shrank by thirty five percent from the previous twelve months, while the Gulf market grew by fourteen percent ? soaking up some of the excess.

Europe, where loans totaled $350 billion in the year ended May 2002, still dwarfed the Gulf, where $7.35 billion in loans were made over the same period.
?The Gulf market promises to keep growing,? said Citigroup's Bekce.

Citigroup was the most active arranger of loans in the region during the last twelve months, according to Bloomberg data, ahead of local lenders Arab Banking and Gulf International Bank. HSBC ranked sixth while Barclays and Royal Bank of Scotland Group were eighth and tenth in the list.

In 2001, the total amount of debt racked up through project finance, including bonds, totaled $8.6 billion, double the figure for the year 2000, according to HSBC's Moleshead.
Saudi Arabia, the largest Arab economy and the world's top oil exporter, will lead the demand for funds during the next few years, according to economists and bankers.

With government debt almost equivalent to gross domestic product, the desert kingdom needs private companies, financed by banks, to help share the cost of meeting the demand for the power, water and telecommunications from a population that is growing at a 3.5% annual rate..

Almost sixty percent of all Saudis are under the age of nineteen, a result of population growth during the post-1970s oil boom. Demand for electricity is increasing more than five percent a year, which will require total investments of a $100 billion by 2025, according to the kingdom's electricity regulator, Fareed Zedan.

CMS Energy, a Michigan based utility, is in talks with the Kingdom of Saudi Arabia to build the country?s first privately run power plant, the latest in a series of ventures in the region by Western companies that began in 1996 when Oman opened its power industry to foreign ownership.
Abu Dhabi, the richest of the seven United Arab Emirates, got a $596 million loan in 1999 from banks led by Barclays to finance the Taweelah A2 power and water plant. CMS has a forty percent stake in the project.

That agreement, the first project finance transaction in the region for an integrated power and water plant, ?set a benchmark for all future arrangements? because of the way it brought together private companies, banks and Gulf governments? said Nick Curtis, who was associate director for power and utilities at Barclays Capital during the 1990s.

Since then, Abu Dhabi and foreign power company partners, like the UK?s International Power, have secured more than $2.3 billion of loans to fund other part private power and water plants in an emirate where demand for electricity has grown an average fourteen percent every year for the past three decades.

More projects are on the way. Vivendi Environnement and Suez, the world's two largest water companies that are both French based, plan to compete for the right to build and run a $450 million water desalination plant in the United Arab Emirates, the nation's first such project to be managed by foreign companies. The winner will likely turn to banks to help finance the project.

Author: Alexander Groom

Source : Neftegaz.ru