Cost of Rebuilding Kuwait Is Put at $500 Billion : Reconstruction: The figure is 10 times higher than previous estimates. The news boosted the stocks of construction firms expected to benefit.
With damage to private property and infrastructure in Kuwait far worse than first anticipated--the result of Iraq’s “scorched earth” policy--the total cost of rebuilding the war-torn nation could climb to half a trillion dollars, the governor of Kuwait’s central bank said in an interview published Wednesday.
The estimate by Sheik Salem Al Sabah in the French newspaper Le Monde, which was 10 to 12 times higher than previous estimates, helped ignite a rally in the stocks of U.S. and European companies expected to benefit from the Kuwaiti reconstruction effort:
* Fluor Corp., the Irvine-based engineering giant whose stock has been strong in recent weeks, tacked on an additional $4.625 to close at $52.625.
* Caterpillar Inc., the world’s largest maker of construction and earth moving equipment, added $3.25 to close at $53.50.
* And CSX, which won a contract to coordinate transportation needs for Kuwait’s relief efforts, climbed $2.625 to $38.
“Clearly, the extent of the damage in Kuwait--the mining of the oil fields, the destruction of hotels and other public buildings--wasn’t anticipated,” said David Snow, an analyst with Derby Securities in New York. “This is shaping up as one of the most massive construction projects of all time.”
Japanese engineering and construction companies, normally ferocious competitors for Middle East construction jobs, watched unhappily from the sidelines as the Kuwaitis began to make good on their pledge to award most of the contracts to firms from nation that sent troops to liberate Kuwait.
“If we just go for reconstruction after having not sent soldiers, it will give a bad reputation to our company and Japan,” said a spokesman for Chiyida Corp., a plant engineering firm. “Even if we do, Middle East countries will not take us seriously.”
In the Le Monde interview, Al Sabah said that with about 650 oil wells in Kuwait on fire, he didn’t expect Kuwaiti oil production to resume for nine months.
And with its oil revenues cut off, Kuwait will turn to international credit markets to finance its reconstruction expenditures, the sheik said.
In an effort to calm jittery markets, he and other Kuwaiti officials said the nation would not sell off Kuwait’s extensive stock holdings.
“We will not liquidate any core investments,” Kuwaiti Finance Minister Sheik Ali al Khalifa al Sabah told the British Broadcasting Corp. “We will not throw millions and millions of stocks onto the market. We are responsible investors.”
The Kuwaitis aren’t alone in their newly found status as borrowers. Saudi Arabia, which once paid cash for all its imports, is also seeking credit as a result of expenses associated with the war.
“Kuwait and Saudi Arabia used to be cash payers,” noted A. Drury Davis, vice president for political risks at insurance brokerage Marsh & McLennan Cos. “Now, they are asking their suppliers for 360-day open credits.”
With political instability expected to continue in the region, firms doing business in those countries are seeking insurance to guarantee payments by their host countries. “The premiums are pretty stiff, not so much because of the risk as because of the high level of demand,” Davis said.
To insure payment for a project in Saudi Arabia, a supplier might have to pay premiums of as much as 3% of the amount insured, up from 1.2% before the war.
“There is a lot of jockeying for position,” Davis said. “We are getting inquiries from construction, oil, communications, waste removal, air conditioning, engineering firms--you name it,” he added.
Already, Kuwait has ordered computers from IBM, mobile phones from Motorola Inc. and generators from Caterpillar. American Telephone & Telegraph has also moved a portable satellite earth station to Kuwait to re-establish telephone links to the emirate.
Initial service will come over just 120 lines that will be installed at a site in Kuwait city selected by the Kuwaiti Ministry of Communications.
AT&T; said it is negotiating with Kuwaiti officials for a contract to restore the country’s telecommunications network, which was knocked out during the Iraqi invasion. Other telecommunications companies are also believed to be holding similar negotiations.
However, one of Wednesday’s biggest gainers on the stock market insisted that it has yet to be awarded any contracts by Kuwait.
“We have been in contact with the Kuwaitis for months, (but have won) no contracts,” said Fluor spokesman Rick Maslin.
And there were indications that Wall Street’s enthusiasm may have become overheated. “There is a lot of potential in Kuwait, and we are interested in that potential,” said Caterpillar spokesman Keith Butterfield. “But as of now, it is mostly potential.”
“Even if the Middle East were to result in some increased business, based on what we know now, we just don’t see it offsetting the negative impact from the ongoing recessions in several industrialized countries,” he added.