Some projects are expected to be delayed or cancelled in the Arabian Gulf this year as banks feel the full effects of the global financial crisis.

The six-year oil boom came to an end during 2008 but has already made project finance a major activity for banks in the region, but the global financial meltdown has triggered project cancellations.

In Bahrain, the $2.2 bn Al Dur power and water project jointly owned by Kuwait’s Gulf Investment Corporation and France’s GDF Suez has been delayed because of tightened international lending criteria.

Shorter term deals are also likely, due partly to the decreasing trend in projects’ capital costs, as commodity prices are falling and as contractors facing stiff competition over fewer projects lower their prices.

It has been estimated that capital costs will come down between 40 and 50% from their peaks last year, prompting sponsors of mega projects to wait for the second half of the year to benefit from lower costs.
Bankers also said project finance in the region needs to attract investors to bond issues and bring in local money if the market is to rebound.
The project finance market in the Gulf region remains dominated by Western banks that cut down on their investments in emerging markets when the credit crisis unfolded.