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KUWAIT, May 1 (Reuters) - A "Silk City" rising from Kuwait's northern sandy plains will help diversify the Gulf Arab state's economy away from oil, draw foreign investment and galvanise trade links with Iraq, Iran and China - or at least that's the plan.
When the eldest son of Kuwait's ruler presented an outline of the project to lawmakers in March, he faced stiff resistance. MPs criticised draft legislation that appeared to place the proposed zone beyond parliamentary oversight and raised concerns alcohol could be allowed in the Muslim country.
"It was a creation of a state within the state. It is the most dangerous law I have ever seen," MP Safa al-Hashem told reporters after Sheikh Nasser Sabah al-Ahmad al-Sabah met her and other members of a parliamentary committee.
Nasser's plan for an economic free zone and deep sea port, to be built in phases over 25 years, is meant to prevent Kuwait from falling further behind its neighbours which have opened up to foreign investment and are vying to be regional business hubs.
But unlike its Gulf Arab peers, Kuwait has a powerful elected assembly whose members have pushed back against unpopular measures such as welfare cuts and a new sales tax designed to improve the country's finances.
"There is increasing resistance toward reforms," Kuwait's central bank governor, Mohammad al-Hashel, told a banking roundtable in March. "It is a case of a sick body that is not willing to take the medicine. But without addressing our structural imbalances, we can't make much progress."
Silk City's proponents say the project is central to diversifying revenue away from oil exports, which account for around 90 percent of state income, and developing the private sector to help reduce spending on salaries and subsidises, which eat up around 70 percent of the budget.
The project encompasses five islands and a northern territory linked to the capital by the $2.3 billion Sheikh Jaber Al Ahmed causeway that is set to open on Wednesday.
In addition to a free zone and port, it envisions an airport, an Olympic stadium, a tower taller than Dubai's Burj Khalifa, currently the world's highest, and housing for up to 700,000 people.
The project aims to create at least 200,000 jobs, according to comments by Nasser reported in local media last year, vital in a country where more than half the Kuwaiti population is under 25 and an overstaffed public sector cannot keep absorbing new entrants to the labour market.
LIGHT ON DETAIL
Plans for an economic zone in Kuwait's sparsely-populated north have been knocking around since the 1970s.
Nasser's attempts to revive the idea have given it greater prominence because the 71-year old deputy premier and defence minister is seen as a possible contender to replace his 89-year old father as ruler after the crown prince, according to diplomats and two sources close to the ruling family.
They declined to be named because of the topic's sensitivity.
The government also wants to fortify Kuwait's defences against swings on commodity markets as well as enhancing its regional security by partnering with China to build the zone.
Per capita, Kuwait is one of the richest countries in the world due to its small population and large crude reserves. But it experienced its first budget deficit in nearly 20 years in 2016 due to a falling oil price. In the meantime, similarly oil-dependent neighbours including Saudi Arabia, Bahrain and the UAE have taken greater strides to diversify.
The Silk City plan is light on detail, particularly on who will fund it.
When the project was presented in state media in July 2018 its estimated cost was put at $86 billion but officials have not given a break down for this figure.
When asked about the funding in March, the secretary-general of the state planning council, Khaled Mahdi, told reporters the financial model was "still under discussion" but that the bulk would come from the private sector, without giving any details.
Kuwaiti authorities did not respond to a request for comment.
Adding to the questions swirling around the plan, Nasser dismissed the board of trustees responsible for running the project last week, a decree published in Kuwait's official gazette said on Sunday, without giving a reason. A new board was not named.
A HARD SELL
Nasser's plan bets on Iraq's recovery from years of war and on Iran eventually emerging from U.S. sanctions, a longer-term view which has attracted China's interest as part of its own so-called 'Belt and Road Initiative' to rebuild the old Silk Roads tying China to Asia, Europe and beyond.
A Kuwaiti source familiar with the plan said China could manage the port for a fee and share management of the economic zone.
Kuwaiti state media reported this week that a Kuwaiti envoy, on behalf of Nasser, signed a memorandum of understanding with China's Development Bank on "development, construction and consultative cooperation" at a Belt and Road summit in Beijing.
A Chinese foreign ministry statement said the agreement referred to Silk City and the Five Islands development, but gave no details.
A foreign ministry spokesman said Kuwait was an "important cooperation partner" in Beijing's Belt and Road initiative.
A draft law, published in a main Kuwaiti newspaper, al-Qabas, called for the zone to have administrative, legal and financial independence in a model similar to the Dubai International Financial Centre, which offers tax exemptions and its own judicial system.
MPs fear this will place the zone beyond their scrutiny. Lawmakers often question ministers, leading to cabinet reshuffles or parliament dissolutions to avoid no-confidence votes, including against royals holding ministerial posts.
"It will be a very hard sell," said Kristin Diwan, senior resident scholar at the Arab Gulf States Institute in Washington.
"Right now the project has a bit of everything, it's like a Dubai in miniature."
Some MPs have cautioned against emulating "new" cities like Dubai, the Gulf's freewheeling business and tourism hub, and bypassing a constitution where Islamic law is the main source of legislation.
"In its nature and identity, Kuwait is Arab, Islamic and predominantly conservative," Islamist MP Mohammed al-Dallal said. "There must be no irresponsible openness." (Additional reporting by Ghaida Ghantous in Dubai, Ben Blanchard and Shu Zhang in Singapore. Editing by Carmel Crimmins)