Kuwait Finance House (KFH) Bahrain, a subsidiary of Kuwait's first Islamic bank, said on Sunday the project is a first for the region and is aimed at meeting Bahrain's increasing demands for power and potable water.
The project is expected to be completed in the first quarter of 2008, according to the company.
A feasibility study has been carried out in conjunction with an international consortium comprising General Electric (GE) Energy, Weir International and Stone and Webster.
"The project will be financed through a combination of equity and debt of $400 million and $900 million respectively" after obtaining the required licences, the company said.
When completed, the facility will be capable of providing a total power capacity of 1000 megawatts per hour and 136 million litres of water a day.
It will produce six key petrochemical products, including 167,000 metric tonnes of Liquefied Petroleum Gas (LPG).
The project will also support Bahrain's "broader economic goals of achieving greater diversification of the economy and downstream development through the expansion of the petrochemicals sector and the creation of numerous opportunities", the statement said.
Kuwait Finance House has become one of the largest banks in the region with total assets reaching $8.5 billion. KFH Bahrain was established in October 2002.