Is Qatar’s projects potential exaggerated?

There has been much understandable excitement and attention on the Qatar projects market since it won the right last December to host the 2022 FIFA World Cup.

In a region which badly needs a boost following the collapse of the Dubai real estate sector, the prospect of a $100bn-plus projects extravaganza has rightfully turned the attention of almost every contractor to the Qatari peninsula.

On the face of it, Qatar offers a once-in-a-generation opportunity as it races to have the right infrastructure in place for the event when 500,000 football fans from around the world converge on the state. A total of 12 stadiums will need to be either built or expanded and tens of thousands of new hotel rooms will be required to accommodate spectators, officials and players alike.

The directly associated football infrastructure is just the start of it. Doha is planning one of the most ambitious transport investment programmes ever undertaken to ensure a world-class rail and road system will be in place in time for the competition. This includes an estimated $35bn, seamlessly integrated, high-speed rail, metro and light rapid transport system and the planned Bahrain-Qatar causeway that will link the two nations for the first time. Ashghal is preparing a $20bn-plus roads programme that involves the complete modernisation and expansion of the existing roads and expressway network.

Transport, stadiums and hotels aside, there will be a host of projects in other sectors. As Qatar’s population grows, so too will demand for power, water and wastewater services, and a number of new power, desalination and sewage treatment plants are to be expected over the coming decade. Population and economic growth will similarly result in extra impetus of social infrastructure. Doha is prioritising education and healthcare development, with dozens of new schools, university faculties, clinics and hospitals planned or under development.

Real estate will also not be neglected. Although the demand/supply dynamics have reversed dramatically since the Dubai real estate crash, the government is determined to push ahead with its landmark real estate schemes such as Lusail and the various projects sponsored by Barwa. One of the expectations is that a construction boom will be self-fulfilling in that the thousands of professionals that will come to Qatar to work on other sectors will themselves create the additional demand that the real estate sector requires, much like that which occurred in Dubai prior to 2008.

On the industrial side, Qatar’s plentiful gas reserves should result in the second-phase of the Qatalum aluminium smelter and a new world-scale petrochemical complex being built over the next five years, while the emphasis on downstream value-added industries should likewise result in the development new moulding and extrusion complexes.

Just as enticing is the prospect of the government lifting its moratorium on further development of the North Field, the largest discovered non-associated gas reservoir on the planet. If this happens, we can expect some major offshore and onshore oil and gas activity that could match the projects heights last seen in the period 2002-2006 when Qatar was one of the major hydrocarbon project hubs.

All told, as is stands today there is theoretically easily more $100bn worth of projects to be developed in Qatar over the next decade. This of course does not include projects not yet announced or conceptualised that can only add to this figure.

It is in expectation of this that almost every major international and regional contractor has flocked to Qatar to ensure the right resources are in place for the inevitable projects boom. Given the slowdown in activity in Abu Dhabi and the difficulty in winning work in Saudi Arabia, it is no surprise that the state is now seen as the number one target among many firms active in the regional projects market today.

But does Qatar run the risk of not being able to live up to this expectation? At this stage, it is far from clear that it can as its projects market has not yet shown signs of taking off. In the first two quarters of 2011, the value of contracts awarded in Qatar was $6.9bn, more than $2bn or almost 30 per cent lower than the $9bn awarded in the same period in 2010, according to the MEED Projects database.

Although the amount of work will invariably have to increase in line with announced plans, it is unlikely to take the form of a sudden and immediate explosion in project activity that some people seem to be expecting.

Perhaps the best indication of when the market is expected to pick up was given by the government in April when it released an update on its national strategy. The update, which covered the period up to 2016, painted a rather different picture than the one most are hoping for. In it were two telling statements:

• “Based on current spending plans, public infrastructure spending will peak in 2012. This trajectory reflects existing plans for the launch of megaprojects,” and;
• “Though some World Cup related investment projects may be commissioned in the 2011-2015 period the likely impact is modest – a sizeable pipeline of projects is already in place.”

The government appears to be providing a cautionary message to the market; basically do not expect much soon.

The state’s position is supported by the fact that the World Cup Committee which is responsible for laying out and overseeing Qatar’s World Cup infrastructure plans has yet to announce its strategy and timeframes for project development. 

It should also be borne in mind that, with the exception of the hotels and stadium investments, nearly all projects planned today were on the drawing board prior to December last year. Winning the right to host the World Cup has not so far fundamentally altered the future project pipeline, although it may have an impact on speeding up the project implementation process.

Just as important is the increase in competition. Earlier this year on a normal road tender, Ashghal received a staggering 42 bids! Qatar’s potential is no big secret and almost every contractor out there is looking to get its foot in the door. This includes highly competitive Indian, Chinese and Southeast Asian firms. In an environment where the lowest price generally wins the day, winnable opportunities may be thin on the ground.

On the opposite end of the scale, there is the very real risk that the largest contracts will go to only a handful of firms as the authorities look to cut down on tendering times and pass on construction risk to others. There is a precedent on this with Qatar’s massive LNG programme which was effectively handled by just half a dozen main contractors.

We must not also forget the influence of the local contracting community. Already concerned by the large number of international contractors and vendors converging on the state, local firms have made it clear that expect a significant piece of the pie. These are concerns the government are unlikely to ignore.

Perhaps the best indicator of all for measuring the potential Qatar’s future projects market is the past. At its peak in 2006 at the height of the LNG programme, the value of contracts hit $30bn, while the annual average for the past three years is less than half that. Given the geographical, logistical, bureaucratic and technical challenges of its future projects programme, the logical assumption is that $30bn of projects a year is the maximum the state can handle, and even that is probably not sustainable for more than a 12-month period. To put that in perspective, that is much less than half than the UAE projects market at its peak in 2009, and almost half as large as the Saudi projects market today. And that is discounting the fact that there are more construction-related companies active in the region today than there were five years ago.

Qatar is undoubtedly going to be a more active projects hub than it has been over the last four years, but it may not provide the number of winnable opportunities that many are expecting, especially in the short term. Those coming expecting a quick reward are those likely to leave the most disappointed.