Riyadh is delaying its Saudi Landbridge project to link the east and west coasts of the kingdom by rail, as speculation mounts that the government will step in to fund the scheme.

Contractors hoping to work on the project tell MEED they are not expecting any substantial progress on the $7bn rail scheme before early 2010.

Rail industry experts in the kingdom say the government may now convert the project, originally proposed as a 50-year build-operate-transfer deal financed through debt, into a state-funded public procurement scheme, which has long been called for by the banks.

“[Landbridge] is going ahead,” one senior official at the Saudi Railways Organisation (SRO), which is running the project, tells MEED. “The question is deciding the best way of procuring it. The decision is still with the Finance Ministry. We are waiting.”

MEED revealed in February that a consortium led by local groups Acwa Power and Saudi Binladin Group was the lowest bidder on the project. The SRO passed the consortium’s bid to the government for final approval, which has yet to be granted.

The government, the SRO and bidding consortiums appear to have stopped talking to each other. Bidders say they have heard nothing from the SRO, while the regulator has had no update from the Finance Ministry. 

Another SRO official says he has “absolutely no idea” when the project will move forward.

Meanwhile, the low bidder has heard nothing from the regulator.

“The SRO does not seem to know,” says one official within the Acwa-Binladin consortium. “We still expect to win the contract, but we do not know when. We have heard talk about [a change to a public procurement model] but nothing has been confirmed.”

The banks have long worried about lending money to a 50-year project and say they have difficulty projecting how much freight will use the completed line. The bankers’ concerns predate the economic downturn, but have intensified as the global recession has moved to Saudi Arabia and credit markets have collapsed.

In April, Riyadh decided to scrap private sector involvement in the proposed Ras al-Zour independent water and power project, choosing instead to appoint a government entity to oversee the development (MEED 17:4:09).

“We have seen what happened  at Ras al-Zour,” says one source involved with several major Saudi infrastructure schemes. “It would make sense for the Landbridge to go the same way. Saudi Arabia does not have the time to wait for credit markets to recover and banks to be comfortable lending on this scale again.”

The Finance Ministry set a precedent for the rail sector when it switched the Haramain high-speed line between Mecca and Medina from a build-operate-transfer project to a public procurement scheme in February 2008.

The Haramain project has made swift progress this year. A Saudi-led consortium, the Al-Rajhi Alliance, won the civil works contract on the $7bn project in March.

In late June, the SRO issued invitations to bid for the second phase of package one, supplying rolling stock and providing operation and maintenance services on the 444-kilometre-long line (MEED 12:6:09).

UK architect Foster & Partners is designing the stations on the line between the holy cities in a joint venture with engineering firm Buro Happold, also of the UK.

This is the second time the Landbridge project has stalled. In March 2008, MEED reported that the SRO would name the consortium led by Acwa Power as the preferred bidder, with Saudi Binladin’s rival group in reserve. However, the project went quiet for the rest of the year.

Eight months later, in December 2008, the government and the SRO decided the economic conditions had changed so radically, that they would retender the project. Acwa Power and Saudi Binladin Group joined forces, merging their consortiums to bid.

Contractors expect the SRO to start the bidding process for the contracts to build the stations by November. “Haramain is the project everyone is concentrating on,” says one official at Egypt’s Orascom Construction Industries, which is also a member of the Acwa-Binladin consortium.

“There is a lot of work to be done to prepare these bids.

“We have been told nothing about the Landbridge.”

All sides stress there is no risk that the government will cancel the Landbridge. Aside from the embarrassment of scrapping such a flagship scheme, the Landbridge is pivotal to the kingdom’s long-term plan for an integrated transport network from the Gulf to the Red Sea coast. When completed, the Landbridge will tie together the Haramain rail project and the North-South minerals railway.

Linking the country’s two largest commercial ports, at Jeddah and Dammam, the railway will transport goods from coast to coast in 24 hours.

Local developer Meraas Development is proposing the scheme, and plans to conduct a feasibility study for the project, which, if it goes ahead, will be built off Jumeirah Beach.

It is not known why the original scheme was abandoned, but the revival of interest in the project poses challenges for both developers and contractors.

“It seems a bit crazy given the current financial climate,” one source close to the project tells MEED. “There are lots of issues, but I think the funding model will be the most challenging aspect.”

Contractors say that although no one has ever built an under-water hotel, it is technically feasible. “There are two ways of doing it,” says one contractor working in Dubai. “The best would be to build a steel structure on the land, drag it out to sea and sink it. The other option would be to build it in situ, but this would be less favourable.”

A spokesman for Meraas Development declined to comment.

The scheme was first proposed by Hydropolis Holdings in 2003 as a $500m hotel, called Hydropolis, off Jumeirah beach.

The 200-300 room hotel was to comprise a land station, a connecting tunnel and an underwater complex. It was to cover a total area of about 100,000 square metres. The opening was scheduled for 2006.

Germany’s Joachim Hauser was the architect. The UK/German Siemens Industrial Building Consultants also worked on the proposals.

Sanaa-headquartered liquefied natural gas (LNG) producer Yemen LNG is seeking help from the country’s armed forces to protect its future exports from pirates in the Gulf of Aden.

Joel Fort, general manager of Yemen LNG, tells MEED the company is holding talks with the Yemeni government about protection for its LNG tankers when they start carrying gas from its export terminal at Balhaf in August.

Piracy is the greatest threat to the company’s $4bn LNG project in Yemen, says Fort, despite other security problems, such as the threat of attacks on its land-based infrastructure.

“We will have an exclusion zone around the tankers,” says Fort, explaining the company’s proposals. “There will be a restricted area patrolled by the Yemeni navy, and our tankers will be escorted by the navy to the corridor that is currently being patrolled by international forces.”

Yemen LNG will produce 6.7 million tonnes a year (t/y) of gas at its plant in Marib, central Yemen, which it will transport to a liquefaction and export terminal at Balhaf in the south of the country, via a 320-kilometre-long pipeline. The company will begin processing gas at Balhaf in mid-July.

Fort says the scale of the export operation means that Yemen LNG’s exposure to piracy will be increased because of the number of smaller boats required to support the LNG tankers.

“We will have a flotilla, and this is what we consider today as our greatest risk,” says Fort. “The Gulf of Aden at the moment is one of the most dangerous areas in the world for navigation, and we will be exporting from Balhaf, with tugboats, service boats, tankers, you name it. We have to be extremely cautious on the maritime side of security.”

Yemen LNG will pay for maritime protection of its LNG exports, says Fort, but he declined to say how much the service might cost.

The Maritime Security Centre for the Horn of Africa established its Internationally Recognised Transit Corridor for shipping through the Gulf of Aden in February 2009, in response to the large number of pirate attacks in the region. The corridor is patrolled by a coalition of inter-national navies.

According to the UN Inter-national Maritime Organisation, pirates in the Gulf of Aden and the waters around Somalia accounted for 60 per cent of all reported pirate attacks that took place worldwide between Jan-uary and April 2009. Pirates staged 69 attacks in the area over that period, compared with 115 attacks worldwide.

In March, pirates in the Gulf of Aden and off the coast of Somalia were responsible for attacks on 33 vessels, out of a total of 38 reported attacks worldwide.

Yemen LNG’s infrastructure costs about $4.2bn, making the project the largest ever undertaken in the country.

It should generate $30-50bn in revenues for the Yemeni government over the next 25 years, equivalent to $1.2-2bn a year, which is about 15-25 per cent of the country’s total revenues for 2008.

Algiers is launching a fresh bidding round for 10 oil and gas exploration licences less than seven months after a disastrous auction that resulted in successful awards on only a quarter of the permits on offer.

On 30 June, Agence Nationale pour la Valorisation des Resssources en Hydrocarbures (Alnaft), which oversees the allocation of oil and gas concessions in Algeria, announced that it had asked prequalified international oil companies (IOCs) to express their interest in the new licensing round.

IOCs must notify Alnaft of their interest in time for a general presentation in Algiers, where the terms of the contracts will be outlined, on 27 July. The concessions cover an area of 68,929 square kilometres in total.

The Algerian authorities will hold an open day on 15 August, when Alnaft will present the bidders with the full documentation for each of the concessions.

Interested IOCs can discuss contract terms with Alnaft during a consultation period running from 2 September to 26 October.

Alnaft expects to issue finalised contracts by 9 November. The agency has set a bid deadline of 20 December and will open the bids in public on the same day. Contracts will be signed in Algiers on 16 January 2010.

International energy majors say the Ahnet concession at Gouara in southwest Algeria, which Algiers removed from the 2008 round because of concerns that it would not receive many bids, is the most attractive acreage on offer. “At first sight, Ahnet really grabs the attention because it looks like it has great reserves,” says Sergey Panfyorov, head of Russian energy giant Gazprom’s Algiers office.

Gazprom was one of the few companies to bid and win a licence during the 2008 round, taking on the El-Assel basin at Berkine in the east of the country.

In the new bid round, Alnaft is offering concessions at Berkine and Illizi, also in the east of the country, Amguid Messaoud in the southeast, and Reganne in the west.

Panfyorov says that Gazprom’s head office team in Moscow is discussing whether it will take part in the new bid round, and that he is hopeful Alnaft will offer more attractive terms than it did in the December 2008 round.

“There have been some signs from the authorities that they will make some modifications to the contracts,” says Panfyorov.

The 2008 auction was Algeria’s first since the introduction of a strict new Hydrocarbons Law in 2006, when oil prices were climbing sharply. Under the Hydrocarbons Law, state energy firm Sonatrach takes a 51 per cent stake in all projects, and IOCs have to pay a windfall tax on oil that sells for more than $30 a barrel.

“People are still wary about having to work with Sonatrach,” says one consultant who worked on the 2008 bid round. “We will have to wait until July to see what happens.”

Sources close to the project tell MEED Abu Dhabi expects the public-private partnership (PPP) deal to be oversubscribed by 15 per cent once all the banks have responded to requests for debt financing.

Bankers say Zayed University will pay about 325 basis points over the London interbank offered rate (Libor). The debt tranche, which will be $900m, will have a tenor of 10 years.

French bank Calyon, which is acting as the financial adviser to Mubadala Development Company, the state-backed investment company that is the project’s sponsor, wants to complete the funding before the end of July.

Abu Dhabi banks including National Bank of Abu Dhabi and First Gulf Bank have committed to lend money, but the majority of the finance will come from international institutions.

“There is a lot of interest in infrastructure projects because of the close government ties of the sponsors,” says one project finance banker in the UAE. 

The Zayed University campus will cover 800,000 square metres and will accommodate 6,000 students. It is the second university PPP transaction in Abu Dhabi, following the $385m financing for Paris-Sorbonne University in December 2008.

Bankers originally thought Abu Dhabi would try to raise the $1bn for Zayed University in 2008.

Energy contractors in Kuwait tell MEED they are finding it increasingly difficult to bid for major projects because state energy firm Kuwait Oil Company (KOC) is forcing them to fund the construction themselves.

Kuwait-based contractors say that since the beginning of 2009, KOC has dropped traditional construction deals in favour of early production facilities contracts, as they do not require the approval of parliament, which is currently in a state of crisis.

Early production facilities contracts were first introduced in 2006 to enable KOC to build temporary production facilities without having to commit to the expense of permanent buildings.

Under such deals, contractors fund the construction of the facilities, and then lease them back to KOC for a five-year period, in a similar manner to build-own-operate contracts. KOC then has the option to extend the lease, buy the facilities or dismantle them.

But contractors tell MEED the funding requirement excludes many firms from bidding. On the two contracts tendered in the first half of 2009, many firms have been forced to abandon their bids.

In late May, KOC had to push back the bid deadline for a $500m oil and gas processing unit at the Jurassic field in North Kuwait from 2 June to 1 September, after potential bidders on the early production facilities contract for the 150,000-barrel-a-day capacity facility requested more time to raise the required funding.

In a bid round on 22 June, only two firms from a shortlist of 18 submitted bids for a similar contract on a gathering and distribution centre, GC 16, in central Kuwait. Saudi Arabia’s Al-Khorayef Commercial Company submitted the lowest price for the contract, with an offer of KD87.6m ($305m), followed by South Korea’s Daelim Corporation.

Senior contracting sources tell MEED that in both instances, the funding element of the contract model had posed problems. 

“Right now, we do not have the financial capability to bid on either project,” says a senior executive at one Kuwait-based firm that is no longer active in the contracting market.

“Cash is king right now. Nobody wants to part with it and these contracts require about KD100m to set up. Even if you have that kind of cash available, you will need to approach the banks for finance, because your money will be tied up for about two and a half years before KOC starts paying out.”

National Bank of Kuwait (NBK), the biggest issuer of contractor bonds in the country, and KOC declined to comment.

The joint venture of the local/Greek Al-Ahmadiah/Aktor has won the contract to build the third phase of the highway, which will link the Hajar mountains with Fujairah city.

Al-Ahmadiah/Aktor’s price is nearly 40 per cent lower than the AED697m bid submitted by the local Nael & Bin Harmal.

The other bidders for the contract were the local/Cypriot National Wheel J&P, and Emirates Road Contracting, Wade Adams Contracting and Al-Rajhi Construction, all local.

The third-phase contract covers the final section of the new highway, which, when completed, will link the emirates of Dubai, Sharjah and Fujairah.

J&P won the contract for the first two phases of the highway’s construction in 2006. These cover the construction of the highway to the west, running from Dubai to Sharjah and into the Hajar mountains, where the third phase of the highway will provide the link to Fujairah on the east coast.

The consultant is the local Al-Turath Consultants with the US’ Wilbur Smith & Associates.

The federal government will also connect Fujairah to the proposed inter-emirates rail network.

The 573.5-kilometre-long first phase of the network will serve Abu Dhabi and parts of Dubai.

The 246km second phase will serve other parts of Dubai and the northern emirates.

Power & Water Utility Company for Jubail & Yanbu (Marafiq) has cancelled its independent water and power project (IWPP) at Yanbu on the kingdom’s Red Sea coast.

Marafiq notified developers considering bidding for the scheme on 27 June that it had taken the decision “for reasons beyond its control”.

The utility advised the firms to stop work on the project, but did not say whether it has any plans to retender Yanbu as an engineering, procurement and construction (EPC) contract.

In mid-June, MEED reported the IWPP had struggled to attract the financing it required and the utility was planning to merge the scheme with an IWPP being developed by the Saline Water Conversion Corporation (SWCC) on the same site.

Marafiq planned to tender the scheme, which would combine the capacities of the two IWPPs, as an EPC contract. The combined project would have had a capacity of 121 million gallons a day of desalinated water and 1,700MW of power. “It is sad and unfortunate,” one source close to the project tells MEED. “It is a serious loss for a lot of people.”

Meanwhile, undeterred by the effects of the financial crisis, on 30 June, Saudi Electricity Company (SEC) issued a request for proposals for its Riyadh PP11 independent power project (IPP), suggesting that not all confidence in private utility projects in the kingdom has evaporated.

The project is SEC’s second IPP, following its project at Rabigh, which is nearing financial close. “We are happy that we have issued this and are close to closing Rabigh,” says Amer al-Swaha, head of SEC’s IPP programme. “We are determined to go ahead with our programme.”

The PP11 project will have a capacity of 1,700-2,000MW of power and will use natural gas feedstock with Arabian Super Light crude as a back-up fuel.

The deadline for bids is 7 December. SEC plans to sign contracts on 31 March 2010 and is targeting financial close at the end of May 2010, with power to come on line on 1 May 2012.

The plant is due to begin commercial operations a year later.

SEC has not requested fully underwritten bids for the scheme. The state-owned utility will allow developers to team up with a maximum of three Saudi banks to bid.

The original bid deadline for the project, which is located north of Jeddah, was 13 July.

The decision to extend the bid submission date follows requests for more time from potential bidders. The plant, which will be oil-fired, will have a capacity of 2,400-2,800MW.

France’s Alstom, the local Arabian Bemco, Doosan Heavy Industries & Construction, Hyundai Heavy Industries, both of South Korea, Japan’s Marubeni Corporation, and Germany’s Siemens are among the potential bidders for the engineering, procurement and construction contract.

SEC retendered the Rabigh 6 contract after receiving only two bids for the work in August 2008. Hyundai Heavy Industries and a team of Arabian Bemco and Hanwha Engineering & Construction, another South Korean contractor, submitted offers.

When bankers confirmed on 29 June that they had raised the $2.1bn in capital needed for Bahrain’s Addur independent water and power project [IWPP], it heralded the first regional project finance deal to close this year.

That the Addur financing is the Middle East & North Africa (Mena) region’s only successful project transaction in the first half of 2009 is evidence of how severely the region’s projects market is suffering in the wake of the crisis that hit the global financial sector in mid-2008.

The crisis took the region by surprise after a period of unprecedented growth. In 2006, the region’s project finance market was valued as the biggest in the world, at $50bn. In 2007, banks provided the market with more than $8bn each quarter, as developers arranged financing for projects worth nearly $60bn.

But in 2008, activity in the project finance market began to stutter, and with the regional impact of the global economic crisis becoming clearer to project financiers in early 2009, the market entered a steep decline.

The region’s largest project finance banks were forced to make huge writedowns on their balance sheets as the value of the assets they were holding plummeted. Bahrain’s Arab Banking Corporation (ABC), for example, made writedowns of $1.3bn in 2007 and 2008, which contributed to its decision, confirmed on 31 October 2008, to withdraw from the project finance market.

In response to these losses, project finance banks have made radical changes to the terms of their lending in a bid to rebuild their balance sheets and reduce the risk they carry. The cost of project lending has soared and the tenor of debt has been shortened.

“Some of the terms banks had agreed to in late 2008 were no longer practical by early 2009 as those deals went out to the wider banking market,” says one banker in Bahrain. “That is why some deals have taken longer than usual to secure financing.”

Before the end of 2008, project debt would typically run beyond 15 years, at prices less than 100 basis points (bps) over the London interbank offered rate (Libor). By contrast, the $2.1bn debt secured by Addur runs for eight years at 350 bps over Libor.

While the cost of debt is challenging the economic case for, and viability of, some projects, the most fundamental change to the project finance market has been the demise of the secondary market for project debt.

Before the credit crunch began, regional banks frequently packaged new debt in off-balance sheet vehicles, which were subsequently sold to investors.

Since early 2008, banks have often refused to underwrite debt because they worry that they can no longer sell the debt on to the secondary market. The credit crunch effectively destroyed the market for packaged debt, a process known as securitisation.

“The slowdown in project finance is all down to the change in the willingness of lenders to provide financing on the terms the market had become used to,” says one Bahrain-based banker. “Banks have had internal problems to address, and these have been different in each institution.”

Because each bank has suffered from a different problem, the market has found it harder to settle on a single debt structure that will appeal to all lenders.

Bankers are experimenting with different terms for debt. While Addur’s debt runs for eight years, the $3.2bn Shuweihat 2 plant in the UAE and the $2.5bn Rabigh plant in Saudi Arabia are both seeking debt that will run over a tenor of 20 years.

Bankers hope to complete Shuweihat 2, Rabigh and the $3bn Dolphin Energy 10-year financing before the end of July, when activity in the region typically begins to slow down.

A source at one Dubai-based international bank describes August and September this year as “dead months” for the project finance market, due to summer holidays and Ramadan. He says if bankers fail to complete deals by the end of July, they may have to wait until September or October to close them.

Most of the deals expected to complete in the second half of this year already have committed financing in place. Bankers are just waiting to finalise the terms of the debt.

Defaults at large family conglomerates in Saudi Arabia make some bankers worry that lenders will lack capital for new loans.

KGL Investment from Kuwait and Bouygues from France led the two consortiums that bid on 30 June to build the new port at Jordan’s southern trade and maritime hub on the Red Sea coast.

Each consortium contains dredging companies and consultants.

The Jordanian authorities will reveal the full line-up of each grouping on 5 July, when they formally open the two bids.

Jordan will then conduct a month-long evaluation of each technical and financial submission.

The Jordanians will select a preferred bidder at the end of July.

The Aqaba Development Corporation prequalified four international consortiums in September 2008. KGL and Bouygues were the only two to submit bids (MEED 23:10:08).

The winning bidder will form a 30-year public-private partnership (PPP) with the Jordanian government to design, build and operate the port, in the city's southern industrial zone.

The site will incorporate a general cargo and roll-on, roll-off terminal, a grain terminal and a ferry terminal.

Meanwhile, the Aqaba Development Corporation will redevelop the old port and surrounding area into a waterfront residential and leisure area.

Last year, the Abu Dhabi consortium Al-Maabar won the $5bn contract to redevelop the old port.

IPDC was originally due to open the bids for the contract on 20 June. It will award the contract in September.

The successful bidder will convert the Uromieh simple-cycle power plant in West Azerbaijan province to a combined-cycle configuration by adding three 150MW steam turbines to the plant’s six existing gas turbines.

This will increase total capacity at the plant to 1,350MW.

Once IPDC has awarded the Uromieh contract, the government plans to issue a separate tender for the conversion of five other simple-cycle plants across the country, adding 12 steam turbines with a total capacity of nearly 2,000MW (MEED 29:5:09).

The parliament has 111 members and 97 attended the session, with 96 voting in favour of the constitution.

The 122 articles of the constitution include a claim to Kirkuk - a disputed city - as part of the Kurdistan region.

The Kurdish authorities will now put the constitution to a public vote at the same time as the parliamentary and presidential elections on 25 July.

According to the Iraqi Electoral Commission, approximately 2.5 million people are registered to vote in the elections.

However, Kurds in disputed areas such as Kirkuk are not allowed to vote.

Under the region’s election law, 11 of the 111 parliamentary seats in Kurdistan are set aside for non-Kurdish minorities: five for Turkmen, five for Christians and one for Armenians.

Women must make up at least 30 per cent of representatives in the Kurdish parliament.

The Dubai-based low-cost carrier has agreed to finance four of its short-haul Boeing 737-800 aircraft through a sale and leaseback arrangement with the US leasing group.

The deal covers two new planes scheduled for delivery to the carrier in July, a third arriving in October and a fourth in December.

The Gecas deal is FlyDubai's first financing from outside the UAE.

FlyDubai launched in early June and flies to five destinations in the Middle East.

It will add three Indian cities to its network from mid-July (MEED 29:6:09).

At the Farnborough Air Show in the UK in 2008, FlyDubai placed a $4bn order for 54 Boeing 737 aircraft.

Since opening up its hydrocarbons sector to foreign investment in late 2003, after more than 20 years of international sanctions, Libya’s National Oil Corporation (NOC) has signed a series of exploration contracts with foreign energy companies.

Dozens of exploration blocks have been awarded over four licensing rounds as Tripoli takes advantage of steadily rising oil prices to initiate a raft of ambitious onshore and offshore drilling programmes.

But despite its promise, Tripoli was forced in May to revise its production targets because of a lack of discoveries and delays to its development programme.

Libya has long clung to the ambitious aim of boosting oil production to 3 million barrels a day (b/d) by 2012, from 1.8 million b/d currently, placing it behind Saudi Arabia and Iran as the third-largest oil producer in the Middle East. But at a meeting of the General People’s Committee on 19 May, NOC admitted that its previous target was well out of reach. It now expects to increase production to 2.3 million b/d by 2013, largely through the development of existing fields.

“NOC realised that target was unrealistic,” says Susan Mance, an analyst at UK energy consultant Wood Mackenzie. “It would have had to start signing off these contract extensions years ago.”

Oil majors working in the country say even the revised target remains ambitious, with many field development plans unlikely to be completed until 2014. A series of enhanced oil recovery and improved oil recovery schemes are expected to double production from Libya’s new development projects from 680,000 b/d to 1.3 million b/d, but not until 2015.

“I look across the fields and the actual stage each is at and I just do not see that level of production coming on soon,” says the Tripoli-based business development manager of one US oil major. “Long term, I think this is the place to be, but there are a number of hurdles to get over before Libya will be up there with the big oil and gas producers.”

In a country renowned for taking its time to finalise deals, the impact of the global economic downturn, coupled with a drawn-out period of renegotiating contracts with dozens of oil majors, has taken the shine off the initial enthusiasm following the lifting of sanctions in September 2003.

The years since the sanctions were lifted have largely been marked by NOC’s determination to extract better terms and a bigger share of the profits for Libya.

Strict terms

The state-run firm has tightened the screws on oil majors over the past two years by scrapping existing contracts and renegotiating them with some of the toughest terms in the sector. 

Ahmed al-Ghaber, chief oil contracts negotiator at NOC, has managed to secure large investment commitments from the oil companies in exchange for extending their production-sharing agreements for long periods.

He has spent the past two years persuading international producers in Libya to accept a lower share of production, while still committing to billions of dollars worth of investment. He faced a hard sell to long-established energy majors, but has been successful in persuading some of the world’s largest oil companies, including Italy’s Eni, the US’ Occidental Petroleum, Austria’s OMV, France’s Total, Spain’s Repsol and PetroCanada, to agree to lower their share of the takings.

The companies have benefited from having the length of their franchises extended by up to 15 years, giving them a better opportunity to capitalise on their existing investment.

“These [renegotiations] have led to very good results, placing Libya among the countries that have new and modern contracts,” said Al-Ghaber in a statement on 15 June.

In the early licensing rounds, contracts were based on an exploration and production-sharing agreement (Epsa) model, known as Epsa IV.

In the first round in January 2005, oil majors were able to retain a 30-40 per cent share of any production from the fields, but by the fourth round in August 2007, this had fallen to less than 20 per cent.

NOC has also sought to rewrite existing contracts with some of its oldest operators in the country under the Epsa IV framework. Eni, which started its Libyan operations in 1964, was the first energy major to sign a renegotiated deal in June 2008, as the oil price neared an all-time high of $147 a barrel. The group, which pumps 300,000 b/d of oil and gas from its Libyan fields, was forced to cut its share of production from most of its key fields by 50 per cent.

Subsequent deals have taken a similar shape. In late June 2008, a consortium of Occidental Petroleum and OMV signed a 30-year framework giving it a reduced production share in exchange for a $5bn investment commitment aimed at lifting output from its four fields to 300,000 b/d from 100,000 b/d.

In May 2009, NOC renegotiated a series of contracts with Total, Germany’s Wintershall and Norway’s StatoilHydro. The companies will now receive just 27 per cent of oil produced from their concessions, compared with 50 per cent originally, with their share of the gas dropping to 40 per cent from 50 per cent.

The oil majors will continue to fund all exploration costs and half of the development costs, with Libya also receiving a one-off lump sum of about $1bn spread over three years.

In 2007, Ahmed Kabesh, a former executive vice-president for BP’s North Africa division, worked on the company’s $2bn exploration deal with NOC. Kabesh, who now works for UK-based energy company Canamens, says while international oil companies will always be reluctant to give up a share of their production, NOC is justified to seek better terms for its next phase of growth. “NOC is renegotiating terms but is also extending the length of the exploration permits,” says Kabesh. “What it is arguing is balancing production-sharing agreements to reflect the international market.”

The country manager of one European oil major says the negotiated stakes are “certainly preferable” to the plan put forward by the General People’s Congress in February to nationalise energy companies’ assets.

Libyan leader Muammar Gaddafi cited the fall in oil prices as one reason for the debate in congress, with others saying tribal groups were putting pressure on the government to take greater control over national resources.

“Getting extended access to these fields is worth it on balance,” says the country manager. “You still have the potential to do very well out of these reserves.”

But, he says, the fall in oil prices over the past year will hit the spending programmes of both NOC and the oil majors.

As part of the Epsa IV contract renegotiations, NOC and the oil companies pledged to split a $46bn investment commitment over a five-to-seven-year period. “It is difficult to gauge how far that commitment has fallen due to the financial crisis, but I think it is safe to say that there has been very little outlay from either side so far,” says the country manager.

Further delays

Mance says there are likely to be further delays in terms of NOC’s difficulty in providing its share of the financing. “Whether NOC will be able to keep up with the level of cash calls required of it as well as signing off on all these development plans is a big question,” she says.

Political risk also remains a issue. Canada’s Verenex Energy accused NOC of obstructing the planned buyout of its assets by China National Petroleum Corporation in a public statement issued on 22 June.

NOC responded by suggesting Verenex was incorrectly qualified for the first Epsa IV bid round in January 2005. Although the saga has some way to run, existing oil majors working in Libya are watching it closely as a sign of NOC’s willingness to compromise.

“Verenex has issued a public challenge to NOC and we are all watching to see its response,” says the country manager. “This is still an unpredictable place to do business. As NOC showed with these new contract terms, you cannot take anything for granted.”

Libya still has perhaps the greatest potential in the region to make the leap into the big league of oil producers. But with tough contract terms and slow progress on sanctioning development plans, Tripoli’s vast potential remains largely unfulfilled.

A consortium led by the UK’s BP won a deal to develop the Rumaila oil field in the south but only after a group led by the US’ ExxonMobil Corporation had earlier rejected the government’s proposed fee.

BP with its consortium partner, China National Petroleum Corporation (CNPC), had to drop its remuneration fee to $2 a barrel of oil from its original bid of $3.99 a barrel in order to secure the deal.

While the ministry received bids for four other fields, it failed to secure deals after international oil companies rejected its tight terms.

For the Bai Hassan oil field in the north, a group led by the US’ ConocoPhillips bid a remuneration fee of $26.70 a barrel compared with the ministry’s maximum of $4 a barrel.

China’s two state-run companies Sinochem Petroleum and China National Offshore Oil Corporation (CNOOC) declined to agree to the ministry’s fee of $2.30 a barrel for the Missan oil field in the south after they bid $21.40 a barrel.

The UK/Dutch Shell Group led a consortium which submitted the sole bid for the Kirkuk oil field in the north but a deal is not thought to have been concluded by the close of proceedings in Baghdad on 30 June.

Four bids were received for the Zubair oil field in the south but it was again unclear if a deal had been made before the deadline imposed by the ministry.

No bids were received for the eastern Mansouria gas field while one bid was received by the US’ Edison International for the western Akkas gas field but a deal was not thought to have been made.

Five bids were tabled by different consortiums for the West Qurna oil field in the south.

The oil licences cover 60 per cent of Iraq's reserves.

The Iraqi government is relying on the licences to produce oil at the six fields to enable it to meet its long-term goal of boosting the state's oil production to 6 million barrels a day (b/d) by 2013, from its current level of 2.4 million b/d (MEED 26:6:09).

Sonatrach started resuming direct control of the companies in 2008.

One of the subsidiaries, state refinery Naftec, was created out of another Sonatrach subsidiary Naftal in 1988.

Naftec operated autonomously and was part of the holding company Groupe Raffinage et Chimie (GRC), or the Refining & Chemicals Group.

Sonatrach has now regained direct control of Naftec.

Sonatrach has also regained control of two industrial zone management companies which oversaw Naftec's operations at Arzew and Skikda: Enterprises de Gestion des Zones Industrielles d’Arzew (Egiza), and Enterprises de Gestion des Zones Industrielles de Skikda (Egzik).

The reintegration process has caused some problems between Sonatrach and Naftec, with Sonatrach delaying bidding on a $1.2bn upgrade of the Skikda refinery earlier in 2009 (MEED 8:5:09).

The agreement covers the Middle East, Africa, the Indian subcontinent and the Commonwealth of Independent States.

Aramex will operate a new sorting hub for express cargo shipments, using the low-cost carrier’s freight facility at Sharjah International airport.

The company will use Air Arabia’s extensive network of short-haul destinations to expand its express freight services.

Air Arabia is adding four new aircraft to its fleet in 2009 and introducing two new destinations – Athens and Goa – to its international network.

The airline reported AED103m ($28m) net profits during the first quarter of 2009, an increase of 32 per cent on the same period in 2008 (MEED 11:5:09).

Oman's Bahwan Engineering Company was the low bidder for the scheme.

The firm submitted six bids, which ranged from RO18.0-19.9m ($47-52m).

Three of the four other bidders also submitted multiple offers.

India’s Larsen & Toubro submitted five bids ranging from RO19.1–20.5m.

France’s Areva offered three prices ranging from RO20.6-22.6m.

South Korea’s Hyundai Engineering & Construction submitted a single bid, pricing the contract at RO21.5m. 
  
Oman's Civil Contracting Company was the highest bidder and submitted five prices. They ranged from RO22.8-24.0m.

The client is Oman Electricity Transmission Company.

The company will manage operations at the Abu Dhabi National Polymers Company (Borouge) petrochemicals complex at Ruwais.

Gulftainer will provide bagging and packaging services as well as the maintenance of vehicles and equipment at the site.

Borouge awarded the contract in preparation for the second-phase expansion of the company’s production capacity at Ruwais, which will result in production increasing from 580,000 tonnes a year (t/y) of polyethylene (PE) to 1.2 million t/y and the addition of 400,000 t/y of propylene production from 2010.

Borouge is also building container hubs in Singapore, Shanghai and Guanghzou, and will rely on Gulftainer’s experience in supply chain management to ensure these new projects run smoothly, according to Abdulaziaz Al-Hajri, chief executive officer of Borouge (MEED 24:5:09).

Moody’s downgraded Dubai Holding Commercial Operations Group, part of Dubai Holding, to A3 from A2.

The agency also put the rating on review for further downgrade. Moody’s also placed the Baa1 rating of Emaar Properties on negative outlook.

S&P has downgraded DP World and Jebel Ali Free Zone Authority (Jafza) to BBB+ from A with a negative outlook, and Dubai Multi-Commodities Centre Authority (DMCCA) to BB+ from A-.

Emaar and Dubai Holding Commercial Operations Group are also on negative outlook until the agency reviews the impact of their potential merger.

Farouk Soussa, credit analyst at S&P, says the review is the result of a “greater consideration of these companies' standalone credit profile” in the light of the economic downturn.

Emirates NBD has issued a fixed-rate Tier 1 debt security to ICD, at a rate of 6.45 per cent for the first five years, after which it transfers to a floating rate.

The deal will increase Emirates NBD’s Tier 1 capital ratio, the ratio of a bank's equity to its total assets, to more than 11 per cent.

At the end of 2008, the bank had a Tier 1 capital ratio of 9.4 per cent.

The move was driven by the Central Bank of the UAE’s request that all banks which have received government deposits increase their Tier 1 capital ratios to 11 per cent from 10 per cent by the end of June.

ICD owns 56.6 per cent of Emirates NBD.

A total of 18 banks, including international and regional lenders, are in the final banking group that is providing $1.7bn debt to the project.

The loans are priced at 250 basis points above the London interbank offered rate (Libor) during the first two-and-a-half years while the plant is being built, rising to 300 basis points above Libor after a further two-and-a-half years, then 350 basis points for the final three years.

Banks involved in the deal include Germany’s Bayern LB, Jordan’s Arab Bank, the UK’s HSBC and France’s Societe Generale.

France’s Calyon, the UK’s Standard Chartered and the UAE’s Mashreqbank arranged the financing.

The project is co-sponsored by Belgium's Suez Energy and Kuwait's Gulf Investment Corporation (MEED 18:2:09).

The infrastructure works involve the construction of a major utilities tunnel running through the development and general infrastructure, such as roads and drainage.

Al-Rayadah is planning other infrastructure packages.

France's Systra is preparing designs for a monorail system.

The real estate developer has appointed US-based Stanley Consultants to design and prepare tenders for a district cooling system (MEED 5:6:09).

The financial district will have a series of landmark towers, the tallest of which will be marginally higher than Riyadh’s 302-metre-high Kingdom Tower, which is currently the tallest building in the country.

Once complete, the landmark towers will house the Saudi Stock Exchange (Tadawul); the Capital Markets Authority, which regulates the bourse; and other local financial institutions such as investment bank Samba, Alinma Bank, Al-Rajhi Bank and the Public Investment Fund (PIF).

The Hong Kong office of Shankland Cox prepared the infrastructure masterplan, which was reviewed by US-based Aecom.

Denmark's Henning Larson Architects with the local Omrania prepared the concept masterplan while US-based Hill International is the project manager.

Al-Rayadah is the investment arm of the Public Pension Agency.

KEO, a Kuwaiti firm, will carry out masterplanning, landscape design, infrastructure design, marketing, promotion and validation, feasibility studies, traffic and environmental impact assessments, design reviews, and cost-related services.

Al-Maabar’s Jordanian subsidiary, Al-Maabar Jordan Real Estate Development Company, will build the real estate development (MEED 26:2:09).

The site covers 3.2 square kilometres and, once redeveloped, will have high-rise residential towers, shops, recreational and entertainment facilities, and hotels.

Al-Maabar will build the development in phases as it acquires ownership of the land.

The first phase of construction work will start in 2010 and the final phase should start in 2013, once the Jordanians build a new port to the south.

Al-Maabar is a joint venture between Abu Dhabi-based companies Mubadala, Aldar Properties, Sorouh Real Estate, Reem Investments, Reem International and Al-Qudra Holdings.

MEED revealed on 19 June that Aramco had invited 29 prequalified international contractors to bid for the six largest engineering, procurement and construction (EPC) packages on Yanbu (MEED 19:6:09).

In November 2008, Aramco froze bidding on the planned Yanbu refinery due to the economic downturn.

The joint venture originally approved funding for the project in May 2008.

On 30 June, the joint venture confirmed that it had issued an invitation to bid for the early work and major packages to prequalified local and international contractors.

The major packages include a coker unit, crude facility, gasoline unit, hydrocracker, tank farm, offsite pipelines, high-voltage electrical packages and other infrastructure packages.

The venture expects to award the EPC deals for these packages by November 2009.

Bids for the remaining packages are due in the first quarter of 2010, with awards in the second quarter of 2010.

The refinery should begin operations in the third quarter of 2014.