Aqaba drives Jordan construction

04 May 2015

Financing from international investors is likely to keep flowing for essential and under-construction projects, but larger schemes have already run into trouble

At first glance, Jordan has a healthy pipeline of $23.5bn-worth of transport and real estate projects planned. But political and funding issues mean questions remain over how much of that will progress to contract awards and development.

Project funding relies heavily on foreign capital, whether from international developers or development banks. Political sensitivities may mean some projects, such as the planned nuclear plant or the interregional rail project, may never get off the ground.

The ongoing violence in neighbouring Syria and Iraq is also affecting Jordan, but Amman is leveraging its political position so that it receives development funds and project investment from regional neighbours, particularly from Gulf countries. “It is rare to see international commercial lenders on project finance transactions in Jordan,” says Marc Norman, a project finance lawyer at US-based Chadbourne & Parke. “Project finance comes mainly from local lenders such as Arab Bank, and consortiums of banks under facilities arranged by IFIs [international financial institutions]. Commercial lenders seldom take direct debt positions due to perceived risk.”

Port progress

The southern port of Aqaba is witnessing a building boom, with developments centred around the Aqaba New Port. Aqaba Development Company (ADC) is negotiating funding from the European Bank for Reconstruction & Development for phase 2 of the port, and recently invited expressions of interest for construction work, as second-phase development was brought forward.

The expansion will add two 250-metre berths, bringing capacity to 2.2 million 20-foot equivalent units (TEUs). Existing capacity is 1.5 million TEUs, with a quay length of 1,000m.

In February 2015, a consortium of Spain’s Tecnicas Reunidas and PHB signed a contract worth e130m ($142m) to re-qualify and expand the industrial pier at the port. The work includes the design, financing, construction, operation and management of the port on a build-operate-transfer basis for 30 years. The expansion will enable Jordan to import and export phosphate and fertiliser products.

The port redevelopment also includes building receiving terminals for liquefied natural gas and liquefied petroleum gas, which will be completed this year.

The port expansions form a central part of the Aqaba masterplan and will include a third phase when needed. The port is intended to meet local demand, but will also provide a route for shipments to Iraq and Saudi Arabia, making Jordan a logistics hub for the region. However, regional unrest is jeopardising these plans.

Business district

Further afield, the first phase of the 384,000-square-metre (sq m), $5bn Abdali development, a new mixed-used central business district in the capital Amman, was officially opened in mid-2014, although construction work on several sections is still under way.

Abdali Investment & Development is a joint venture of Jordan’s state-owned developer Mawared, Lebanon’s Horizon International for Development and the Kuwait Projects Company (Kipco). The 30,000-sq-m second phase, mainly comprising residential units, is on hold until investors can be found.

Jordan Development Zones (JDZ), meanwhile, has prepared masterplans for the redevelopment of the Dead Sea shoreline. Phase 1 covers 40 square kilometres (sq km) and the organisation has invited interest from potential investors. JDZ also tendered an infrastructure construction project in September 2014.

The offer has been taken up by Egyptian Amer Group, which signed a $1bn deal in 2013 for the Porto Dead Sea development. Civil works on the first phase got under way in early 2015. Amer Group signed a JD50m ($70.6m) contract in March with the local Habash-Deir Contracting for the construction of a 120-room five-star hotel, 440 residential units and 82 retail units, covering 67,000 sq m. The development will eventually include four five-star hotels, a medical centre, three malls and 11,000 serviced apartments.

The local Khammash Architects completed a masterplan in 2008 for another JDZ scheme, the 2,200-sq-km Jebel Ajloun development zone, but implementation is yet to begin.

Tourism dropping

Jordan hopes the tourism industry will be reinvigorated by these developments. But once again regional instability is threatening the industry. Tourism numbers fell 14.7 per cent in 2013 and, after showing early promise, dropped a further 1.2 per cent to 5.3 million visitors in 2014. The second half of the year was weaker than the first, with visitors down 5 per cent year-on-year following media coverage of the Islamic State in Iraq and Syria’s advances. Revenues, however, continued to rise steadily, by 6.3 per cent in 2014 to JD3.1bn.

In light of these trends, companies planning future projects and phases may have to reconsider their business plans to avoid oversupply.

Rail freight

A tender was floated earlier this year for three packages of the 21km-long Shidiya railway upgrade, which will connect Aqaba port to phosphate mines in Shidiya. Being financed by a JD53m grant from the Saudi Fund for Development, the line will be able to handle 6 million tonnes a year of phosphate when completed. Sixteen international consortiums were prequalified for the project in 2013.

But other rail projects have fallen victim to the violence across Jordan’s borders in Syria and Iraq, as their profitability has dropped.

The Shidiya line is part of a planned $4.3bn, 897km-long national freight network. It involves a 509km-long north-south line connecting Aqaba port in the south to Amman and Zarqa, a 290km-long line between Zarqa and Iraq, and a 91km-long connection to Saudi Arabia. The two largest packages are indefinitely on hold until funding can be secured.

Jordan’s mega-infrastructure projects face not only funding issues but also political obstacles. The planned $10bn 2,000MW nuclear plant, designed to take advantage of the country’s plentiful uranium deposits, will drag Amman into global and regional power struggles over nuclear energy.

The Jordan Atomic Energy Commission signed a legal framework with Russian nuclear developer Rosatom in March 2015. Under the deal, Rosatom will fund 49 per cent of the project, and take the same stake, but Jordan still needs to raise about $5bn. Russia will supply fuel for the first 10 years of the project, but doubts over funding and risk may prevent it from progressing beyond the study stages.

Water supply

The Red Sea Dead Sea water conveyance scheme is even more controversial, due to Israel’s occupation of the West Bank. Jordan and Israel signed an agreement in February 2015 after 13 years of negotiations to go ahead with the $900m first phase of the project. This involves a 65-80 million-cubic-metre-a-year desalination plant, reservoirs, pumping stations and 180km of pipelines, which will pump waste brine from Aqaba into the Dead Sea.

The Jordan Valley Authority (JVA) intends to begin prequalification in late 2015 for the project, with construction due to start in early 2017 and commissioning in late 2019.

The developing consortium, made up of desalination, construction and electromechanical companies, will secure financing for 70 per cent of the build-operate-transfer project, with the governments of Jordan and Israel providing the remainder.

Necessary project

“We have already passed the political issues as we have signed a bilateral agreement with Israel and received official cabinet approval,” says Nabil Zoubi, Red Sea Dead Sea project manager at the JVA. “There will always be some opposition, but in our opinion the project is necessary for Jordan so we are proceeding.”

International investors and donors continue to invest in Jordan, with the aim of maintaining an island of stability in the Levant. Jordan has years of experience leveraging this position to obtain the maximum from foreign allies, so project finance is likely to keep flowing for essential and under-construction projects. More ambitious schemes, however, have already faltered.

Tourism projects in Aqaba boom

The relocation of Aqaba’s old port has allowed the multibillion-dollar redevelopment of the coastline, with the area attracting Arab investment in tourism and real estate. Aqaba Development Company (ADC) has formed joint ventures with several Gulf developers, the largest of which is Al-Maabar’s $9bn mixed-use Marsa Zayed development, financed by the firm’s Abu Dhabi investors. The first phase, covering 200,000 sq m and costing $824m, is under construction.

An $83m contract on the project’s 500-villa Al-Raha Village development was awarded to the local Omar Abu Saad & Sons Company in May 2013, with construction due to be completed this year. By 2040, Marsa Zayed is intended to include seven hotels with a capacity of 3,000 rooms and 20,000 residential units, covering a total area of 3.2 million sq m. Details of the next phases have not been released.

At the nearby Ayla Oasis development, a $1.7bn project owned by Saudi Arabia’s Astra, 17km of manmade lagoons are being added along the beachfront. The second phase, comprising four luxury hotels, is well under way, with various contractors working on the scheme.

Plans for the $960m Saraya Aqaba development, owned by Dubai’s Saraya Holdings, were revived in 2013, following the resolution of financial problems that prevented work beginning in 2012. It will cover 634,000 sq m around a manmade lagoon and is set to add about 1.5km of beachfront to Aqaba.

In 2013, a joint venture of Athens-based Consolidated Contractors Company (CCC) and the UAE’s Arabtec Construction and Drake & Scull International won contracts for phase 1 of Saraya Aqaba. It includes hotels and villas, retail space at Souk Saraya, a beach club and Wild Wadi Aqaba Water Park, managed by Jumeirah Group.

In January 2014, Arabtec also won a AED5.7bn ($1.55bn) contract to build Jordan’s first themed tourist destination. The 74-hectare, Star Trek-themed Red Sea Astrarium, overlooking the Gulf of Aqaba, is owned by the local Rubicon Group Holding. But Arabtec has not begun work and the project is indefinitely on hold.

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications