Bechtel celebrated 75 years of working in Saudi Arabia in mid-April. The milestone was achieved at a pivotal time for the construction industry in the kingdom, and the company’s chairman and CEO Brendan Bechtel sees great opportunity ahead in Saudi Arabia for the US construction firm.
“We are very bullish on Saudi Arabia,” he says. “We view ourselves as partnering with countries to help them achieve their vision for the future. That is what we feel we have been doing in the kingdom for 75 years. As we celebrate, I am deliberately characterising it as celebrating our first 75 years in the kingdom.”
Bechtel’s involvement in the kingdom is extensive. Having started work on pioneering projects such as the Trans-Arabian Pipeline in the 1940s, the company today is working on major projects such as the Riyadh Metro, and the Jubail and Ras al-Khair industrial cities, as well as providing high-level strategic project management services for the National Project Management Office (NPMO), which is also known as Mashroat.
The NPMO role has given Bechtel first-hand exposure to the economic transformation under way in Saudi Arabia. “What the crown prince, under the guidance of the king, is doing with Vision 2030 is particularly exciting for us,” says Bechtel. “As the kingdom transitions from working with consulting companies to a high-level strategic vision, it is pivoting towards implementation and managing a portfolio of transformational projects, and moving from power point slides to real project plans. This is the kind of work that we really specialise in.”
Construction in Saudi Arabia, like in other markets, has changed over the past few years. Lower oil prices and reduced government budgets have given rise to a trend where project clients want either funding or financing solutions from contractors for their projects.
“That trend is real,” says Bechtel. “On this trip [to the region], I have been in Egypt, Oman, the UAE then on to Saudi Arabia, and in all these places there is this notion that EPC [engineering, procurement and construction] by itself isn’t enough anymore. It is EPC plus financing and even more attractive is EPC plus funding.”
For contractors, financing with support from financial institutions is normally a better option than funding with equity. “Making an equity investment is a very difficult thing for contractors to do as most of us are cashflow businesses and we would prefer to keep balance sheets light rather than be distracted by other things,” says Bechtel. “The opportunities for contractors to bring investors along with them is something I am spending some time thinking about right now – the ability to differentiate yourself by forming partnerships [to bring finance into projects].”
Focus on value
According to Bechtel, this change is critical for the future of construction companies. “Just being a straight EPC contractor is not a sustainable position financially anymore,” he says. “The expectations around competition and low cost continue to be extreme, but you are beginning to see signs and hear from key customers and stakeholders that there is an increasing interest in shifting from a cost to value focus. That is really encouraging for us because, in terms of Bechtel, we are really focused on that value side of the equation.”
Bechtel is open to funding and financing depending on the project and the company’s prior experiences. “We do make equity investments from time to time,” says Bechtel. “We do not want to be in the business of owning and operating assets for a long period of time. We are not set up to do that. Speaking frankly, every time we have done that we learned our lesson that we should stick to our knitting as an EPC contractor. But we do make relatively time-bound equity investments to demonstrate having some skin in the game with the PPP [public-private partnership] or P3 model.
“We are quite active in the Canadian market, for example. We [also recently] announced that we made an investment in an LNG [liquefied natural gas] start-up company called Tellurian. That is not the norm for us. We generally just do that in the infrastructure space, and usually only as much as we need to take an EPC position. We tend to pre-negotiate with our other partners a buy-out whenever we have substantially completed the works.”
Private sector participation
The P3 model has been widely promoted in the region over the past three years, and Riyadh in particular has ambitious plans to engage the private sector to deliver the goals set out in the government’s Vision 2030 strategy document.
“With Vision 2030, part of it is about coming up with frameworks for more private sector participation,” says Bechtel. “We are beginning to have conversations about what that could mean for us. We are interested in playing whatever role we need to play to get a seat at the table on the EPC work. We are not going to become a major owner and operator of assets overnight.”
For Bechtel, the scope of the project is paramount when it comes to deciding what role to pursue. “If it is a scope we have done many times before, and preferably in the same place, then we are much more comfortable signing up for an EPC role,” says Bechtel. “For example, with LNG, we have designed and built one-third of all liquefaction capacity on earth. We really know a lot about how to estimate and build LNG plants, so we are much more likely to take a lump-sum EPC role or bet the company proposition on a project where we have a lot of depth and experience, and, in particular, local construction resources or where we have worked before. We are less likely to do that if it is work we have not done before, or it is our first time operating in a specific country.”
Bechtel can also participate in projects on a consultancy basis, and in February 2017 it was awarded the contract to assist Riyadh with establishing its NPMO for overseeing the project management of capital expenditure schemes in the kingdom. The NPMO is intended to help the construction industry deliver projects more efficiently and effectively.
“One of the areas where we can add value first is a PMC project delivery partner kind of role – like we are doing at Mashroat,” says Bechtel. “Our mission there is to help the Saudi ministries become better programme managers in their own right, so success for us is working ourselves out of a job. It is a different business model than a lot of service consultancies, who would be operating on a billable hour basis and in some cases would want to be continually extended.
“We view our role as more of a capacity builder. We are not a guest in someone’s house – we are a good neighbour. For the NPMO, we are helping the kingdom and its ministries with all of their huge portfolios of transformative projects that are coming out of Vision 2030. We want to help the Saudis manage the work for themselves.”