Saudi Arabia says it needs $50 oil, while Kuwait looks at privatising oil companies
The Washington-based IMF on 20 July raised its 2016 growth forecast for the Middle East and North Africa (Mena) region on the back of the recovery in oil prices since the start of the year. But the fund has warned that the UKs decision to leave the EU (Brexit) has depressed the outlook for global growth. The IMF has forecast Mena economic growth of 3.4 per cent in 2016, up 0.3 per cent on its previous forecast in April. It has also downgraded its outlook for 2017 by 0.2 per cent to real GDP growth of 3.3 per cent. The IMF has revised down its global growth forecast to 3.1 per cent in 2016 and 3.4 per cent in 2017 due to the impact of Brexit. Saudi Arabias growth forecast has been maintained at 1.2 per cent for this year and raised to 2 per cent for 2017.
Saudi energy minister Khalid al-Falih says $50 a barrel is the minimum oil price required to maintain balance over the long term. The hydrocarbons sector needs this price to sustain investments over the long term, he says. Brent crude recovered from the start of the year to trade above $50 a barrel for much of June, but has been trading below that level since early July. Saudi Arabia has significantly increased its crude production since prices began to fall in the second half of 2014, choosing to retain global market share rather than shore up prices. The kingdom produced an average of 10.24 million barrels a day (b/d) in May, according to oil producers group Opec, compared with 9.69 million b/d over 2014.
Saudi Arabias much-publicised National Transformation Plan (NTP) is having a deep impact on all areas of public spending. But the planned reforms raise several questions over short-term investment plans. Government bodies across a number of sectors are undergoing transformation. The most important changes include: dissolving the Ministry of Electricity & Water and splitting its responsibilities between two ministries; replacing multiple key ministers; new heads for Saudi Aramco, the central bank Saudi Arabian Monetary Agency (Sama), Saudi Railway Company and National Water Company (NWC); and restructurings at the General Authority of Civil Aviation (Gaca) and the Public Transport Authority.
Kuwait is planning to sell 20-30 per cent stakes in up to four oil and petrochemicals subsidiaries of national oil company Kuwait Petroleum Corporation (KPC). The companies being considered for part privatisation include Kuwait Petroleum International (Q8), Kuwait Foreign Petroleum Exploration Company (Kufpec), Kuwait Oil Tanker Company (KOTC) and Petrochemical Industries Company (PIC). This is part of a four-year plan to carry out initial public offerings in the state-owned oil units. Although the move would be welcomed by the local market, low liquidity and poor valuations on the Kuwait Stock Exchange (KSE) are likely to mean major privatisations involving initial public offerings would have to dual list on a larger exchange.
Anas al-Saleh, Kuwaits deputy prime minister, finance minister and acting oil minister
Saudi Arabias Ahmad Hamad al-Gosaibi & Brothers (Ahab) on 21 July signed a debt settlement deal with its international creditors as it seeks to resolve one of the regions biggest ever corporate defaults. Ahab and its partner, Saudi Arabias Saad Group (which is now in liquidation), defaulted on at least $15.7bn of debt in 2009, leaving more than 113 financial institutions across the Gulf, Europe and the US exposed, triggering multiple lawsuits in Saudi Arabia and globally. Ahab claims it was the victim of a multibillion-dollar fraud instigated by Maan al-Sanea, owner of Saad Group, and is pursuing a $7.3bn claim against Al-Sanea. Al-Sanea has denied any wrongdoing and one of the liquidators, Grant Thornton, has brought a counter-claim. The debt settlement deal sees Ahabs five-member steering committee, made up of its key international bank creditors, agreeing to support the implementation of the agreed settlement terms.
National Bank of Kuwait (NBK) has signed an agreement to arrange a $280m loan for Kuwait Styrene Company (TKSC). NBK will be the lead arranger for the syndicated loan. The finance will be used for general business purposes and to improve competitiveness. TKSC is a joint venture between the US Dow Chemical Company and Kuwait Aromatics Company (Karo), which started production in 2009. Dow is currently trying to reduce its stake in its Kuwaiti joint ventures, most importantly Equate Petrochemicals Company, Karo and TKSCs parent company.
The Middle East now has its largest share of global oil markets since the 1970s, and over the next two decades it is expected to supply three-quarters of global demand growth. The Middle East is reminding us that they are the largest source of low-cost oil, says Fatih Birol, executive director of the Paris-based International Energy Agency. The Middle East pumps 31 million barrels a day, which accounts for 34 per cent of global output.
Onshore oil rig
With Dubai planning to start and finish so many projects ahead of the 2020 Expo, inevitable questions on resourcing and prices have started to be raised. While some consultants expect a short-term spike in pricing if all these schemes move ahead, contractors do not anticipate rising prices. They say the increase in workload is not a surprise and although a large volume of work is set to move ahead, supply chain bottlenecks are not expected as there is enough resource in the market. Other contractors say that with such constrained liquidity conditions, clients are unlikely to move ahead with projects unless they receive competitive prices. It is also important to remember that the amount of work planned in Dubai still falls well short of the volume of work that was ongoing in 2007 and 2008 during the emirates property boom. That said, construction is not an entirely localised industry. Any change in commodity prices will be passed on.
Between interest rate hikes and currency devaluations Cairo is attempting a difficult balancing act that is unlikely to succeed. The currency devaluation earlier this year has been countered by several recent interest rate increases as the government looks at ways to protect peoples savings and pensions. Living costs have continued to increase, with many groups in society finding day-to-day living more difficult. The government will fear that this translates into declining support for President Abdul Fattah al-Sisi and his economic roadmap. Egypts import dependent economy has also been hit by recent increases in import tariffs in a bid to support local products. The combination has meant Egypt is now a much more expensive place for people and businesses; a reality that is bound to stunt growth moving forward. Cairos attempts to alleviate rising living costs as it continues with tighter monetary policies are likely to fail. This dampens growth as consumer spending declines; it also raises concerns for local industries as supply chains become unmanageable.
The Brexit vote has caught policymakers and business leaders in the Middle East by surprise. The British decision to leave the EU will have very little immediate, direct impact on economic policy, business deals or projects in the Middle East, as regional contracts and transactions are largely done in dollars, even where the UK government is providing export credit support. Also, UK-EU relations are of little relevance to economic policy in the region, although regional security potentially could suffer if there is any breakdown in coordination between UK and EU security agencies. Over the longer term, however, the increased political risk from Scottish independence from the UK, further EU exits, a weakened EU economy and even the collapse of the EU itself add significant new uncertainty to the global economic landscape that will affect the region.
The Washington-based IMF has approved a three-year stand-by arrangement worth $5.34bn for Iraq to support the governments economic reforms. The facility was approved by the funds board and is made available as SDR3.831bn (IMFs special drawing rights), which is about 230 percent of Iraqs quota of support from the IMF. The fund says Iraqs economic reform programme aims to address the countrys urgent balance of payments need, bring spending in line with lower global oil prices and ensure debt sustainability. The proposed reforms also include measures to protect the poor, strengthen public financial management, enhance financial sector stability and curb corruption.
Christine Lagarde, managing director of the Washington-based IMF
US lawmakers have approved legislation that prevents the sale of aircraft from the US Boeing and Frances Airbus to Iran. The legislation undermines the recent memorandum of understanding (MoU) signed between Boeing and Iran Air, where the Islamic Republics flag carrier indicated an intent to purchase Boeing commercial planes.
Details are scarce in terms of the outcome of the recently concluded extraordinary meeting among GCC transport and communications ministers. Apart from a call to prioritise the rail projects that will interconnect the six GCC states, a new timeline for the completion of the regional railway was not released, much to the disappointment of many. It is not a far-fetched scenario that the key decision-makers did not come to a mutual agreement in terms of how and when to proceed with their country segments of the regional railway. This comes as no surprise given final budget approvals are usually beyond the transport ministers mandate. This indecision is also expected to a certain extent given the ongoing transport sector restructuring across the region.
South Koreas Posco Engineering & Construction is preparing to submit an offer for an estimated $2bn-plus power plant in the eastern part of the kingdom. According to sources close to the kingdoms power sector, the firm is preparing to submit an offer and proposal to state utility Saudi Electricity Company for a major power plant in Ghazlan. Saudi Arabias power sector is the biggest in the Middle East, with an installed generating capacity of just over 76,839MW in 2014 (the latest year for which figures have been published), although available capacity was much lower, at 65,505MW. Available power in 2015 is estimated to have reached about 70,000MW.
The appointment of technical consultants for Moroccos $4.6bn gas-to-power scheme has raised the levels of excitement over one of the regions most eagerly anticipated projects of the year. While some of the most lucrative markets struggle to get moving with the next round of projects, with Saudi Arabia undertaking major economic reforms and Kuwait maintaining a slow pace, Moroccos multibillion-dollar gas-to-power project is being courted by some of the largest firms active in the regions contracting and project financing sectors. With contractors eager to find out more information on the scope of the packages for the energy megaproject, the award of the technical consultancy contract to Frances Sofregaz and Denmarks Ramboll should begin to get the ball rolling.
When Qatar secured the rights to host footballs 2022 Fifa World Cup in 2010, it was arguably the worlds most attractive construction market. Five years later, the sentiment has reversed completely. Work was secured in 2013 and 2014 with low margins and significant risks, and in extreme cases contractors on schemes were replaced. For new work, over the past 18 months there have been concerns about a bottleneck of schemes causing delays combined with lower oil and gas prices, which have forced Doha to scale back its project ambitions. In June, the government admitted there is a problem, when the Ministry of Development Planning and Statistics (MDPS) warned that Qatars infrastructure programme for the Fifa 2022 World Cup could face delays.
Cairo and Beijing have signed an agreement to research and execute up to 18 projects in Egypt. The agreement was finalised during the G20-Ministerial Committee meeting that was held on 11 July in Beijing. The Chinese will develop projects across several sectors including utilities, transportation, housing, manufacturing and technology. Egypt needs to start implementing the ambitious plans laid out last year and the Chinese investments have been a welcomed addition to a growing portfolio of GCC funds, international financial institution support and foreign direct investment.
Chinas President Xi Jinping (right) shakes hands with Egypts President Abdul Fattah al-Sisi
The Egyptian Federation for Construction and Building Contractors (EFCBC) is set to compile a list of contractors nominated to bid for work on the proposed capital city project. A spokesperson from the Ministry of Housing, Utilities & Urban Development previously told MEED the list will be compiled in cooperation with the EFCBC and the master developer of the scheme The Administrative Capital City for Urban Development, which was formed earlier this year. So far, the engineering, procurement and construction (EPC) contracts have been directly negotiated with the housing ministry.
The jihadist group Islamic State in Iraq and Syria (Isis) has lost 12 per cent of its territory in the first half of 2016, according to UK-based research centre IHS. In 2015, Isis territory shrank by 12,800 square kilometres to 78,000 sq km, which is a loss of 14 per cent. In the first six months of 2016, that territory grew smaller again by 12 per cent, says IHS. It is understood that Isis currently controls roughly 68,300 sq km in Iraq and Syria.
Isis supporter in Syria
Three cities in Saudi Arabia were targeted by suicide bombers, including an attack in one of Islams holiest cities, Medina. A suicide bomber killed four security guards outside the Prophets Mosque in Medina in the evening. The Interior Ministry says five others were injured in the attack, which occurred when a person heading towards the mosque across a vacant plot of land was challenged. The attack was the second such incident in the kingdom that evening. In the Mias Market in Qatif, a suicide bomber detonated a device and the Interior Ministry says the remains of three people are in the process of being identified. In the early hours of 4 July, a suicide bomber blew himself up in Jeddah near the parking lot of the Dr Suleiman Faqih Hospital, next to the US consulate. That attack injured two security guards.
The Chilcot Report is unlikely to lead to the prosecution of the then UK Prime Minister Tony Blair for the decision to invade Iraq in 2003. The report concluded that the UK had undermined the UNs Security Council with its actions in Iraq, but the report did not give a view on the legality of the war as the author said that could only be resolved by a properly constituted and internationally recognised court. Despite this, the US and UK invasion of Iraq in 2003 has been labelled as illegal by leading politicians in the UK. The report, which is also known as the Iraq Inquiry, was published on 6 July, seven years after initial research on the report started.
Middle East contract awards June 2016
The total value of contracts awarded increased in June to about $12bn from $7bn in May. The number of deals let grew to 51 from 44 the previous month. The UAE tops the list with 20 contract awards, the combined value of which is about $4.8bn. The countrys largest award was the deal to design and build the Route 2020 metro link connecting to Dubais Expo site, let to a consortium of Spains Acciona, Turkeys Gulermak, and FrancesAlstom. Iran, however, tops the list of largest single contract awards, with a $4.2bn deal to build gas-fired power plants let to Turkeys Unit International by the Ministry of Energy. Qatar ranks next, with a $4bn contract to build seven surface vessels for the Qatar Emiri Naval Forces awarded by the Defence Ministry to Italys Fincantieri.
Dubai Aviation Engineering Projects (DAEP) has awarded the local Tristar the contract to complete the enabling works for the $33bn expansion of Al-Maktoum International airport. The contract covers earthmoving work for the entire 36 square kilometre site and will proceed the projects other construction packages. The next major contract that is expected to be awarded is for the development of infrastructurethat will be used during the construction of airport expansion.
Al-Maktoum International airport, in Dubai
Moroccos Office National de lElectricite et de lEau Potable (ONEE) has invited companies to submit bids for the front-end engineering design (Feed) contract for three planned hydroelectric plants. The hydroelectric facilities, which are planned to be located at Imezdilfane, Taskdert and Tajemout, will have a total combined capacity of about 128MW. The Feed contract will involve providing designs for the three hydroelectric plants and dams. Companies have until 7 September to submit proposals for the Feed contract.
Saudi Aramco has started the construction of the air separation unit at the companys major refinery and power plant complex in Jizan in the southwest of the kingdom. The estimated $2bn contract was awarded in April 2015 to Saudi group Acwa Holding and US-based Air Products, which formed the joint venture Jazan Gas Projects Company (JGPC) to build, own and operate the plant.
Dubais Roads & Transport Authority (RTA) has awarded the contract to design and build the AED10.6bn ($2.9bn) Route 2020 metro link connecting to the Expo site to the consortium of Spains Acciona, Turkeys Gulermak, and Frances Alstom. The scheme, known as Route 2020, involves building a 15-kilometre-long line branching off the existing Red Line at the Nakheel Harbour & Tower station, between the Ibn Battuta Mall and Jumeirah Lake Towers stations. The line will also connect to Al-Maktoum International airport. About 11km of the line will be elevated, with five elevated stations and two underground stations.
Dubai Metro Route 2020 station
Saudi Electricity Company (SEC) has invited companies to submit expressions of interest (EOIs) for the countrys first major standalone renewable energy projects. Developers have been invited to submit EOIs by 20 June for the schemes to develop 50MW photovoltaic (PV) solar plants at Al-Jouf and Rafha in the northern part of the kingdom. The projects will be developed under the independent power project (IPP) model), with SEC set to be the offtaker for all of the power produced from the plants. The utility is intending to issue a request for qualifications (RFQs) to developers by 14 July. The UKs HSBC has been appointed as financial consultant, with the UKs DLA Piper as legal consultant and the Netherlands DNV as technical consultant.
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