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Opec

Opec members plan to meet in September to agree output freeze

Oil producers’ group Opec is planning to hold informal talks in September after crude fell to four-month lows of about $42 a barrel in early August, down from highs of above $50 a barrel in July. Analysts say the meeting, which is to be held in Algeria, is likely to see another attempt to agree an oil output freeze after members failed to reach an agreement in April. Mohammed al-Sada, president of the 14-member group, said higher demand is expected in the third and fourth quarters of 2016, leading to the oil price increasing toward the end of the year. Representatives from member states will meet on the sidelines of the International Energy Forum in Algiers, which takes place between 26 and 28 September. “[Recent declines in oil prices are] an outcome resulting from weaker refinery margins, inventory overhang – particularly of product stocks, the timing of Brexit and its impact on the financial futures markets, including that of crude,” Al-Sada said in a statement.

Oil rallies above $50

Analysts cautioned against hopes of a long-term recovery in oil prices after rumours that Opec members were to meet in September to discuss production caps saw prices rally in mid-August to above $50 a barrel. The rally was boosted by speculators taking record short positions, and the relative decline of the US dollar. Crude prices had hit a low of below $42 a barrel at the start of August on continued global oversupply and the resumption of production in countries such as Nigeria and Canada after outages.  The US’ Energy Information Administration (EIA) recently upgraded its 2016 forecast for US oil production to 8.73 million barrels a day (b/d) from a previous prediction of 8.61 million b/d.

lranian government orders start of new oil contract

Iran’s Vice-President Eshaq Jahangiri has issued an executive order for the Ministry of Petroleum to start using the new Iran Petroleum Contract (IPC) model that was ratified by the cabinet earlier this month. The launch of the IPC has been delayed by political opposition from hardline conservative factions in parliament, who say the terms give too much away to overseas companies. The ministry’s Shana news agency reported that the framework has been endorsed by MPs. Last week, Minister of Petroleum Bijan Zanganeh said the IPC needed minor amendments but that the final draft would not need the approval of parliament. Jahangiri’s executive order now paves the way for the launch of tenders under the IPC model.

Egypt and IMF agree $12bn loan

 Christine Lagarde, managing director of the Washington-based IMF

Christine Lagarde, managing director of the Washington-based IMF

Christine Lagarde, managing director of the Washington-based IMF

The Washington-based IMF has reached an agreement with Egypt for a $12bn three-year funding facility to support a government reform programme. The final deal is still subject to approval by the IMF’s executive board. Long-term economic growth can only be achieved if Cairo continues to devalue its currency despite a fear that doing so without reserves could spark a self-fulfilling crisis of hyperinflation. The Egyptians must not use new reserve sources such as the IMF loan to defend the currency, but rather as a function to avert the hyper-inflation scenario, which has been seen in other emerging markets. Although a flotation of the currency will force an adjustment in the balance of payments, it is also likely to induce a domestic slowdown and the end result may not necessarily be the return of strong GDP growth. As a result, Cairo has been forced to review its high-level subsidies on fuel and other staple goods. Earlier this year, parliament approved plans to introduce value-added tax (VAT) by the end of the year. Although subsidy cuts and additional taxes are seen as a positive move that the government has shown interest in applying, the biggest challenge will be the elephant in the room that has been ignored for too long: red tape bureaucracy and the ease of doing business.

Qatar releases new national development plan: 2017-22

Qatar’s next five-year National Development Strategy (NDS) will reflect the less certain times ahead, according to Michael Stephens, head of the Qatari branch of the UK’s Royal United Services Institute for Defence and Security Studies (Rusi). “In an era when hydrocarbons prices are suffering a sustained downturn and Qatar’s famed budget surpluses are now a thing of the past, the new strategy reflects a more humble approach,” Stephens wrote in a commentary published in local media. It is understood the NDS 2017-22 wil be radically different from the previous five-year plan, set between 2011 and 2016, which was conceived during high oil prices and shortly after the state won the right to host the Fifa football World Cup 2022 six years ago.

Kuwait applies new subsidy reforms

Petrol pumps

Petrol pumps

Kuwait’s cabinet on 1 August approved a series of fuel-related subsidy reforms, including an 83 per cent increase in higher-quality ultra-premium petrol prices and a 42 per cent increase in lower-quality octane-91 petrol prices, which will go into effect on 1 September. The effect of fuel subsidy reform on inflation will likely be moderate because energy products make up only 2.63 per cent of the Kuwaiti consumer price index basket, according to US ratings agency Moody’s Investors Service. The cabinet decision follows adjustments to diesel and kerosene prices last year. In January 2015, the government raised the price of diesel and kerosene from $0.18 a litre to $0.56 a litre, but a month later revised down these prices by about 35 per cent to $0.36 a litre following public discontent. “The government’s ability to successfully implement the price hikes this time around will be indicative of its institutional capacity to move its economy beyond oil,’’ Moody’s said in the statement.

Saudi Oger owes employees $800m in salaries

Saudi Oger owes SR3bn ($800m) to its employees in salaries in addition to the payments due to contractors and exporters, and money it requires to service loans obtained from local and international lenders. French employees of the company, who have not been paid in months, have sued the company in French courts. Talks between a lawyer representing 200 employees, mainly engineers and managers of the company’s projects in Jeddah, Riyadh, and Dammam, have failed, the local daily Arab News cited French media reports as saying. Saudi Oger, which is facing severe cash flow issues due to a delay in payments from the government, offered to clear employees’ dues of up to five months only, but the lawyer rejected the offer, the report added. Meanwhile, the French embassy in Riyadh has been giving financial aid to the French employees of the company to help them meet expenses, including their children’s school fees, until the issue is resolved.

Rebels groups reclaim Aleppo after government siege of the city

 Syria

Syria

Syria

Opposition fighters in Syria broke the government’s siege of Aleppo on 6 August. Rebels from several different opposition groups united against regime forces to break through the no-fly zone that had been imposed on the opposition-held city. Observers had called the situation in Aleppo a humanitarian crisis, with residents of the city being cut off from food and supplies. The victory is a fragile one. The area is still a conflict zone and it may be some time before a secure corridor for food and medical supplies can be set up. The regime has called in reinforcements.

Iraq appoints new oil minister

Iraq has appointed Jabar Ali al-Luaibi, the former head of the country’s state oil firm, as its oil minister in a cabinet overhaul. Al-Luaibi had led South Oil Company, which produces most of the crude for Iraq, Opec’s second-largest producer after Saudi Arabia. He was one of five new ministers who received parliament’s approval to begin their new role, which will bolster Prime Minister Haider al-Abadi’s leadership. The vote eases political tensions that rose in February over anti-graft reforms sought by Al-Abadi, and consolidates his position ahead of a battle planned for later this year to recapture Mosul, the largest city under the control of Islamic militants.

Saudi Arabia could hit new output record this month

Saudi Arabia could further boost its crude oil output and take it to a new record in August as Opec’s biggest oil exporter gets ready for talks next month for a global output freeze pact. The kingdom had held production steady for the first half of this year, but started to increase the level from June to meet rising seasonal domestic demand as well as higher export requirements. Higher production could give it more leverage during talks in September, when both Opec and non-Opec producers are expected to revive a freeze deal to support oil prices. Saudi Arabia appears to want higher prices, but agreeing a level to freeze supplies will be the main obstacle to a deal. The kingdom pumped 10.55 million barrels a day (b/d), and lifted production to 10.67 million b/d in July, the record level of crude production for the country. With demand inside and outside of Saudi Arabia looking healthy, it is expected to raise it further this month.

Chemicals price rise a relief for Saudi producers

Petrochemicals product prices rose in July, bringing relief to Gulf producers, most of whom reported losses or a drop in profitability in their second-quarter earnings reports. Market metrics for petrochemicals products improved largely thanks to tightening supplies. Saudi Basic Industries Corporation (Sabic), the world’s biggest chemicals exporter, reported a 23 per cent drop in profits as lower sales prices hit earnings. Sabic is reported to be reviewing its costs and is planning to spin off some of its poorly-performing foreign assets. Rabigh Refining & Petrochemical Company (PetroRabigh) said its net income slipped 79 per cent for the three months ending 30 June.

Developers get ready for the Saudi renewables market

Following the submission of prequalification entries on 4 August for Saudi Arabia’s first standalone solar energy projects, developers and contractors are beginning to get excited again about the kingdom’s renewable energy prospects. After the disappointing failure ?of the previous 54GW renewable energy programme, which had been launched to great fanfare in 2012, Riyadh has now set a much more obtainable target of 9.5GW of renewable energy, with the first 3.5GW planned to come online by 2020. While the jury is still out on whether King Abdullah City for Atomic & Renewable Energy (KA-Care) and the upcoming King Salman Renewable Energy Initiative can deliver on what is still an ambitious target, state utility Saudi Electricity Company (SEC) is leading the ?way with its two upcoming 50MW solar projects at Al-Jouf and Rafha

Saeed Mohammed al-Tayer, managing director and CEO of Dubai Electricity & Water Authority, visits Mohammed bin Rashid al-Maktoum solar park

Saeed Mohammed al-Tayer, managing director and CEO of Dubai Electricity & Water Authority, visits Mohammed bin Rashid al-Maktoum solar park

Saeed Mohammed al-Tayer, managing director and CEO of Dubai Electricity & Water Authority, visits Mohammed bin Rashid al-Maktoum solar park

Dubai remains a safe option for renewable energy

Dubai’s appointment of a consultant for a solar plant to power its planned Museum of the Future is the latest move from the emirate to establish itself as the region’s most innovative renewable energy market. The award of the consultancy contract to the local office of Austria’s ILF Consulting Engineers for the museum solar facility followed shortly after Dubai Electricity & Water Authority (Dewa) received consultancy bids for feasibility studies on the development of geothermal and wave energy. Having already selected the preferred bidder for the region’s largest solar scheme, the 800MW third phase of the Mohammed bin Rashid al-Maktoum solar park in 2016, Dubai had already cemented its position as a key renewable energy market. By setting a target for 25 per cent of clean energy by 2030, the emirate has made it clear it is committed to diversifying its energy sector into alternative power. The world record-low tariff of 2.99 cents a kilowatt hour for the 800MW project is a testament to the trust that international developers and lenders have in Dubai. The emirate offers high credit ratings bolstered by a stable offtaker for all power purchase agreements. This means state utilities can achieve some of the lowest rates for unsubsidised renewable energy in the world.

Construction workers

Construction workers

Supporting Saudi contractors should be a priority

Some have called for a contractor’s bank to help manage these issues. The setting up of a financial institution, under the mandate of the government, could serve as a solution to ensure key infrastructure and real estate projects being implemented by the private sector can be well financed. Payment delays and stalled government schemes off the back of a decline in oil prices have severely affected the entire industry. There were $4.5bn of awards in Saudi Arabia during the first half of this year, down 77 per cent on the $19.9bn awarded in the first half of 2015. Many contractors in the kingdom have suffered from payment delays, which has resulted in the laying off of thousands of employees. Cash flow has been a major issue since the government decided to halt payments on many projects earlier this year. Project activity and contract awards have also declined in the kingdom. Saudi Binladin Group (SBG) and Saudi Oger are among the hardest hit by the current cash flow problem. SBG has laid off about 70,000 of its 200,000 workers, with local media suggesting Oger has let go of up to 30,000 employees. Recent reports claim the government is looking to take over Saudi Oger. Instead of nationalising construction firms, Riyadh must ensure contractors are supported by a well-financed market. With Saudi Arabia’s Vision 2030 looking at diversifying the economy, it will be interesting to see how the authorities will try to support the private sector moving forward.

Saudi Arabia increases visa fees to boost revenues

Saudi Arabia’s cabinet has approved a new structure for a range of government fees and traffic fines as Riyadh looks to boost its non-oil revenues. The kingdom will charge SR8,000 ($2,133) for a two-year multiple entry permit. Visitors who were paying SR500 for a six-month multiple exit and re-entry visa will have to pay the same amount for a three-month visa under the new fee system. The council of ministers approved the new measures based on the recommendations of the kingdom’s Ministry of Finance and the Ministry of Economy and Planning, according to the official news agency, Saudi Press Agency (SPA).

Nakheel set to be debt-free

Nakheel, the Dubai government-controlled developer of manmade islands off the coast of the emirate, has made the full payment of its AED4.4bn ($1.2bn) trade creditor sukuk (Islamic bond) upon its maturity, making it a debt-free entity. The payment on 25 August formally ended Nakheel’s financial restructuring, which began in August 2011. “Yesterday we transferred the money to the agent, Deutsche Bank, and they will start releasing the payment to all the sukuk holders,’’ Nakheel chairman Ali Rashid Lootah told a press conference in Dubai on 22 August. The company, in August 2014, prepaid all AED7.9bn of its bank debt – four years ahead of the scheduled repayment date.

Bombardier scales back Middle East operations

Canadian aircraft and trains manufacturer Bombardier has told MEED it is currently ”in a ramp-down phase of certain project resources as part of a normal adjustment, given the various stages of the local projects”. MEED reported on 8 August that the firm is scaling back its Middle East operations. “Bombardier has ambitious growth plans for the region, with several schemes targeted in the coming 18 to 24 months,” Sandy Roth, head of communications for Western Europe, Middle East and Africa at Bombardier Transportation, told MEED via email on 8 August. These opportunities include those offered by the $32bn Al-Maktoum airport expansion in Dubai, Egypt’s 6th October monorail, several other Egyptian opportunities, and service business in Saudi Arabia, Roth said. The executive said they will continue to maintain several project and representative offices in the region, particularly in Riyadh and Dubai.

Bombardier train for king abdullah financial district

Bombardier train for King Abdullah Financial District

Fitch upgrades DP World rating

US-based Fitch Ratings has upgraded Dubai port operator DP World’s long-term issuer default rating (IDR) to BBB from BBB-, and its short-term IDR to F2 from F3. The upgrade reflects the group’s solid and stable cash flow generation, Fitch said in a statement. The company also indicated DP World’s outlook as stable. “We believe the flexibility embedded in the group’s expansionary plan will allow DP World to maintain Fitch-adjusted leverage below 5 times, which is commensurate with the higher rating,” the ratings agency added. DP World recently signed an agreement with the port authority of Saint John, New Brunswick in Canada to expand and operate the Rodney Container Terminal, and has signed a memorandum of understanding (MoU) to develop Terminal 7 of Taiwan’s Kaohsiung Port.

Egypt looks to privatise key industries

Contrasting statements have emerged in recent weeks on the possible share sale of Egyptian government-owned companies The presidency in January announced it planned to sell shares of “successful” government-owned companies and banks to the public, the first such move since 2005, when it offered shares in Telecom Egypt, Sidi Kerir Petrochemicals and Alexandria Mineral Oils Company (AMOC). With its back against the wall in the wake of political instability, a stuttering economy, few foreign direct investments of note, a protracted foreign currency crisis and stagnant tourism sector – the main source of revenue for the country – unlocking value in Egypt’s financial and oil and gas sectors’ most valuable assets was a logical move. It bolstered investor confidence in Egypt and many predicted it would bring much-needed investment flows back to the country’s equities markets as well. However, nothing concrete has emerged since the initial announcement in terms of which state assets have been selected for public flotations or when the IPOs will take place. On the contrary, there seems to be policy chaos in Cairo.

Middle East contracts awarded: July 2016

July was a slow month for contract awards. The total value of deals let dropped in July to $8.3bn from $12bn in June, with the number of contracts decreasing to 45 from 51 the previous month. The UAE topped the list once again, with 27 contract awards, the combined value of which is about $2bn. The country’s largest award was the $260m deal to design and supervise construction of the Madinat Zayed-Al Mirfa road, let by Abu Dhabi General Services Company (Musanada) to the local Ghantoot Group. Saudi Arabia led the list of largest single contract awards, with a $1.3bn deal to develop the Fadhili independent power project (IPP) let to a consortium led by UK/France’s Engie by Saudi Aramco and Saudi Electricity Company (SEC). Bahrain came back to life in July with the award of the $1.04bn main engineering, procurement and construction (EPC) contract for the 1,792MW fifth captive power plant at its aluminium smelter facility, let by Aluminium Bahrain (Alba) to a consortium of the US’ GE and Turkey’s Gama Power Systems Engineering & Construction.

FURTHER READING

Dubai awards estimated $1bn deal on refinery expansion

France’s Technip has been awarded a contract to expand the capacity of the Jebel Ali condensate refinery in Dubai, according to sources familiar with the project. Project owner Emirates National Oil Company (Enoc) received commercial engineering, procurement and construction (EPC) bids from several companies on 5 May. The contract is estimated to be valued at about $1bn.The brownfield project will add 20,000 barrels a day (b/d) to the refinery’s existing capacity of 120,000 b/d to help meet rising domestic fuel demand.

Bidders wait for Al-Zour North 2 IWPP

The three bidders for Kuwait’s Al-Zour North 2 independent water and power project (IWPP) are still waiting to hear news from the client on progress with the bid evaluation. The Kuwait Authority for Partnership Projects (KAPP), Kuwait’s public-private partnership (PPP) body, received three proposals for the scheme on 21 June. Under Kuwait’s IWPP model, commercial tariff prices will not be opened until after the technical evaluation, which, according to sources close to the scheme, has still not been completed.

The three groups that submitted bids are:

  • Acwa Power (Saudi Arabia) / Mitsui (Japan) / Al-Mulla Group Holding (local)
  • Marubeni Corporation (Japan) / Fouad al-Ghanim & Sons (local)
  • Sumitomo Corporation (Japan) / Osaka Gas Company (Japan) / National Industries Holding Group (local)

Indian group wins $230m Oman steel plant contract

Indian-based Shriram EPC has won a $230m contract on a steel mill project in Sohar, northern Oman, the company announced on the Bombay Stock Exchange, where its shares are traded. The engineering, procurement and construction (EPC) contract was awarded by Oman’s Moon Iron & Steel Company (Misco) and covers the balance of plant for the mini-mill project. The work will be executed by Shriram’s Sharjah-based subsidiary over the next 32 months, the company said. Misco has previously said the plant will produce 1.2 million tonnes a year (t/y) of billets, of which 700,000 t/y will make hot rolled steel to produce reinforcing bar (rebar) and 500,000 t/y will be sold to the market.

Contractors attend Dubai tall tower briefing 

Local developer Emaar Properties has held a briefing with selected contractors to discuss tendering for the 928-metre-plus tall tower it plans to build at its Dubai Creek Harbour development.

It is understood the firms that attended the briefing included:

  • Al-Futtaim Carillion (local/UK)
  • Al-Naboodah Contracting (local)
  • Arabian Construction Company (ACC; Lebanon)
  • Dutco Balfour Beatty (local/UK)
  • Habtoor Leighton Group (local/Australia)
  • Hyundai Engineering & Construction (South Korea)
  • Six Construct (Belgium)
  • TAV (Turkey)
  • Tishman (US)

The consultants working on the tower scheme are Spanish architect Santiago Calatrava Valls and the local office of consultancy Aurecon, which is being supported by the UK’s RMJM.

Egypt appoints contractor for $400m scheme 

Egypt’s Ministry of Housing Utilities & Urban Communities (MHUUD) has appointed local contractor Samcrete for infrastructure and landscaping work on its Zayed Central Park project. The scope of the work includes all infrastructure, utility and landscaping work for the 600,000-square-metre masterplanned community in the Sheikh Zayed area in the Sixth October City, about 50 kilometres west of Cairo. The only other company that submitted a bid for the project was the local Dorra Group.

Nakheel appoints consultant for Deira Island work

Local developer Nakheel and Spanish hospitality company Riu Hotels and Resorts have appointed Lebanon’s Dar al-Handasah to oversee the design, engineering and construction supervision of a AED900m ($245m) project in Dubai. The contract will see Dar al-Handasah work on a four-star hotel, which will have 800 rooms and a waterpark. The scheme will be close to the Deira mall and Deira Islands Night Souq. Building work started on Deira Islands last year. In October, Nakheel awarded a AED1.17bn deal to the local United Engineering Construction (UNEC) for the Night Souq and Boardwalk.