Clock ticking at Mecca project

02 November 2010

Progress at the Jabal Omar scheme is being hindered by new problems. Rebidding at lower margins does not appeal to Saudi Binladin Group

Since the Dubai construction market collapsed in 2009, the hunt for new markets to keep contractors busy has been fierce.

Saudi Arabia is now one of the region’s most attractive markets, buoyed by huge government spending, underdeveloped infrastructure and a burgeoning population. Coupled with this, the country has to cope with an influx of 13 million religious tourists descending on Mecca each year.

That figure is one of the drivers for the Jabal Omar development project – a plan to provide some of the missing accommodation and infrastructure for visitors to one of Islam’s holiest sites. But it has not been plain sailing for the scheme.

The initial financial advisers on the project were ditched in 2009 for failing to raise enough capital for the scheme by the deadlines set. The latest financial advisers, Al-Rajhi, have got closer to putting funding in place, but problems with the contractors are now hindering progress.

In a bid to ensure costs on the scheme are reined in, Jabal Omar is trying to get the contractors it appointed on the scheme in 2007 to fix a price for the development, rather than just promising to pay them whatever their costs are plus profit.

For Saudi Binladin Group, one of the contractors on the Mecca scheme, its burgeoning order book means rebidding on contracts at lower margins may not be that attractive. It may prove a good opportunity for another contractor to replace them.

It may also be a tough set of negotiations to settle while keeping to the project’s aggressive timeline. Once the contracting issues are agreed, there are still several large tranches of long-term funding to be put in place, including a rights issue.

All the while, a large red clock at the site is counting down the days until the project is due to be completed. There are now less than 300 days left. The clock is ticking.

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