GERMAN companies have had mixed results from the Middle East in the past year, depending on the sectors in which they specialise. Chemicals have been more active than the power sector, and telecommunications companies have been doing better than bricks-and-mortar contractors. Yet, all the companies surveyed see the region as an important market, regardless of the rise of other developing country markets around the world. They have spent years establishing their reputations with Middle East clients and have every intention of pursuing future business opportunities in the region.
Dyckerhoff & Widman (Dywidag)
A veteran in the region, Dywidag takes a long-term view of the market. ‘The outlook is not bad. We have been active continually and hope to carry on,’ says Middle East & India director Frank Jaburg. The region is as important to the company as Latin America, just after the booming Far Eastern market, he says.
Saudi Arabia is particularly important, despite the continued lack of public works financing. ‘The private sector is going well. The chemical and steel industries are strong and we hope to take part,’ Jaburg says. Dywidag was awarded a cement plant and a flour mill project in mid-1995, although it has not won any large orders so far this year. It is bidding for the Al-Faisaliyah building complex in Riyadh, estimated to cost hundreds of million of dollars. It will also be on the look-out for any projects that are developed by Saudi Basic Industries Corporation over the next few years.
In the UAE, where it has set up an office, it is building liquefied petroleum tanks. ‘We will certainly continue to concentrate on technically demanding projects there. We cannot compete with the British and Belgian contractors who are heavily involved in buildings construction,’ says Jaburg.
Dywidag’s most innovative project is in Lebanon, where it is building the Highway North under a $500 million-700 million build, operate, transfer (BOT) contract together with Walterbau, also of Germany, and France’s Bouygues. ‘BOT is the sector of the future. We will certainly be part of it. We have an advantage because we have already done such a project before,’ says Jaburg, referring to an elevated road in Bangkok. Its latest BOT ventures, in Hungary and Lebanon are other roads, but Jaburg says his company wants to venture into new areas: ‘We are very interested in the power station sector.’
‘Our business in the Middle East is weaker right now than in the past few years. But it have been unchanged in Egypt,’ says Karl Ronnberg, a member of the board at Hochtief.
Egypt, where it has been working for 40 years, is the most active market in the region. It is working on an electrolysis plant for Misr Chemical Industries Company and the Abu Qir 3 fertiliser project in Alexandria, both in joint venture with Uhde. Ronnberg is optimistic about further prospects in the country. Hochtief is likely to prequalify for a project to revamp the Nile barrage at Naga Hamadi and build a power plant there, and it is following several other power station and industrial schemes.
Its highest-profile scheme in the region is the $400 million Beirut airport, which it won in 1994 in joint venture with Athens-based Consolidated Contractors International Company (CCC). In Saudi Arabia and Turkey, it is working through its affiliates Ballast Nedam and Garanti-Koza, respectively.
Hochtief considers opportunities in the French-speaking countries of North Africa to be mostly out of reach, although it has built cement plants and harbours in Algeria in the past. ‘The strong presence of European companies from the Mediterranean region has offered us only a few opportunities to compete,’ says Ronnberg.
Hochtief agrees with its competitor Dywidag that making the best of private financing will become more and more important. ‘The high wage levels here in Europe and local construction industries, which have now become quite strong, have made things more difficult for us,’ Ronnberg says. ‘This is why we see our future opportunities less in actual construction than in management, planning, financing and other special jobs.’
Chemical engineering contractor Uhde sees the Middle East as a growth region for the next few years. It has been active in virtually every country in the area for a long time and has about a dozen projects running at the moment.
Most are for the production of caustic soda and chlorine for use in water treatment plants. They include a plant for Misr Chemical Industries Company in Egypt, and projects in Jordan, Tunisia, Syria and at least two plants in the GCC. There is also high demand for plants to make monomers, such as ethylene dichloride (EDC), says an Uhde manager. Uhde is building one such plant for Saudi Petrochemical Company (Sadaf) in Saudi Arabia.
Fertiliser plants will be an important growth sector. ‘For us it is one of the major markets for processing. The raw material is there, so it makes sense to build fertiliser plants on the spot,’ says the Uhde manager. The company is building two ammonia-urea projects in the region, for Qatar Fertiliser Company and Abu Qir Fertilisers & Chemicals in Egypt. ‘It is no secret we are following the Oman fertiliser project,’ the manager says. Another potential client is Morocco’s Office Cherifien des Phosphates, for which Uhde built six phosphoric acid units in 1975-84.
How important is the Middle East for Uhde compared with the rest of the world? Says the manager: ‘Nobody would build an ammonia and urea plant in Europe today. Asia is a huge market, and South America is booming at the moment and will become a lot bigger. But for the next four-five years, the Middle East will be one of the major markets.’
The German turbine manufacturer plays a part in virtually every power generation project of the ABB group if they involve steam turbines and turbine generators. ‘The company now holds a leading position in the Arab world with projects valued at $3,000 million currently under construction by various consortiums under its leadership,’ says spokesman Udo Kessler. The largest are the $1,100 million Ras Abu Fontas plant in Qatar, where capacity is being doubled to 1,250 MW, and the Taweelah B station in Abu Dhabi which is due for completion in the coming months. This project, valued at $1,700 million, involves a turnkey contract for six oil and gas-fired 125-MW units with a combined desalination plant.
When national utilities seek new sources of funds to pay for new power stations, ABB has not been afraid to try its hand at BOT. The Mannheim- based Kraftwerke will supply turbines for the Jorf Lasfar power station in Morocco, for which ABB’s private investment arm is a co-sponsor. ABB is on the bidding list for Tunisia’s first private power plant and if it wins, Kraftwerke will certainly be involved.
‘In the past year we have not got many contracts. A lot of projects have been postponed,’ says an official of Siemens’ power generation division. Still, his company recently clinched a contract for two 330-MW turbine generators to be installed at Sidi Krier and Ayun Moussa in Egypt.
Siemens’ most successful product in the region has been its 150-MW gas turbine, followed by 64-MW turbines, and the company counts on the reputation of its equipment to deliver future business.
It is paying particular attention to the UAE where a series of significant power projects are in the planning or bidding stage. ‘We will definitely bid for Ruwais,’ says the official, referring to a 400-MW combined-cycle plant planned by Abu Dhabi National Oil Company (ADNOC). Four other generation projects that are planned in the emirates are also likely targets, including a further extension of the Jebel Ali power station in Dubai, for which Siemens has previously supplied equipment.
Other markets are less attractive. ‘Saudi Arabia is very difficult. The market is largely supplied by the Americans,’ the official says.
Iran, which many German companies still consider too risky, has been one of Siemens’ most active markets. ‘We are happy with what we have in Iran after we won Montazagem and Mapna last year,’ he says. The projects he refers to involve three 100-MW units at Montazagem and another 11 units at five separate locations. Construction is on schedule, with the firstunit to start operation in 1998 and the final one due by mid-1999.
Siemens has also jumped on the BOT bandwagon. ‘When we really want a project, we bid as the developer,’ he says. The Rousch project in Pakistan is just such a case but so far no other schemes in the region have aroused the same interest.
‘We want to participate in the construction. But then we want to sell the shares to our partners. We see BOT as a vehicle to boost our production business, we don’t want to become power station operators,’ the official says.
Siemens – GSM (Global Standard for Mobiles) division
‘We are well established and it provides us with calm, regular business,’ says mobile telecommunications marketing manager Heinz Blankenfeld. This year, Siemens has won two large contracts, for the expansion of Lebanon’s network and the installation of a new system in Oman. Siemens also has an established presence as a supplier in Qatar, Saudi Arabia, the UAE, Jordan and Kuwait. ‘New opportunities are rare. There are hardly any countries which do not have their suppliers. Mostly they have just one supplier,’ Blankenfeld says.
This need not restrict opportunities for Siemens, however. Suppliers are regularly called upon to expand networks they originally installed. ‘But that is only part of the business. In parallel, there is the software update. Demand for intelligent network structures will certainly be around for many years,’ Blankenfeld says.
Preussag is another veteran in the region. ‘The corporation and its subsidiaries have been active in the region for decades. The focus of our operations is water and wastewater treatment, drilling for oil and gas, and trading in steel,’ says regional planning & development manager Helmut Wetzel. Preussag has offices in Tehran, Riyadh and Abu Dhabi and is presently active in Turkey, the Arabian peninsula and the Maghreb, as well as other countries through local representatives.
The trend in its regional business is towards closer co-operation with local companies, including the setting up of Preussag production facilities. ‘The political changes in the region have encouraged us to look at the Middle East from an acquisition point of view,’ says Wetzel. In particular, the company has been working more closely with companies in Jordan, Lebanon and Syria.
‘For the short and medium term, we expect business to grow slightly, and we expect to enter long-term co-operation with manufacturing companies in the region,’ says Wetzel.
Kloeckner Humboldt Deutz (KHD)
For KHD, results in the Middle East could hardly have been worse this year. Huge unforeseen losses from projects carried out in Saudi Arabia by its industrial plant division Kloeckner Humboldt Wedag almost brought down the entire company. Losses of DM 600 million had been building up since 1993 and were only revealed to the board in June.
They stemmed from three cement plant projects KHD won with Saudi Cement Company, Arabian Cement Company and Yanbu Cement Company in 1993 and 1994. Competition for the contracts had been fierce and KHD bid very low to secure the contracts. It also agreed to heavy penalty fees for late completion.
After government intervention, the three Saudi clients agreed to waive the penalties incurred and extend the completion dates. As part of a rescue plan, the corporation will be restructured at the end of December. Humboldt Wedag will be split off from the engine division and sold, while the retained engine division will simply be known as Deutz Motor.
This part of the company has, by contrast, had another good year. A glance at German trade figures shows the strength of machinery exports and KHD is part of the phenomenon. The company produces Deutz-brand engines mostly for agricultural machines, lorries and small power plants and its products are present throughout the region.
The latest order was for some 1,100 lorries for Abu Dhabi. They are being delivered by a Czech company, with engines supplied by KHD. ‘Our direct deliveries are relatively small. Our presence is largest through OEM supplies,’ says Fritz Plass, regional engines sales manager, adding that by whatever route the engines get to the buyers, Deutz Motor will be asked to service them through its service network in the country.
Like other German manufacturers, KHD has been paying more attention to its manufacturing costs and is increasingly moving production out of Germany. Plass hints that the company is looking for a new operation for the assembly of power packs in the Middle East, which will include a substantial local content. Market studies will possibly allow an announcement about the operation at the end of the year.
Its largest production facility in the region by far is its plant in Egypt, which it set up in the 1950s when it was still Magirus Deutz. A second, in Saudi Arabia, produces some 500-600 pumps and other equipment a year, mainly for the local market, but also for export to other GCC countries.