CONSTRUCTION: Elections, stagnation, speculation

19 June 1998
LEBANON

'ELECTIONS, stagnation in the peace process, speculation about [UN resolution] 425, the fiscal deficit - all these are slowing down progress on many jobs.' This sentiment, expressed by Riad Mneimneh, resident partner at consulting firm Dar al-Handasah (Shair & Partners) echoes through the offices of consultants, engineers and contractors in and around Beirut. But like his associates in the construction industry, Mneimneh is a certain pragmatist. 'This is normal,' he says, shrugging his shoulders. 'We will have to live with it.'

The consensus is that the initial burst of enthusiasm that launched the post-war reconstruction programme has started to wane. The result is a collection of stark contrasts. In Beirut formerly grand hotels are still empty concrete shells, while just minutes away imported palm trees provide the finishing touch to rows of beautifully restored historic buildings. Towns outside Beirut are crying out for water and wastewater systems, while every other person on the streets of the capital carries a mobile telephone. Visitors are greeted by a gleaming new airport terminal only to be whisked past the bullet-ridden homes of Beirut's southern suburbs. No-one can deny that the achievements of the reconstruction programme have been spectacular, but there is still a long way to go.

Much of the power and telecommunications network is now in place. The Council For Development & Reconstruction (CDR) says that in 1998 new contracts worth just $53 million are expected to be awarded in the telecommunications sector and $74 million in the power sector. This compares with a massive $600 million worth of contracts lined up for water and wastewater. The contracts will build on work, either completed or under way, worth just under $400 million.

The war wreaked havoc on the whole system, explains Nouhad Baroudi, secretary- general of the CDR. 'The proliferation of uncontrolled septic tanks has polluted the aquifers,' he says. 'Houses are receiving water which is 80 per cent polluted.' Existing sewers are not necessarily connected to treatment plants. In addition, changes in the demography of the country make the job of delivering water and water treatment more complicated.

The targets are ambitious. 'The Horizon 2000 scheme aims to provide 150 litres [a day] per person of potable water,' Baroudi says. 'And by 2007, 95 per cent of Lebanon will be connected to sewers.'

Companies have already bid for work on the water supply systems in Tyre and Nabatiyeh. The contracts will include drilling boreholes, installing new pipelines and reservoirs and rehabilitating old ones.

These contracts are modest, however, when compared with plans to dam the Bisri river and build a water conveyor to Beirut. The dam is expected to cost about $123 million. It is closely linked to the water conveyor, as the dam is required to increase the flow rate of the water. The conveyor is to be implemented on a build-operate-transfer (BOT) basis. However, it still needs to be determined whether the two schemes will go ahead simultaneously or in sequence. The UK's Montgomery Watson has completed consultancy work for the water conveyor, but tender documents are unlikely to be issued until late 1998 or early 1999.

Wastewater projects - without the added complications of BOT - are expected to move forward first. CDR is evaluating applications to prequalify for work on facilities in Tyre, Sidon, Kesrouan and Tripoli. The prospect of contracts worth more than $200 million attracted more than 40 companies which are now waiting to see if they will qualify to bid for the work. Each project will include the installation of wastewater treatment plants and networks.

Financing for the wastewater projects has been secured from the World Bank, Japan and the European Investment Bank, which has a commitment to reducing pollution in the Mediterranean.

Inevitable slowdown

However, grants and loans from such institutions are as yet no match for the scale of the reconstruction programme as a whole. To December 1997 the CDR had raised foreign financing of just over $4,000 million. The reconstruction programme has been costed at about $18,000 million. As pressure mounts on the government to control the budget deficit, contractors are expressing concern that a slowdown in the pace of activity is inevitable.

Financing will need to be secured before further wastewater projects can go ahead. Studies are already being carried out on the construction of treatment plants in at least five other coastal towns and micro treatment plants in areas of eastern Lebanon. The timing of these much needed schemes will depend almost entirely on the availability of finance.

The government's fiscal situation means that it is looking increasingly to the private sector to finance construction projects. CDR

is promoting a number of BOT schemes and the Investment Development Authority of Lebanon (IDAL) hopes that plans for roads and a conference centre will move ahead this year with private finance. In Sidon the port authority is expected to invite bids later this year for private investors to finance the development of the port's infrastructure (see page 19).

Elsewhere projects have moved more slowly than expected in 1998. Plans to redevelop the Hilton hotel have been stalled while the developer, Societe Mediterranee des Hotels, seeks municipal permission to demolish the existing structure. There is still no sign of movement on the Solidere project to rebuild the Murr Tower as the Beirut Trade Centre - despite the issue of a letter of intent to a consortium of the Saudi Binladin group and the local Almabani General Contractors Company in late 1997. Solidere says that a contract will be signed in the second half of 1998.

However, there has been recent progress on several projects. Just weeks after walking out of extensive negotiations with Solidere, high-profile investor Prince Alwaleed Bin Talal Bin Abdulaziz of Saudi Arabia revived his plans to build a 260-room Four Seasons hotel alongside the planned marina in the capital. Not only did the prince return but he was accompanied by fellow investors Marina Towers - a newly formed Saudi Arabian and Lebanese group - with a proposal to enhance and complement Alwaleed's hotel. Marina Towers' plans transform the project from a $120 million hotel to a $250 million complex which would also include luxury residential apartments and shops.

Solidere has also taken steps to move the reconstruction of the souks forward. A long awaited tender has now been issued for the construction of the northern underground parking area, a department store, a multi- purpose building and a leisure complex. Work has already started on the southern underground car park and the third and final tender, for the superstructure above the southern car park, is to be issued later this year, says Solidere.

Away from the prestige developments of Beirut's city centre, this year has seen mixed fortunes on the Elyssar project to redevelop the southern suburbs. In February the government cancelled the tender for the BOT scheme. In March the Ministry of Housing & Co-operatives announced a tender for the construction of 10,000 low-cost housing units. The main difference, however, was that the development was not confined to the southern suburbs, but was to be distributed throughout the country. The tender also gave companies the option to bid for complexes of just 1,000 dwellings, substantially reducing the required investment. Bids from 12 groups are now under evaluation.

There is no doubt that progress is still being made in Lebanon's reconstruction programme, but, having set off at such a cracking pace, some would argue that the effort was bound to run out of steam. For the construction industry this means more competitive bidding and the prospect of less work in the immediate months ahead. It may also mean that contractors become more willing to form consortia to raise the finance required for BOT projects.

A MEED Subscription...

Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.