PATIENCE is a virtue this autumn in the kingdom’s construction market. The 19 per cent cut in government expenditure for 1994 has led to a slow down in public sector activity and delays in the award of contracts.

The recent downturn in the all-important public sector came after three years of strong growth. It can be seen as a natural development. Saudi Aramco, one of the main sources of construction business, is not alone in nearing the end of a major capital investment programme. This autumn, the state oil company has only one large construction tender on the market, the $130 million Jizan bulk handling project.

Public construction projects have been hit particularly hard by the budgetary squeeze. In the hospital sector, awards are pending on five projects, for which bids were invited in late 1993/early 1994.

Contractors have also encountered delays in priority sectors such as power, where additional capacity of around 5,000 MW is planned. The main reason is the decision by the four Saudi Consolidated Electric Companies (Scecos) to seek an alternative to straight cash payment. Export credits are being considered for the Riyadh PP9 scheme. Requests for payment on a deferred basis are becoming more common.

The reaction of established international contractors to the changing market conditions has been low-key. ‘I don’t know of any foreign company with an office here looking to pull out,’ says one general manager. ‘Instances of payment and project delays are on the rise, but companies aren’t panicking. They’ve worked hard to build up contacts, and no one is willing to see those broken, just because current business is not as buoyant as it was last year.’

Moreover, there are still some major project opportunities in prospect. The main sectors attracting interest are:

Power. Invitations to bid for new generating capacity have not been in short supply over the past 12 months, but awards have. Only one major contract has been let. In late October, Saudi American General Electric (Samge) received a letter of award worth $165 million to carry out the 300-MW expansion of PP8 for the Saudi Consolidated Electric Company for the Central Region (Sceco-Central). The company is at the forefront of the capacity expansion programme. It has been holding negotiations with Samge since the late spring about implementing the 1,200-MW PP9 project. Discussions have focused on financing the deal with US export credits. The same financing approach is being applied to the project’s 380-kV substation for which the UK’s Reyrolle Power is the low bidder.

In early November, contractors were still awaiting an indication from Saudi Consolidated Electric Company for the Eastern Province (Sceco-East) about how the proposed 2,400-MW expansion of the Ghazlan station will be financed. Technical documents for the estimated $1,500 million scheme were issued to prequalifiers on 11 October. The client has still to decide whether the extension will be a combined-cycle or conventional thermal plant.

The lengthiest delays have been registered on the 1,000-MW thermal plant at Shuqaiq for Saudi Consolidated Electric Company for the Southern region (Sceco-South). Originally bids were invited for the scheme in mid-1993. However, five separate bid extensions have meant that quotes are not now due until late January.

Smaller capacity expansion projects have fared better. In July, India’s Bharat Heavy Electricals clinched a $37 million order to expand the Qurayyat station in the far north of the kingdom by 78 MW. The Saudi Binladin Group started work in late August on a $18 million contract to add 20 MW to the Rafha plant.

Water. The Saline Water Conversion Corporation (SWCC) will again be the centre of attention for contractors in the coming months. The company is expected to appoint soon the contractor for the $80 million Hofuf to Al-Khobar water transmission line project. A local/Turkish joint venture involving Saudi Oger is tipped to take the award. A further pipeline tender is due. The designs and list of prequalifiers for the $375 million Shuaiba to Jeddah twin transmission line have already been finalised.

Aviation. One of the most eagerly awaited tenders this autumn is for the construction of hangars and maintenance facilities for national carrier Saudia. A total of 10-20 international and local prequalifiers are expected to be invited to bid by early 1995 for the $400 million project, which involves the construction of integrated maintenance hangars at Riyadh, Jeddah and Dammam.

Three other airport projects are also planned. South Korea’s Lucky Development Company is low bidder for the upgrade of both the Jizan and Tabuk airports. Quotes for a new domestic airport at Dawadmi, are due in late November.

Healthcare. The sector has been one of the main casualties of government attempts to rein in expenditure. Awards are pending on a series of schemes tendered in late 1993/early 1994. They include a 250-bed hospital at Dawadmi and a 500-bed facility in the Al-Hasa military city. Contractors expect little progress on the government projects until new funds from the 1995 budget become available.

One of the few schemes to escape the cutbacks is the Health Ministry G-100 contract involving the construction of 100-bed hospitals at Ras

al-Khafji, Rafha and Dumat al-Jandal. France’s Thinet International took the $100 million contract and followed this up by winning a $32 million job from the Arabian Oil Company to build a 100-bed hospital at Ras al- Khafji in the Neutral Zone.

The slowdown has not been uniform. Niche markets have provided business for foreign contractors over the past 12 months. The US’ AT&T has started work on the $4,000 million project to install 1.5 million new telephone lines and set up a 200,000-line global standard for mobiles (GSM) system. Local contractors and suppliers hope to win subcontracts totalling $500 million from the US multinational.

Cement. The cement industry has been particularly active. More than $1,000 million of lump sum turnkey contracts have been awarded to European and Asian companies for construction of further capacity at six separate sites. The contracts have been shared by Germany’s KHD Humboldt, France’s Fives- Cail Babcock, Halla Engineering of South Korea and Japan’s UBE.

The successful companies have begun letting work to subcontractors. Zurich- based ABB Asea Brown Boveri and Germany’s Siemens have both received orders for the supply of turbines. Taylor Woodrow International has a $40 million contract from KHD to carry out the civil works on the Yanbu Cement Company expansion.


Local contractors specialising in the industrial sector also report brisk business as clients opt for breaking up projects into packages, rather than awarding a single lump sum turnkey contract. ‘We are being inundated by so many tender invitations at the moment, that we can afford to be choosy,’ says one manager in the Eastern Province. ‘The problem is that margins are dropping.’

Even on projects like the $1,000 million Ras Tanura refinery upgrade, leading locally based contractors are picking up major subcontracts from their successful international counterparts. One of the largest, worth $48 million, was awarded to Mohammed al-Mojil Group by the US’ Stone & Webster Engineering Corporation for erection and construction work on package two of the refinery modernisation programme.

Opportunities also exist in the private-sector property and leisure markets. Government financial constraints have encouraged ministries and municipalities to lease out large tracts of land to private developers. Typically, the developments cost between SR 20 million-100 million to implement, although there are exceptions. One is the SR 1,300 million Durrat al-Arous (Pearl of the Bride) leisure project, being developed on the Red Sea coast north of Jeddah. The two-year project is sponsored by the Saudi Company for Recreation Centres, which is owned by investors including the Dallah Albaraka Group.