The region’s construction sector enjoyed a strong year in 2014 as government clients and private developers continued to award contracts on major new infrastructure and real estate schemes.

By the first week of December, there had been $114bn of contract awards made in the Middle East and North Africa, according to regional projects tracker MEED Projects, and by the end of the year, the total is expected to either match or exceed the $124bn awarded during 2013.

Rail projects

The highlights during 2014 were four $2bn-plus contract awards. In April, Qatar Railways Company (Qatar Rail) formally awarded the estimated QR12bn ($3.3bn) contract to build the underground sections of Doha Metro’s Gold Line to the consortium of Greece’s Aktor, Turkey’s Yapi Merkezi, STFA also of Turkey, India’s Larsen & Toubro and the local Al-Jaber Engineering.

The award was originally expected during 2013, but was delayed as the scope of the project changed and fresh prices were sought. Despite the reduction in scope, the Gold Line contract was the largest deal awarded in 2014, and is the biggest construction contract to be tendered for the Doha Metro.

The third-largest award of 2014 was also for a rail scheme in Qatar. A consortium of the local/French QDVC and France’s Alstom was awarded a $2.7bn contract by Qatar Rail for the design-and-build of the second phase of the Lusail light rail transit (LRT) project.

The four-line LRT network will cross the city, covering a distance of 33 kilometres, including 7km underground and 37 stations. The system is expected to enter commercial service from 2018.

In Saudi Arabia, the largest deal was secured by a consortium led by Germany’s Hochtief, which was selected to build the expansion of Riyadh’s King Khaled International Airport. The Hochtief team, which also includes India’s Shapoorji Pallonji and the local Al-Nahda, was the low bidder for both parts of the expansion project, with a total price of SR10.8bn ($2.9bn) in May.

The price was SR5.2bn for part A, which involves the upgrade of terminals 3 and 4, and SR5.6bn for part B, which covers the upgrade of terminals 1 and 2. The jobs will be completed in phases, with part A to be completed in 48 months, followed by part B, which will take 38 months to complete.

The other major market in the Gulf, the UAE, was also active, most notably in Dubai, where the real estate sector has once again begun creating significant opportunities for contractors.

The largest deal was an estimated $1bn order secured by Lebanon’s Arabian Construction Company for the construction of the local Emaar Properties’ Fountain Views development in the Downtown Dubai district.

The main construction package involves building three towers including a 220-metre-tall, 60-storey, 280-unit luxury residential tower looking out on Burj Khalifa, the world’s tallest building, and The Dubai Fountain. Emaar also awarded major contracts for work on the expansion of Dubai Mall and other mixed-use towers in Downtown Dubai.

Suez Canal

Away from the Gulf, a resurgent Egypt also produced large contract awards as Cairo embarked on plans to expand the Suez Canal. In October, two consortiums secured dredging contract work for the expansion of the waterway. The work is divided into five lots. A consortium of Abu Dhabi-based National Marine Dredging Company, Belgium’s Jan de Nul, and Van Oord and Boskalis of the Netherlands has been awarded a $1.5bn contract for four lots. A team of US-based Great Lakes Dredge & Dock and Belgium’s Dredging International has secured one lot.

The work is understood to involve the dredging of about 255 million cubic metres of material as part of an expansion scheme that will add a 34km channel running parallel to the existing canal. This will allow more ships to pass through the waterway, reducing waiting times. The scheme also involves the dry excavation of similar volumes of material, which the army is overseeing.

These large-scale projects, together with all the other work that has been awarded during 2014, is putting increasing pressure on the region’s resources. Consultants, contractors and suppliers are all starting to find it difficult to source the people and resources they need to deliver the projects they are working on.

The issue is most acute on rail projects, where there is work under way on major new metro networks in Riyadh and Doha, as well as planned projects in Mecca, Medina, Jeddah, Abu Dhabi, Dubai and Kuwait. These are in addition to the national railways planned across the GCC and elsewhere in the region. Some consultants are even advising government clients to coordinate their rail projects so they do not create delivery bottlenecks that will cause a spike in cost inflation and threaten the completion of schemes.

During the second half of 2014, some clients [in Dubai] have been open to negotiating directly with contractors

There are also early signs that resources are starting to be stretched in Dubai. During the second half of 2014, some clients have been open to negotiating directly with contractors rather than inviting a long list of firms to competitively tender for work. This change in approach happened nearly a decade earlier in 2005 and 2006, as the emirate’s real estate market started overheating and contractors were able to name their price when approached to work on new projects, although that luxury was ultimately short-lived.

The new work that is expected to be awarded across the region during 2015 will see this trend continue. Like 2014, the bulk of the major awards next year will come from Saudi Arabia, Qatar and the UAE, and the work will come from similar sectors.

The largest project that is expected to start is the construction of two new metro lines in Mecca, which are planned to meet the anticipated growth in the number of religious tourists visiting the holy city during the Muslim pilgrimages of Hajj and Umrah in the coming years. 

In October, the Development Commission of Mecca and Mashaaer received bids from contracting consortiums for two civil building packages that will include the construction of 46km of track and 22 stations.

The first package, for Line B, will include the construction of a 26km line, which will be mainly underground, and 12 stations. The second contract will be for part of Line C, and will be mainly sections above ground. The Line C package will include the construction of 20km of track and 10 stations, and the depot civil works. Unlike the Riyadh Metro, which was awarded in 2013, the rail systems packages for the Mecca Metro will be tendered separately.

Doha Metro

In Qatar, the largest award expected in 2015 will be the systems, rolling stock and track work contract for the first phase of the Doha metro network. Bidders have given presentations to the project client, Qatar Rail.

Offers for the multibillion-dollar deal were submitted in March by Germany’s Siemens; a team of Italy’s Ansaldo STS and Spain’s CAF; a group of three Japanese companies – Mitsubishi, Hitachi and Kinkyshario, and France’s Thales. The six-year contract covers the design, integration, manufacturing, supply, delivery, testing and commissioning of the trains and other required equipment.

Work on the first phase of Qatar’s long-distance rail project could also be awarded in 2015. Qatar Rail received prequalification documents from contractors in mid-2014 and was expected to tender the first construction packages this year, although that deadline has now slipped, meaning awards may not happen until 2016.

The first includes building 146km of railway line from the border with Saudi Arabia to Mesaieed, New Doha Port and Doha West International station, which will have a connection to the Doha Metro. The lines will carry passengers at speeds of up to 200km an hour and freight at up to 120km/hr.

Doha is also expected to award contracts to build at least two of the stadiums it will use to host football’s Fifa 2022 World Cup, and contractors were preparing to submit bids before the end of 2014. The Al-Wakrah stadium will have the capacity to seat 45,000 people during the tournament. The other stadium is the Al-Bayt stadium in Al-Khor.

Kuwait terminal

Another major award is planned in Kuwait, for the new terminal building at the country’s international airport. Terminal 2 will increase the capacity of the airport from 6 million passengers a year to 13 million. In early November, the Public Works Ministry received bids for the main construction contract for the new terminal.

Turkey’s Limak submitted the lowest bid with a price of $4.7bn, which was nearly $1bn lower than the second-lowest price of $5.6bn submitted by Beijing-based China State Construction Engineering Corporation.

As is often the case in Kuwait, there are rumours and speculation that the contract may be retendered or delayed, but if it proceeds as planned then work on site should start during 2015.

Tempering the optimistic outlook for the sector will be the oil price. Over the past three years, the oil-exporting countries have been able to fund massive infrastructure commitments as crude prices consistently remained above $100 a barrel.

With prices falling to below $70 a barrel in recent months there is now an expectation that, at the very least, there will be an extra layer of justification required before large government contracts are signed off.

This could delay projects significantly. In 2010 and 2011, Abu Dhabi conducted a review of capital expenditure on major projects and the market ground to a painful halt.

While concerns of a repeat of this slowdown across the region are premature in late 2014, they could be justified if oil prices remain depressed through most of 2015.