Contractors fear aggregate crunch in Qatar

22 November 2012

Qatar’s decision to close down its quarries is expected to increase the pressure on its supply chain, raising concerns it will struggle to deliver projects in the run up to the 2022 World Cup

Soaring costs will be a recurring theme for Qatar’s construction sector as it prepares to host football’s 2022 Fifa World Cup. According to the Tender Price Index for Qatar, prepared by MEED Cost Indices, construction costs in 2017 will be 18 per cent higher than in 2012.

The spike in costs will strain Qatar’s supply chain to breaking point and will be driven by rapid increases in the value of contract awards in Qatar from 2013 onwards, reaching a peak of $40bn in 2017.

Despite these logistical challenges and inflationary concerns, the government decided in February this year to close down Qatar’s 14 quarries. The move has led to concerns that the country may not be able to deliver the massive infrastructure projects it plans to build ahead of the World Cup.

Controversial ruling

The Environment Ministry closed the quarries citing environmental concerns, despite appeals from quarry owners and building material suppliers that the decision was not a practical one and would result in shortages of aggregates and soaring prices.

Contractors working in Qatar believe those fears will be realised in 2013. “We expect the supply chain to come under severe strain next year,” says a Doha-based contractor. “Major projects are currently being tendered, and once they start, demand will increase dramatically.”

The largest contracts out for tender are for the Doha metro. Contractors are preparing to submit bids for the golden and green lines, after submitting prices for two packages on the red line in mid-October.

Roads are also being developed, with $27.5bn-worth of projects planned by the Public Works Authority. International contractors are currently competing for 10 construction packages on the Al-Rayyan road, the Orbital road, the East-West road and Wakrah road.

These packages will add to the major contracts that have already been awarded this year. The UAE’s Al-Jaber Group won a $640m deal for package 13 of the Doha Expressway scheme; South Korea’s Hyundai Engineering & Construction Company won the estimated $1bn first package on the Lusail Expressway; while China’s Sinohydro Corporation secured a contract to build phase six of the Doha Expressway project.

“The demand for aggregate will go up because of the road building programme and other major projects, such as the metro,” says the local contractor. “On a big road project, a contractor can use over 1 million tonnes a year. I expect the market to be very tight after Ramadan next year, when the projects being tendered have been awarded and mobilised.”

The anticipated spike in demand will put pressure on a supply chain already showing signs of strain. The organisation charged with ensuring steady supplies of basic materials for the construction industry is Qatar Primary Materials Company (QPMC), which was established by the government in 2006.

QPMC’s main operations involve the supply of aggregate and Gabbro rock. The company is developing stockpiles to meet any sudden spikes in demand, and with the closure of Qatar’s quarries, is upgrading its existing import facilities at Mesaieed port. According to sources in Qatar, the company already has a stockpile of 2 million tonnes of aggregate, but wants a strategic reserve of 6 million tonnes. However, its efforts are further squeezing the supply chain.

“The price of aggregates has not risen,” says another Doha-based contractor. “The moorage price has increased because the port is busy receiving barges with material for the stockpile. That means the standard price for aggregate here at the moment is QR79-80 ($21.70-21.97) a tonne, when it should be where it was in January last year at QR60-64 a tonne.”

Port facilities in Qatar

With no domestic quarries producing aggregate, the pressure on port facilities will increase as companies are forced to rely on imports from quarries in the UAE and Oman. To increase capacity at the port, QPMC is planning to build new facilities capable of handling 30 million tonnes a year of gabbro.

It received bids from five contracting groups in October for an estimated $275m engineering, procurement and construction contract to build the additional facilities, which comprise five main components.

The first is a four-lane conveyor system with a 4,000-tonne-an-hour (t/h) capacity for each lane. It will be used to transport bulk aggregate materials five kilometres from cranes on the berths to a new bulk store yard. The second element is six 25km-long stacker lines, each with a capacity of 4,000 t/h. The third is three fixed hoppers that can discharge 200 t/h to trucks on a conveyor. The fourth is a material switching system that allows material from any conveyor to be fed to any stacker. The fifth is an internal stockyard road network and 12 truck-weighing systems at the exit of the stockyard.

QPMC has secured imports by signing a string of supply contracts with quarries in the UAE and Oman, which, after the regional real estate collapse of late 2008 and 2009, have been seeking new customers.

With supplies secured and a port capable of handling and processing them, Qatar should be able to ensure that the contractors working to deliver the infrastructure for the 2022 World Cup do not experience shortages or drastic price increases. The next hurdle will be moving these materials around Doha. As the pace of construction accelerates, this will become a considerable challenge. 

Key fact

Qatar’s Public Works Authority is planning road projects worth a total value of $27.5bn

Source: MEED

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