EGYPT: Reforms usher in boom time for contractors

25 July 1997
SPECIAL REPORT CONSTRUCTION

The success of Egypt's economic reforms promises to usher in a boom period for the construction sector. Investors - Egyptian, Arab and international - are setting up a host of new projects, many involving prestige construction contracts, and the government is moving ahead with a number of major infrastructure schemes which will require considerable input from top class construction firms. The burgeoning gas industry is also producing some significant opportunities for contractors.

Major developments in the construction sector include:

Toshka - This is the project construction firms have been fighting over most intensely - the government's priority plan to pump water from Lake Nasser into an irrigation canal that will extend into the heart of the Western Desert. The key element is a pumping station to be built at the Toshka inlet, on the western shore of the lake. The contract to build this plant is estimated at about $400 million, and international interest has been intense. Six groups are expected to submit offers by the 8 September deadline. Each will comprise a pump manufacturer, with local and international civil works contractors and electromechanical equipment suppliers. Project sources say five of the pump-makers have made exclusive bidding arrangements. They are:

Mitsubishi Corporation of Japan, with Spain's Dragados & Construcciones, Athens-based Consolidated Contractors International Company (CCC) and the local Arab Contractors (Osman Ahmed Osman & Company);

Hitachi Corporation of Japan, with UK-based Kvaerner Construction, the local Arabian International Construction, and a team of consultants comprising Germany's Lahmeyer International and the local Hamza Associates;

ITT Industries of the US, with Balfour Beatty of the UK and Atkinson Overseas of the US;

JM Voith of Austria, with Germany's Bilfinger & Berger and the local Orascom; and

The Anglo/French GEC Alsthom, with partners including France's Campenon Bernard-SGE.

The sixth prequalified pump supplier, Sulzer Pumps of the UK, is said to be keeping its options open. Project sources say Sulzer has held discussions with a number of contractors, including Ed Zueblin and Dyckerhoff & Widmann - both of Germany - Impregilo of Italy and Industrial Construction & Engineering Company (SIAC) and Societe Egyptienne d'Entreprises (Mokhtar Ibrahim), both local.

The pumping station will be one of the largest ever built with a capacity of 300 cubic metres a second. Contractors say they are confident that finance will not be a problem. The government is lavishing huge attention on the scheme, which is billed as providing the key to Egypt's future, as the newly irrigated areas will create extra living space for Egyptians now crammed into the confines of the Nile Valley.

One investor who clearly believes in the New Valley dream is Saudi Arabia's Prince Alwaleed Bin Talal Bin Abdulaziz who is forming a company to develop almost half a million acres of land there.

BOOT power - The moment of truth is approaching for Egypt's first foray into the independent power project market. Bids are due to be submitted at the end of August for a 650-MW power station on a build-own-operate- transfer (BOOT) basis. Eleven groups have been prequalified, but project sources say there has been some consolidation, and it is expected that not more than eight bids will actually be submitted. The project has provided an opportunity for local construction firms to broaden their scope by taking an equity stake, as well as doing civil works. Firms like Arabian International Construction and Arab Contractors (Osman Ahmed Osman & Company) that have a good track record in power station construction are likely to figure prominently in the bidding.

Hotels/commercial complexes - A number of lavish new real estate developments are starting to take shape, many of them involving Saudi investors. The latest contract award involves the Cairo Meridien extension, for which Belgium's Besix with the local Orascom has been selected at a price of about $85 million. The hotel is owned by a Saudi Arabian group led by Prince Abdelaziz Ibrahim. The extension will be 35 storeys high, and will have 1,000 rooms. Bechtel of the US is working as project manager.

Bechtel is also involved in two other Saudi-backed schemes: the Nile Plaza commercial and hotel development in Cairo, and the Sharm el-Sheikh Four Seasons. Both schemes are joint ventures between Prince Alwaleed and the local Talaat Moustafa group. Contractors are awaiting invitations to bid.

Another Saudi investor making his mark is Fahd Shobokshi, who is involved in two Nileside developments in Cairo and the southern suburb of Maadi. The larger scheme, the Nile City complex, is just north of the Cairo Conrad hotel, being built by Besix/Orascom under Bechtel's supervision. The complex will consist of four towers, one of 50 storeys - the second highest in the Middle East. Founder investors Shobokshi and Orascom are looking to recruit Arab and international investors to join them. Besix is understood to have been approached for some of the construction work. The total cost of the scheme is estimated at $300 million.

Shobokshi is also investing in the estimated $70 million Maadi Satellite development, which will comprise offices, apartments, a hotel and a hospital.

At the other end of Cairo, in Heliopolis, the Jeddah-based Sharbatly group is pressing ahead with its Golden Pyramids Plaza project, which will include a hotel, shops, offices and entertainment and leisure facilities. The concrete works alone will cover 55,000 square metres. Bids for this part of the project are now under evaluation. Talaat Moustafa's Alexandria Construction Company submitted the lowest price of £E 135 million ($39.8 million), followed by Arab Contractors and the Saudi Binladin Group (SBG). Bids are due in early August for the contract to do finishings and electromechanical work.

SBG is a recent arrival on the Egyptian market, having bid unsuccessfully for the Alexandria library contract last year. This year it has been rewarded with two solid contracts. One is a $20 million order for the expansion of the runway at Cairo Airport, with the local Hassan Allam Sons Company. The other is a £E 280 million ($82.5 million), agreed in May, to carry out the first phase of the Rihab real estate development project northeast of Cairo for a group of investors led, yet again, by Talaat Moustafa.

Transport - Contractors have been waiting a long time for an invitation to bid for the estimated $400 million contract to build a third terminal at Cairo airport. The project seems to have been held up because of financing problems, which contractors suspect may be linked to the priority being given to the Toshka project (see above). The government says most of the financing will come from the airport authority's revenues, which are due to increase thanks to a hike in landing and hangar fees that went into effect from 1 July. There has also been talk of loans coming from the European Investment Bank.

Other transport sector projects will have to rely on private investors. They include a plan to build a container terminal near Port Said, which the Port of Singapore Authority is said to be appraising. Also on offer to investors is a series of toll roads, running the length and breadth of the country.

Oil, gas and industry - Two of the largest contracts awarded this year are for the development of new gas fields. Brown & Root of the US won the $169 million order for the Obeiyed fields, operated by Shell Egypt, and Samsung Engineering Corporation won a $207 million contract for similar work on the nearby Khalda field, operated by Repsol of Spain. Further orders are expected for offshore Mediterranean fields operated by Amoco of the US, Agip of Italy and BG of the UK.

Private investors are also coming up with a host of new projects, including fertiliser plants, oil refineries and petrochemicals plants, all of which will provide opportunities for construction firms.

Privatisation - The blossoming of Egypt's capital markets has started to affect the construction sector. Arabian International Construction (AIC) has been the first private firm to get involved, raising new capital through a highly successful private placement, and bidding to buy a stake in a public sector company specialising in power station erection. Where AIC has led, others will surely follow.

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