LEBANESE reconstruction has so far promised rather more than it has delivered for international contractors. Interest in the market is still strong – two recent prequali fication tenders, for the Phoenicia Hotel refit and the construction of a new British embassy, each attracted more than 30 bids. However, contractors emphasise that these two projects are exceptional, in that it is quite clear that they are adequately financed.
Many other ambitious projects are at various stages of planning and tendering, but their financial underpinning is far less evident.
The Council for Development & Recon struction (CDR) awarded a series of substantial infrastructure contracts in 1993-94 for work on restoring power and telephone services, expanding Beirut airport and rebuilding the city’s sports stadium.
Lebanese contractors also picked up a number of major contracts, including the infrastructure for the Beirut central district (BCD) and roads north and south of the capital.
Foreign aid is the source of finance for many of these contracts. The government is covering most of the costs of the telephones and airport contracts, but on the basis that they will eventually pay for themselves by generating revenues.
However, the foreign aid allocated to Lebanon in the first flush of reconstruction has dwindled, and the government has manifestly failed to get anywhere near its target of generating current budget surpluses to pay for new projects. Contractors are having to rely more and more on private sources of finance, even for infrastructure schemes. Lebanon has made some progress towards raising such finance, through international bond issues and country fund launches, but there is still much work to be done before attractive financial packages are matched to effective contracts.
Not surprisingly for a country with such a strong entrepreneurial tradition, there is a rapidly growing list of build-operate-transfer (BOT) projects. At the top of the list are two toll road schemes: the 60-kilometre Arab Highway running from Beirut to the Syrian border and a 23-kilometre stretch of ring road around Beirut. The franchise for the first road has gone to a French consortium of Dumez (51 per cent) and Bouygues (49 per cent), backed by French banks. The road will cost an estimated $750 million to build. The consortium will recoup its investment through tolls, expected to be fixed at around $0.07 a kilometre. the consortium for the estimated $350 million ring road comprises two German firms – Walterbau and Dyckerhoff & Widmano (40 per cent each) – and Bouygues (20 per cent). Schroder Asseily is financial advisor.
Formal franchise agreements
The two groups are now working on the establishment of concessionaire companies that could be listed in Beirut. Once the companies have been formed, they will sign formal franchise agreements and start mobilising for construction. probably towards the end of 1996, assuming all the details can be hammered out by then.
The road projects have made more progress than other BOT schemes. A plan to build a estimated $350 million cultural and conference centre on a prime site on Beirut’s sea-front has been relaunched, after what the government described as a disappointing response to its original tender. The Investment Development Authority of Lebanon (IDAL) has now taken responsibility for raising $175 in equity to get the project started, but says this is now only at a preliminary stage. IDAL has also invited bids for the construction and operation of three free zones, at Beirut airport and two military airports in the north and east of the country.
These projects will be among the prin cipal targets of a cluster of new investment banks and funds formed in Lebanon over the past year (Banking MEED Special Report, 8:3:96, pp 13-15).
Construction firms have also been closely watching the progress being made by property corporation Solidere in developing the BCD. There are three main categories of work in the Solidere orbit. The first comprises the major infrastructure contracts for which Solidere is paying, but has been reimbursed in the form of extra land from the government. The second category includes construction projects in the BCD being carried out by Solidere, such as the Beirut Trade Centre building (formerly the Murr Tower) and the reconstruction of the traditional souks. In the final category are new building schemes carried out by developers who have bought land from Solidere.
The first stage infrastructure work is now well underway, but Solidere has had problems finalising the contract for the sea defences. Bids for the design and construction of the 1,000-metre long sea wall were submitted in July. The prices were all significantly over Solidere’s budget of about $180 million, and a lot of work has been done trying to sort out the best design approach.
The bidders are Bouygues of France, Spain’s Dragados & Construcciones and a consortium of Interbeton of the Netherlands and Tarmac Overseas of the UK.
After the bids came in, Solidere appointed the UK’s Maunsell Consultancy Services as project engineer, and a Danish partnership of Christiani & Nielsen and COWlconsult as construction manager. Project sources say they expect a contract award by July, or else a retender.
Progress has also been slow with some of Solidere’s own development projects, as the company has made repeated revisions to its designs. However, contractors say they expect awards during 1996 for the trade centre building and the underground car park beneath the souks. Private developers are now in the process of commissioning designs for a number of commercial and residential schemes in the BCD, which could lead to approaches to contractors in the second half of the year.
In terms of major government construction tenders, there have been no contracts signed with international companies for more than a year. The next award is likely to be an estimated $190 million contract for the new Beirut university, to be signed soon with a consortium of Ed Zueblin of Germany, Turkey’s Tekser, the local Arabian Construction Company and Milne & Nicholls of Canada. It is financed by Saudi Arabia and Oman. This will be followed in April by the submission of bids for the estimated $150 million EU-financed contract to expand Beirut port, which was delayed in 1995 by a problem over prequalification.
In the private sector, contractors will be looking in particular at a number of hotel reconstruction schemes. The first will be the Phoenicia refit and expansion, for which some $80 million in equity and loan finance is being raised. Next in line will be the refurbishment of the Holiday Inn and the Hilton (in the BCD and the construction of a new Sheraton hotel in the Ramlet al-Baida area.
Despite the apparent abundance of new project work, competition remains extremely tight. Foreign companies frequently find themselves bidding against local firms quoting rock bottom prices for clients driving hard bargains.