High costs deter contractors on $7bn Jizan refinery

07 October 2012

Prequalified firms decline to bid for certain contracts, citing challenging nature of the scheme

International contractors vying for engineering, procurement and construction (EPC) packages at Saudi Aramco’s $7bn Jizan refinery project in the south of Saudi Arabia have declined to bid for some contracts, despite being prequalified to do so.

Several international contractors were prequalified to bid on all, or most, of the packages made available by Aramco. However, many have cited increased costs and higher risk as reasons for declining to participate in the bidding process for some of the work.

“Jizan is a remote place and we were being quoted prices by subcontractors that, in some cases, were more than 40 per cent higher than if the project was in Jubail [in the Eastern province],” says a Saudi Arabia-based contracting source. “Plant equipment hire, crane hire, catering and security are anything between 25 and 40 per cent more.”

Most contractors have decided to concentrate on winning the higher-value process packages at Jizan and take-up for some of the other packages, such as the tank farms, is believed to be as low as 40 per cent.

“No contractor wants to take on too much work at Jizan because it is in such a remote area of the kingdom,” says an oil and gas source based in the Middle East. “It is very difficult to get to, so many of the bidders do not want to mobilise too many workers to the area because the risk is too great for them. Not delivering on one of Saudi Aramco’s pet projects is something no company wants to do.”

Bids for the packages are currently under evaluation and, due to the increased costs incurred for the Jizan scheme, the clarification process is expected to take longer than usual. Awards are expected in early 2013.  

The refinery will have a capacity of 400,000 barrels a day (b/d) when completed in 2017 and will be wholly owned by Aramco. Due to the distance between the oil fields and Jizan, crude and the subsequent refined products will not be transferred by pipeline, but will enter and leave exclusively through the marine terminal. The US’ KBR is carrying out the front-end engineering and design (feed).

A MEED Subscription...

Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications