Hope of work stirs industry confidence (1 of 2)

28 July 1995

The STIRRINGS of economic recovery across the Middle East region have given fresh impetus to the construction sector

after a lean period. Gulf Arab states are reaping the benefits of a rise in oil prices, and substantial project activity is being recorded in the UAE and Saudi Arabia in particular.

The constraints of the early 1990s impelled many governments to seek private sector help in carrying out infrastructure projects. Build-operate schemes are now starting to take shape, with Oman, Turkey, Pakistan and Lebanon leading the way. For international contractors, Lebanon has been a major draw. It is offering a wide range of privately and publicly funded projects as reconstruction activity accelerates and many leading firms have put down fresh roots in Beirut.

Below, MEED writers outline the main areas of opportunity for contractors throughout the Middle East and North Africa.

CONSTRUCTION work has been largely confined to the hydrocarbon and housing sectors by government spending cuts. The current security situation means local companies carry out most brick and mortar work, while foreign companies tend to limit themselves to engineering services and construction supervision where a high technical standard is required.

The most important construction projects in the coming year will be part of a revived plan to create new cities to tackle the urgent demand for housing. The first scheme to go ahead is a new town near Constantine, where construction started earlier this year on the first 6,000 homes. Eventually, some 300,000 people are to live in the area, according to the masterplan of the Agence Nationale de l'Amelioration & du Developpement du Logement (AADL). Part of the terrain is to be developed as an industrial area for small and medium enterprises. The government will finance most of the scheme and is hoping to attract private investment into the industrial zones. Similar projects in Algiers and Boughzoul were approved by the government in April. AADL and local consultants are preparing the designs, and construction tenders are expected in early 1996.

The government is making attempts to revive the Algiers underground project, parts of which have been under construction for many years. International contractors have been invited to bid for more work but further progress is expected to be delayed until more funds are available and the security situation has improved. BAHRAIN'S contractors are more optimistic about the second half of 1995, after lean pickings in the first six months of the year. Uncertainties caused by political protests which started in December 1994 restrained any real momentum in a sector already suffering from low oil prices and continued government cutbacks.

While calm appears to have returned to the political scene, the squeeze on government spending is set to continue and contractors' real hopes are pinned on the development of privately financed schemes.

A few projects did move ahead in early 1995, such as the Bahrain Aluminium Extrusion Company (Balexco) expansion, Bahrain Hotels Company's expansion, and the Bahrain Alloys Manufacturing Company's new plant near Aluminium Bahrain (Alba).

The appointment of a new oil and industry minister, Sheikh Isa bin Ali al-Khalifa, and a new power and water minister, former under-secretary Abdulla Mohammed Juma, in June, is expected to provide a stimulus for projects which have been on hold for some time. The build-own-operate gas-fired power station and the new desalination plant at Busateen, are expected to move ahead by the end of the year.

By mid-year, new small-scale industrial schemes were surfacing, such as the $15 million automotive battery plant at Askar. The local Modern Mechanical picked up the construction contract. India's Gadgil Western Corporation also announced in June that it is establishing a $44 million fuel oil processing plant at Hidd. Gadgil has formed a joint venture with the local Mannai Corporation.

Consultants bid in June for the $200 million port and industrial free zone at Hidd which is expected to kick-start a range of new projects. The Arab Shipbuilding & Repair Yard (ASRY) announced it would proceed with a related scheme to dredge and build a new jetty, sharing the dredging costs with the Hidd project.

Alba provided extra stimulus in May with the start of its $130 million expansion. The expansion will be on a multi-contract basis, in about 15 packages, and local contractors will be chosen where possible, Alba says.

Other large projects expected to go ahead this year include the urea plant for Gulf Petrochemical Industries Company (GPIC). GPIC has been evaluating bids from five international companies for the lump sum turnkey contract since early 1995; the commercial bids were opened in mid-June.

THE NIGHT-TIME Cairo riverfront is a blaze of lights this summer as workers toil round the clock on the Giza side of the Nile to build a new landmark. John Laing International of the UK and Egyptian partner CRC Hassan Dorra are working on the scheme. They are building a twin-tower residential and commercial complex for the First Arabian Real Estate & Tourism Investment Company, which is owned by private Egyptian and Gulf interests.

The total contract value is about $94 million, making it one of the largest building projects carried out in Egypt for several years.

The twin towers are soon to be matched by a similarly ambitious scheme on the other bank of the Nile, a little further downriver. This is the 750-room Conrad hotel, for which the local Orascom has just started work on the substructure. Laing/CRC are among eight companies preparing to bid for the main construction contract. The others are Besix of Belgium, Costain of the UK, Dragados & Construcciones of Spain, Dillingham Construction Company of the US, Japan's Kajima Corporation and Daelim of South Korea. Total costs are estimated at about $100 million. Bechtel of the US is working as project manager for both the Conrad and the twin towers projects.

Outside Cairo, the main construction opportunities are in the tourist areas of the Red Sea and Sinai. Kajima is now working on a contract to build two hotels on the Abu Soma peninsula, south of Hurghada, for groups led by the Egyptian Finance Company. Italy's Ansaldo is carrying out the infastructure work. Further up the coast, National Bank of Egypt is putting together a consortium to develop the prime Sahel Hashish area. It is to be capitalised at $200 million. This scheme and the Abu Soma project are drawing on funds from a $130 million World Bank loan for tourism infrastructure.

A cluster of smaller projects are being carried out on the south Sinai coast, where tourism has prospered despite the general downturn of the past three years.

Infrastructure projects will continue to provide a steady source of business for construction companies. Talks have started on building an extension of the second line of the Cairo metro beneath the Nile to Giza, with the French-led consortium constructing the first section of the line. Consultants are also being appointed to do detailed designs for a metro in Alexandria. Japan is appraising another ambitious transport project, the construction of a road and rail bridge over the Suez Canal.

The most prestigious construction project, however, is the Alexandria Library, on which work has just started (see page 32)

THE START of self-rule in the Gaza Strip last year sparked a flurry of building activity. The Palestinian National Authority (PNA) says more than 80 new residential and office blocks have been completed in the past 12 months, and estimates that a further 70 are under construction.

Increased demand and the impact of Israeli border restrictions during the first four months of the year sent cement prices in Gaza soaring. Delivered cement in Gaza is currently about NIS 290 ($98) a tonne. The UK branch of the US' Bucheit International is set to benefit from the activity in the construction sector. The company, which has received $3 million of political risk insurance from the US' Overseas Private Investment Corporation (OPIC), has set up a pre-cast concrete plant in Deir al-Balah and has secured contracts from the private sector as well as development agencies.

Of the $1,200 million pledged by donors to the emergency rehabilitation programme for the first three years of self-rule, only about $60 million has been spent on development projects. About half of allocated funds has been spent on the running costs of the Palestinian administration. Of the $60 million spent, most has been targeted at small-scale rehabilitation projects. However, donors and the PNA have agreed to begin larger and more visible projects.

The projects to watch:

In May PLO Chairman Yasser Arafat signed a $16 million contract with Palestinian/Egyptian Arab Contractors Company (Palestine) to build a civilian airport at Rafah in the Gaza Strip. Work on the project is expected to begin during the summer and is being financed by soft loans from Egypt and donor assistance.

Local and German firms are expected to be invited to bid for the upgrading of the Salfeet wastewater system in the West Bank by the end of the year. The $7.2 million project includes the construction of a 15-kilometre sewerage canal network to serve Salfeet and the catchment area of the Ain es-Sika spring.

The effect on the Gaza economy of the Israeli border closure at the start of the year has highlighted the urgent need for a fixed port in Gaza. A pre-feasibility study has been completed for a $60 million port on the outskirts of Gaza City and an environmental impact study is being undertaken. The port is likely to be constructed by French and Dutch contractors with funding from their governments.

The Palestine Real Estate Investment Company is planning to issue the first tender documents by the end of the year for up to $400 million of housing projects in the Gaza Strip. The real estate firm is 49 per cent owned by the Palestinian Development & Investment Company (PADICO).

The Sallah al-Din Tower Project has permission from the Israeli authorities to build an $8 million 4-storey hotel and shopping centre in the heart of East Jerusalem. The company is negotiating with Qatar's Salam International Investment for project finance.

The US' GRdG International is pressing ahead with plans to build a five- star hotel north of Gaza city which will be managed by the Marriott Corporation. The company is currently negotiating financing arrangements with OPIC.

IRAN'S construction industry, which saw a boom in housing and other sectors in the early 1990s, continues to prosper, despite the subsequent economic downturn. There are ample state-funded infrastructural projects, the housing market has seen a revival, and local contractors are optimistic at a time of hard currency shortages.

Thirty large dams, and some small ones, are under construction. At least two of the dams, Godar-e Landar and Karun-3, are among the biggest in the world and involve considerable work by foreign companies.

Construction has started on Godar-e Landar, which will produce 2,000 MW upon its two-stage completion, despite uncertainty over the second tranche of a Y 120,000 million ($1,450 million) concessionary loan by Japan. Ilbau of Austria completed two diversion tunnels in early 1995, and South Korea's Daelim Industrial Company has the civil works contract.

The Iran Water & Power Resources Development Company (IWPRDC) projects the total cost at well over $3,000 million, and is requiring that 55 per cent of work be done by local companies. The state company has meanwhile awarded the construction contract for the Karun-3 dam on the Karun river which will have an eventual capacity of 3,000 MWs, to the local Sabir Company. Sabir may work with Brazil's Construtora Andrade Gutierrez.

Local companies are now completing two other big dams, Shahid Abbaspour and Barun, and are working on several others.

The Brazilian company, in partnership with a local firm, has won the lion's share of work on another prize construction project. This is the Tehran water drainage scheme, for which there is a $77 million World Bank loan. Further awards for the scheme are expected in 1995, with the supervision contract going to a foreign firm.

Ambitious plans for airports and railways have also attracted considerable interest. More than 40 airports are planned, or are being built, and several rail lines are being double-tracked. A 140-kilo-metre railway line is now being completed between Mashad and Sarakhs and two longer lines connecting the Turkmenistan border directly to Bandar Abbas and Chahbahar are now being promoted to potential foreign investors.

Plans for several luxury hotels in Tehran and elsewhere, including a contract with Sweden's Skanska International Building for a $73 million project in the capital, have been slowed down by hard currency problems. However, local contractors have their hands full with various big municipal schemes, including vast commercial centres and a project for 1,000 department stores.

The housing market had slowed down in 1994 after a boom in earlier years. But house prices went up by nearly one-third in the first half of 1995, encouraging developers to complete or start high-rise residential and commercial buildings, which nowadays dominate Iran's urban skyline.

JORDAN is gearing up for the second Middle East and North Africa economic conference to be held in Amman at the end of October. In May the government unveiled a preliminary list of projects with a total value of JD 4,000 million ($5,880 million) which it would like to realise in the coming years, with international assistance if it can be secured. The list included JD 35 million ($51 million) for the expansion of Aqaba port and JD 1,140 million ($1,670 million) towards projects to develop the tourism infrastructure.

In 1995 construction opportunities arose in the water supply and wastewater sector, transport and tourism sectors. Projects include:

Ras al-Naqab-Aqaba road. Bids were opened in late June for the construction of the 70-kilometre road. Work on the $42 million road is being divided into two sections and is being financed by loans from the World Bank and the European Investment Bank.

Disi aquifer-Amman water pipeline design. Financial offers from the four highest technical qualifiers were opened at the end of June. The project calls for a 340-kilometre pipeline and pumping station that will supply Amman with about 80 million cubic metres of water a year.

Amman Grand Hyatt Hotel and a linked trade centre in the Jabal Amman area of Amman. Amman Investment Tourism Company and City Investments Company have invited foreign contractors in joint venture to pre-qualify for the project.

Wadi Mousa water and wastewater project. Twelve US-led consortiums pre- qualified in May to provide engineering and services for the project which is being funded by the US Agency for International Development (USAID).

CONTRACTORS in Kuwait are having a quiet time. A number of major public construction projects are coming to an end, and new work from government ministries is hard to come by. The government is tightening its belt in an attempt to cut the country's net budget deficit, projected at KD 1,503 million ($5,133 million) in 1994/95, and the projects budget is feeling the squeeze. 'The public sector is still dying,' says one contractor. 'The chances of new mega-projects are slim.'

The industry breathed a collective sigh of relief on 30 April when the government published its budget proposals for the fiscal year 1995/96. In December 1994 Finance Minister Nasser Abdullah al-Rodhan had promised to balance the budget by 2000, entailing a deficit cut of KD350 million ($1,171 million) a year. Public projects were seen as a prime target for cuts. However, after a few months of higher oil prices, the government has decided it can achieve its goal through higher oil revenues. Expenditure has remained largely unchanged.

Anything more aggressive than a public spending freeze would have been grim news for contractors. Major long-term public projects such as Bayan Palace, Kuwait university expansions and the Kuwait telecommunications tower are coming to an end. With little new work in the pipeline, contractors are looking to operations and maintenance contracts to tide them over until better times.

The oil and petrochemicals sector is providing civil works opportunities. Construction of the Equate olefins complex in Shuaiba is planned to begin after the summer. Japan's Mitsui Engineering & Shipbuilding Company has begun work on the MAFP scheme at Mina al-Ahmadi refinery, and an award is also expected on Mina Abdullah refinery's acid gas removal plant.

The Ministry of Public Works is also providing some occasional opportunities. An award on the planned Riqqa sewerage treatment plant is expected soon. The local Mohamed Abdulmohsin Kharafi & Sons submitted the low bid of KD 19.9 million ($68.0 million). Detailed designs have been completed for the planned 275,000-cubic-metres-a-day Sulaibiya treatment plant which will replace the aging Ardiya station. The department is also planning a refurbishment of its existing sewer network.

An increasingly vigorous private sector promises to provide further opportunities, contractors say. A trend for new headquarters buildings is likely to provide prospects for those prepared to brave the unpredictable payments schedules of the Kuwaiti private sector. The extent of future cuts in the public sector budget will decide just how many contractors take the plunge into the private sector market.

THE CONCRETE mixers are on the move, as work has got underway on the project to rebuild Beirut as a latter-day Manhattan on the Mediterranean. For construction companies, Lebanon has been a magnet. Major public projects, such as the expansion of the airport and the port rehabilitation, have attracted scores of prospective bidders, and the Solidere scheme to revitalise Beirut's historic centre is already providing some attractive opportunities.

The substantial contracts let in the past 18 months have included:

The airport expansion - Germany's Hochtief with Athens-based Consolidated Contractors International Company (CCC), won the contract for some $400 million. The scheme is part-financed by the European Investment Bank (EIB) and the Kuwait Fund for Arab Economic Development. Work is now well under way.

Cite Sportive de Beyrouth (Beirut sports stadium) - Trafalgar House Construction International of the UK signed the $49.6 million main contract for this prestige project in 1994. Civil works have been subcontracted to the local Al-Amiouny International, and the UK/local Ellis Sukkar joint venture is doing electromechanical works. The 49,000-seat stadium and a multipurpose sports hall are for completion in June 1996, in time for the Arab games, to be held in the autumn of that year. Financing for the first phase is coming from Saudi Arabia and Kuwait. Prime Minister Rafiq Hariri is a frequent visitor to the site.

Solidere infrastructure - the local Khlat & Moawad and its Italian partners Consorzio Cooperative Costruzioni are working on the $63.7 million first phase of the project of rebuilding the infrastructure of the Beirut central district (BCD). The project is financed by Solidere, which has been reimbursed by the government in the form of reclaimed land.

Beirut university hospital - a joint venture of Saudi Arabia's El-Seif Engineering Contracting and the local Alfed Matta won this $44.7 million contract in 1994. Construction work was interrupted in May this year when a consignment of toxic waste was discovered beneath the site of the 360- bed hospital being built in south Beirut. It is being financed by Saudi Arabia and the Islamic Development Bank.

Casino du Liban - the local/Saudi Almabani General Contractors has the $25 million contract for the first phase of the casino's refurbishment.

More major contracts will be signed or bid for in the next few months. They include:

Beirut-Syria toll road - two European groups are competing for the build-operate- transfer (BOT) contract for an expressway to the Syrian border. It has been suggested that the government may decide to pool the award of the estimated $500 million-750 million contract to secure sufficient equity. One group is led by Dumez of France, the other is a consortium of France's Bouygues and two German firms: Walterbau and Dyckerhoff & Widmann. An award is expected within three months.

Beirut port - some 40 international companies have prequalified for this estimated $150 million project. Three packages are for civil works, and the fourth is for a power unit. Bids are due to be invited soon. It is part-financed by the EIB.

Tripoli international fair complex - seven international companies have prequalified for the BOT project to rebuild the Rashid Karami international fair complex in Tripoli. The construction companies leading the groups are: Almabani, Bouygues, CCC, Mohamed Abdulmohsin Kharafi & Sons of Kuwait, Harbert International of the US, Athens-based Joannou & Paraskevaides, and Wimpey Construction of the UK. The fair complex is on a 100-hectare site and comprises 28 buildings and associated structures. Building work was interrupted with the start of hostilities in 1975. The new contract entails completing the project and extending it to include a 200-room five-star hotel. It will also involve operating the complex for a fixed time, after which it will be transferred back to the government.

Beirut conference centre - bids from Bouygues, Almabani and Saudi Binladin have been under evaluation since January for this estimated $250 million project.

Beirut university - bids were submitted in mid-July for this estimated $200 million contract to build a new campus in Hadath, on the southeast fringe of the city. It is financed by Saudi Arabia and Oman.

Solidere - companies are preparing to bid by the end of July for the estimated $300 million contract to build marine defences for the BCD. Maunsell Consultancy Services of the UK has been appointed project consultant. Solidere is also planning to invite bids for the second phase of infrastructure work for the BCD.

The Solidere scheme is now starting to present significant openings for building designers and construction management firms. The company itself is going ahead with a number of projects, such as the refurbishment of the Murr tower and the recreation of the old souks. Some 12 sites in the BCD have been sold to developers, including big names like CCC, who are working on final designs to secure building permits.

On the fringes of the BCD, some major property development schemes are going ahead. These include the reconstruction

of the Phoenicia hotel and the establishment of a twin-tower commercial and residential complex by a venture launched by New York-based businessman Ziad Abdel-Nour

On the other side of Beirut, a group of investors led by the Gefinor Group and including prominent figures in local, Syrian and Saudi business, is planning to build a complete, self-contained residential and commercial district on a site in Hazmieh.

Foreign companies have found Lebanon fertile ground for engineering and construction management. Much of the actual building work and architecture is done by Lebanese firms.

APART from oil field development and oil or gas pipeline construction work, the great manmade river (GMR) is the only large-scale project the government is pushing at present. However, most new work is awarded directly to companies already active on the scheme through contract extensions, rather than offered for international tender. Dong Ah of South Korea is negotiating with the GMR authority to have its contract on phase 2 extended to include a further 1,000 kilometres of water pipeline and well drilling.

A source of smaller contracts is the expansion of local factories producing consumer goods or construction materials. Many of these enterprises are expanding to feed a thriving overland export trade with neighbouring countries, which has developed partly to compensate for the loss of business under the UN-imposed air embargo.

THE GOVERNMENT is launching programmes to catch up with infrastructure requirements throughout the country. It will spend some $1,200 million over the next five years to build low-cost housing and expand the water supply system. The first projects are to go to tender this year.

In July, contractors will be invited to bid for the first of 150 housing projects planned in the major cities and rural areas as part of a scheme to rehouse slum dwellers.

The programme calls for 200,000 homes in total, of which 48,000 are to be built by 1999 in a first phase. The priority tranche includes some 10,000 homes in Fes, 8,000 in Casablanca, and more than 5,000 in Meknes. The largest contract, for 22,000 homes in Sale to be built on a fast-track basis, is being negotiated with France's Bouygues. Most of the programme cost, estimated at MD 7,000 million ($837 million) for the first phase, will be covered by the state. The Housing Ministry says it will borrow MD 5,000 million ($598 million) from local banks to finance the project. A 15,000- apartment project in Casablanca is to be financed by Beadya Finance Corporation of Israel, if it receives approval in mid- July.

The World Bank and other multinational lenders are financing most of the water supply extension programme, aimed at the main urban centres and smaller towns. The first project to go ahead will be an estimated $140 million expansion of the Casablanca system, for which bids will be invited in the second half of 1995. A team of consultants led by France's Sogreah is preparing a masterplan for Casablanca. Masterplans are also being made for Rabat, Agadir, Marrakech, Kenitra, Fes and Meknes.

The $380 million Rabat-Fes motorway project is at a more advanced stage. A local consortium led by Al-Hajji and an Italian group led by Sistemi Ingegneria have just started building two out of five sections of the motorway. The third section, for the 50 kilometres between Meknes and Khemisset, is to be awarded this summer, with tenders for the last two sections to follow soon afterwards.

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