THE need to save money is the main issue in Middle East construction markets this summer. The oil price slide of last year has affected spending capabilities for this year in quite startling ways. In an extreme effort to achieve a balanced budget for the first time since 1982 Saudi Arabia set out to slash spending by 20 per cent. Other GCC states are making similar economies.

The casualty in such conditions is capital spending, with government construction budgets among the first to be reviewed. Projects may not to be cancelled outright but specifications and schedules are being revised. Schemes are more likely than ever to be rebid in pursuit of the lowest possible prices.

Despite the slower trend of recent months the region has a rich seam of project opportunities to mine. Inevitably, the one area of construction that is unlikely to be affected is essential infrastructure. This is apparent in the largest Gulf market, Saudi Arabia, where major power and water projects will be about the only area of capital spending to be spared.

The government is trying to reduce its defence infrastructure building programme and is delaying payments to contractors by up to 12 months in an effort to cut its outgoings but basic needs have still to be met. Shortages of electricity and water are a persistent problem in the Gulf states as demand is growing at rates of 10 per cent a year or more.

The kingdom has plans for four power projects which could add a total of 5,600 MW of new capacity. A smaller project for the 300-MW expansion of PP8 is close to being awarded and financing is being prepared for the 1,200-MW PP9 project, to be built by General Electric and its local affiliate. Shuqaiq and the 2,400-MW Ghazlan power plant are to follow.

Water transmission projects which are linked to newly built desalination units will provide similar openings over the next 12 months. The Shuaiba to Jeddah twin pipeline and expansion of the Shuaiba-Mecca-Taif pipeline are the leading schemes. A string of industrial projects in Saudi Arabia will be the other main area of construction activity in the months ahead. These include an oil seed crushing plant, a soda ash plant and a ferro- alloy plant. The Saudi Petrochemical Company is starting a $1,000 million expansion.

But, the private-sector property development and construction market in the kingdom is slowing down. The proliferation of office and retail developments since the end of the Kuwait crisis has now reached saturation point and banks are cutting back on their property lending.

Financing is becoming a critical issue in Saudi construction. There have been contacts with agencies such as the UK’s Export Credits Guarantee Department (ECGD) and, despite the official reluctance, borrowing looks inevitable if more of the kingdom’s priority projects are to go ahead.

Elsewhere there is similar evidence of the slowdown. The UAE has seen an extraordinary construction boom over the last three years which is now past its peak. At the behest of the Khalifah committee much of urban Abu Dhabi has been torn down and redeveloped but state spending is now being reined in. Several major road projects have been cancelled or delayed since the spring in a clear effort to save money.

The building boom in Dubai is also easing. Rents have reached a ceiling and are dropping in some sectors due to the lack of demand, discouraging construction of more of the huge towers that have sprung up along the Abu Dhabi road. Developers are also worried that all the new shopping malls will only fill up by poaching each other’s clients.

Yet, Dubai is still investing in infrastructure to make sure that it retains its edge as the main Gulf entrepot. In mid-July, Consolidated Contractors International Company (CCC) won the $48.5 million contract to upgrade the World Trade Centre interchange which is essential if traffic is to keep flowing freely between Dubai’s two ports and the airport.

Construction for the oil and gas industries, a major draw for international contractors and engineers in recent years, is also reduced. In Saudi Arabia, Saudi Aramco’s capacity expansion programme is being wound down and contracts for the one outstanding project, the Ras Tanura refinery revamp and expansion, have been let this summer. The contracts with JGC, Stone & Webster and Bechtel, worth a total of $700 million, are the last big deals in the present round of Aramco capital spending.

Kuwait is likely to be the main focus for oil and gas projects in the year ahead. Several major awards are pending, for new gathering centres, refinery upgrades and a major petrochemicals scheme. Kuwait has a long list of projects which augur well for the rest of the decade. After an exceptional burst of activity in Qatar there are still more projects planned which should ensure a healthy level of international involvement for some time to come (see page 40).

Outside the core GCC markets, Lebanon and the occupied territories are the major areas of opportunity. Lebanon’s reconstruction has been planned with panache and international interest has been intense (see page 26). Hopes for construction in the self-rule areas of the West Bank and Gaza are more tenuous. Big pledges have been made for Palestine but the political and economic climate is still extremely volatile.