Update: Qatar increases budget, but project awards decline

Impact of the crisis on Qatar projects market

Projects are likely to be delayed by disruption to their supply chains and the result is likely to be an increase in claims and disputes.

The restriction on imports of goods is likely to see construction costs rising while the increase in political risk will reduce interest from firms with major operations in the UAE and Saudi Arabia in upcoming tenders, as well as reduce interest from risk-averse international companies, putting local players in a stronger position.

It is too soon to say if there has been an immediate impact on current projects. Tenders are still ongoing and there has been no news of any schemes being cancelled, or of contractors withdrawing from bidding.

There has been a reprioritisation of projects in Qatar’s infrastructure sector since 2016, with the government selecting to award deals linked to the delivery of the 2022 Fifa World Cup.

The crisis, which, if prolonged, would raise questions about the future of the World Cup, could result in World Cup-related schemes being put on hold, be they roads or rail projects.

There will definitely be an issue in terms of cash flow.

Qatar Railways Company, for instance, has to pay each of the Doha Metro main contractors at least $100m a month until the project is completed in 2019. If delivery of materials get blocked, resulting in project delays, who will ultimately bear the cost of the delay? There will be major opportunities for legal disputes.

It is foreseeable that most international contractors will consider walking away from bidding for new schemes given the enormous risks. One international contractor in the infrastructure sector has already initiated moves to pull out of the Qatari market prior to this crisis due to difficulty in conducting business.

Impact on the 2022 Fifa football World Cup

It is too early to say what the crisis might mean for the World Cup in 2022, but significant delays to projects could affect the delivery of the event.

Impact on transport and infrastructure projects in Qatar

New major transport projects including the expansion of Hamad International airport, the long-distance railway and some packages under the Hamad Port scheme have been delayed since last year.

The crisis will likely further extend or prolong the decision-making process. Closure of neighbouring countries’ airspaces will effectively ground Qatar Airways as well, which means, unless the crisis is resolved quickly and effectively, expanding the airport will probably be unnecessary.

Impact on power and water projects in Qatar

For major power generation and water projects under construction – such as the Facility D independent water and power project (IWPP) – projects are being developed by Japanese developers with European and South Korean contractors. So apart from maybe some logistical issues getting materials/workers in, it should not affect projects in terms of relationships/contracts.

Japan’s Mitsubishi/Tepco are lead developers, South Korea’s Samsung C&T is engineering, procurement and construction (EPC) contractor, and Germany’s Siemens is the turbine supplier, so there are no companies from some of the countries that have cut ties with Doha. There may only be some issues if Siemens was planning to import turbines from its new Saudi turbine factory, although this is unlikely to be a major issue due to Siemens’ significant capacity to build turbines in Germany and elsewhere.

The next major generation/desalination project is the Facility E IWPP, scheduled for tender in late 2017/early 2018. If the crisis is sustained, it would likely have an impact on Saudi Arabia’s Acwa Power bidding on the scheme. Acwa Power is the second-largest developer of power and water projects in the region, and has been the most successful in winning new work throughout the GCC and Middle East and North Africa (Mena) region over the past three years.

On the transmission and distribution side, however, the situation is more troubling. Major contractors from Saudi Arabia and Egypt are carrying out some of the largest packages on Qatar’s programme to expand and develop its national grid. The cutting of ties with Qatar from Saudi Arabia and Egypt may have a significant impact on the future of these schemes in their current form.

Saudi Arabia’s National Contracting Company (NCC) has been awarded several major deals (worth hundreds of millions of dollars) under phase 12 of Kahramaa’s transmission and distribution development programme; the current political crisis may have an impact on these.

Also, Egypt’s Elsewedy Cables is heavily involved in phase 12 of the programme – the cutting of ties may have a significant impact on this work and the development of Qatar’s grid, which needs to be expanded to cope with extra capacity coming online, as well as several projects being developed in preparation for the 2022 World Cup.

For transmission phase 13 schemes, big contracts were recently awarded to Siemens and India’s Larsen & Toubro for these and they are unlikely to be affected by the crisis.

In the water sector, the Musaimeer pumping station was already facing delays in tendering and awards before the crisis due to cash flow problems with the Public Works Authority (Ashghal). As has been reported on MEED, Doha had already started to rationalise spending and only move ahead with projects deemed essential. This may be exacerbated by the crisis.