Low oil prices and political instability have made 2015 a year of change for the regions contractors, as funding is curtailed and decision-making slows.
With offices in every Arab country and operations across the oil and gas and construction sectors, Consolidated Contractors Company (CCC) has been at the forefront of dealing with these issues.
So far, the Athens-based contractor has managed to add to its order book significantly, with notable wins such as the $800m Lower Fars heavy oil development in Kuwait, $700m of work at Jizan with Saudi Aramco, the $1.2bn mega reservoirs scheme in Qatar, and the $500m Yibal Khuff central processing facilities in Oman.
Looking forward to 2016, the market is expected to be less forthcoming with new work, and CCCs president of engineering and construction, Samer Khoury, has started adapting his business to the new market conditions.
It is important for everyone to assume we are going to live in a period of low oil prices; if it doesnt happen fine, but you have to base your planning on that, he says.
CCC key facts
- Backlog: More than $11bn
- Orders in 2015 (by end of August): $3.8bn
- 2013 $4.5bn
- 2014 $4.5bn
- 2015f – $5.3bn
Main countries of operation Qatar, UAE and Saudi Arabia
The most immediate concern for contractors is the lack of funding for projects in markets where funding has traditionally not been a problem as governments were running budget surpluses and the private sector was liquid.
Lack of funding is definitely an issue, says Khoury. Some projects that were awarded eight months ago, we still did not get advanced payment. Then there is a lack of funding on new projects, and then there are delays to progress payments and the settlement of claims.
As existing projects suffer with funding, new schemes have struggled to move forwards.
We have lots of tendering activity and little being awarded, says Khoury. Only important strategic projects that go ahead, such as oil and gas and some other important projects, but whatever can be delayed, it will be delayed.
Delays are often unofficial. [On one project CCC is bidding for] we will spend the next three months doing workshops and value engineering even though we have already done the value engineering and met with consultants, says Khoury. I think they do not want to say the job is on hold. They want us to work for them for six months for free before they make the final investment decision.
Delaying awards gives clients an opportunity to ask for multiple best and final offers in an attempt to get better pricing from contractors. It is haggling, says Khoury. These jobs need to move, but not at the pace of before, [so clients] can take time, see how prices drop and play with our nerves.
Funding is expected to remain an issue as the market gets used to the new norm of lower oil prices.
Everybody today says the price of oil will stay in the $40-$50 or $45-$55 range, so everyone is reviewing budgets, expenditures and priorities, says Khoury. We as contractors are still very hungry and that is why whenever a job comes [out to tender], there are 10 people bidding. Even when these [critical] oil and gas and infrastructure [projects go ahead], we have a problem with cash flow, because the client is counting on us to fund it.
Compounding the cash flow problem are new limitations introduced by banks that fear they could be overexposed to an underperforming market.
The banks are becoming nervous and they are limiting their exposure with one company, says Khoury. [As a contractor] you now have to go to a more diverse pool of banks rather than just the usual suspects you work with to meet your requirements. The clients are being very smart, when you start from day one you have to fund the project, it is a negative cashflow.
Away from funding concerns, contractors are finding it increasingly difficult to find the staff and labour for their projects. The relaxing of regulations has made labour more mobile and able to transfer between employers more easily, and as the market adjusts to the new system, there has been instability for contractors seeking to hire workers.
We as CCC have a lesser issue because we have people working for us for many years, but still we are finding it difficult when we get new projects when we want to add specifically highly skilled [workers], says Khoury.
Offices in 45 countries
2015 workforce: 140,000 people (80 different nationalities)
Own construction equipment fleet: $1.2bn
For middle management, CCC and other construction companies are struggling to get visas for work in the Gulf for engineers and staff holding passports from many Arab countries.
With the wars in Syria and Yemen, we are having a very difficult time bringing in people from places such as Lebanon, Jordan, and Palestine, says Khoury. A company like CCC that has turned to these countries for years, we will now have to turn to new nationalities, such as Turkish and Indian workers.
The restrictions stem from heightened security concerns across the region due to wars in Syria and Yemen.
I can understand the governments point of view that security is very important, says Khoury. But my counter argument is that these people have been working for us for years and they have been earning in your countries for years and have behaved. So why assume that if there is a war in their country or neighbouring countries they are going to behave any differently.
As the market tightens, CCC has four key areas to focus on for the future. Firstly, it is looking to work more closely with its clients by forming alliances that will drive efficiency to the benefit of both parties. So far, the company has been in talks or has signed early agreements with developers that are planning to build hospitals and shopping malls, both of which are market niches where CCC has considerable experience.
We are trying to move into alliances with certain clients; I think this will be a trend, says Khoury. It will shorten time [and provide] benefits from lessons learned on previous projects, and at the end of the day, [the client] sees my books, sees the profit and takes half of it.
Another way of working with clients more closely is for contractors to provide equity for projects. CCC has started to explore this option across a variety of sectors.
We are following solar power plants on an IPP [independent power project] basis, and water [schemes] like we did at Al-Samrah [in Jordan] where we are building phase 2 with [Frances] Degremont and we are now talking about phase 3, says Khoury.
Another opportunity is in Jordan, where [UK/Dutch] Shell has built a pilot project for shale oil; now they want to go for phase 2. If we go with phase 2 in nine months, if production of oil is good and we can prove commerciality, they have offered us [an opportunity] to put in equity and build the plant for them.
Real estate is another investment opportunity for CCC. It is an investor and is working on the Omagine tourism development in Oman as well as the Saraya Aqaba scheme in Jordan. The company is also eyeing a leisure-related development in Tunisia.
For construction work without investment, CCCs main focus is large-scale infrastructure schemes.
I think in the Middle East today, the small jobs are very competitive; you have to go for huge projects such as railways, metros, airports, and ports, says Khoury.
Projects where there is some sort of design element and it is not purely construction. This is where you get value engineering, you have control, and you can differentiate from others rather than focusing on competitive lump-sum bidding. If we want to have our margins and good returns, we have to have these niche market segments.
The final area of focus is diversifying globally into Africa, Australasia, and the former Soviet republics of central Asia.
Number one is the CIS [Commonwealth of Independent States], specifically Azerbaijan, Kazakhstan, and Turkmenistan, says Khoury. We have a good track record in these markets, mainly in the oil and gas sector, and the CIS will remain a good source of work for CCC.
The other part is sub Saharan Africa. We are following the major oil and mining projects in Africa. The big thing everyone is within is the [US] Anadarko and [Italy-based] Eni LNG [liquefied natural gas scheme] in Mozambique; we have people on the ground and we are waiting for the final investment decision.
There are also pipelines in Botswana, road jobs in Kenya and projects in Nigeria, so the Africa business is doing well.
In Australia, CCC is also working mostly in the oil and gas sector. It has completed work on pipelines for [the UKs] BG and [the US] Conoco Phillips, and has been shortlisted for more pipeline work.
CCC projects under way
- Barzan onshore development (Qatar)
- Clean Fuels Project (Kuwait)
- Riyadh Metro (Saudi Arabia)
- Midfield Terminal (Abu Dhabi, UAE)
- Saraya Aqaba (Jordan)
- Abu Dhabi Plaza (Kazakhstan)
- Nile Corniche (Egypt)
- Touat gas project (Algeria)
- 4th Transmission Gas Pipeline (Thailand)
- Warri Industrial Park (Nigeria)
- Masma Water Network (Botswana)