Special Report Contents
Comment: Riyadh tackles housing crisis
Riyadhs shrinking reserve base
Private developers take on more work
Ghawar continues to lead output
A letter from Bakr bin Ladin, president of Saudi Binladin Group (SBG), announcing his decision to step down from the helm of the kingdoms largest and most influential construction company, was widely circulated on the internet in June.
The letter, originally sent in early May, said Saleh Mohammed bin Ladin will take over the leadership of the company, along with other family members and key executives.
The move, while significant, was not unexpected. There has been growing speculation this year that SBGs dominance of the Saudi construction sector could begin to wane as high-level political changes are made.
In particular, there have been changes at the Royal Court, which is no longer run by Khaled al-Tuwairji. He was replaced when King Salman bin Abdulaziz al-Saud took the throne in January. These changes are said to have diminished SBGs influence on large-scale government projects.
Market leader
SBG has enjoyed a leading market position in the Saudi construction sector for decades. According to regional projects tracker MEED Projects, it currently has nearly $33bn of work at the execution stage, which is almost the same as the $34bn of work held by the next nine busiest contractors in the kingdom combined.
While government influence has been a key component of SBGs success, massive domestic resources have also given it the edge as there are few other contracting companies in Saudi Arabia that have the capacity to take on such large contracts. Of the $33bn of work it has under execution, more than $28bn, or 85 per cent of its order book, is from government-backed deals valued at more than $1bn. The largest is a $4bn contract for the construction of the new airport terminal at King Abdulaziz International Airport in Jeddah.
Key fact
A total of $160bn of infrastructure projects are planned for Saudi Arabia over the next decade
Source: MEED
There are only three other local contractors working on deals totalling more than $5bn. ABV Rock has $7bn of work, El-Seif Engineering Contracting has $5.9bn and Saudi Oger has $5.5bn. For other companies to realistically challenge SBGs dominance, the kingdom will have to overhaul the way large projects are procured. Instead of entrusting multibillion-dollar construction programmes to a single contractor, clients will have to split the work into smaller packages that are easier to deliver.
Dividing projects into smaller packages will require more management from client organisations within Saudi Arabia. There are early signs this move is starting to take place. In June, MEED reported that state oil major Saudi Aramco is planning to form a project management company that will target the vast pipeline of government infrastructure projects planned for the kingdom over the next decade.
Aramco intends to form the company in partnership with international project management firms. The new entity will then sell its services to other government bodies in Saudi Arabia that are developing infrastructure.
Aramco remit
Selected firms that have worked with Aramco in the past have been asked to express interest in forming the new company. The projects, which total tens of billions of dollars, include universities, cultural centres, sports complexes and economic cities. Most recently, Aramco has been charged with developing sports stadiums at 11 locations across Saudi Arabia.
Sources say Aramco has repeatedly said over the years that such schemes have diverted its attention away from its core hydrocarbon businesses. If the project management company is formed and secures work for government ministries and other clients bodies, it will play a leading role in the change that is under way in the kingdoms construction sector. Aramco estimates that the potential workload totals about SR600bn ($160bn), which would require some 15,000 staff to manage.
Construction and infrastructure schemes are a key priority for policymakers in the kingdom. According to regional projects tracker MEED Projects, construction and infrastructure work accounts for 90 per cent of the $584bn of projects that are at the design or study stage. Power is the largest individual component, with $275bn of new schemes still at an early stage of development. For construction, there is $119bn of upcoming projects, for which the key drivers are social infrastructure that will provide housing, education and healthcare.
These projects have to go ahead if the kingdom is to improve the quality of services available to its growing population. The new leadership is cognisant of the economic and political consequences if it does not produce tangible results, which is why its overhaul of how projects are delivered cannot be allowed to fail.
You might also like...
Red Sea Global awards Marina hotel infrastructure
18 April 2024
Aramco allows more time to revise MGS package bids
18 April 2024
Morocco tenders high-speed rail project
18 April 2024
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.