Low oil prices leave little room for stadiums

03 March 2015

Forecasts at the end of 2014 said stadium projects would stall

As oil prices plummeted at the end of 2014, the consensus among contractors working across the region was that in 2015 critical infrastructure projects will proceed as planned, but vanity projects such as stadium and museums will stall.

That expectation now appears to have been realised as firms still wait for awards on the 11 stadiums state oil major Saudi Aramco plans to build at various locations across Saudi Arabia. Launched last year by the late King Abdullah bin Abdulaziz al-Saud, the ambitious programme was fast-tracked with, unusually for the region, the firm emphasis being time rather than cost.

While design work was ongoing and project managers were just being appointed, contractors submitted offers for remeasurable contracts (deals priced up using a detailed bill of quantities) with a cost-plus element on 26 October. Oil prices on that day were $86 a barrel. The end-of-year award target then appeared to be slipping, as revised offers were submitted in mid-December when oil prices had shed $20 falling to $60 a barrel.


Vanity Projects slow amid low oil prices

Negotiations with contractors then followed and, by the end of January, frontrunners had emerged for some of the stadiums and it is understood that verbal agreements to award contracts had been made. Since then, however, progress has slowed.

Oil prices remain depressed – on 1 March, they are $62 a barrel – and sources working on the stadium schemes say the emphasis has now shifted away from the programme to cost, as Aramco looks to cut back given its weaker revenues.

Oil prices are only part of the likely explanation for this shift. The death of King Abdullah on 23 January took away the main champion of the programme. This has led to inevitable question as to whether the project would be a priority for the new administration that has now taken the helm under King Salman bin Abdulaziz al-Saud.

For now, the future of the programme is uncertain. Optimists will say it could still proceed as planned, but the more common view is that the forecasts for 2015 were correct and it will be downsized, delayed, retendered or even cancelled altogether.

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