LOWER oil prices have cast a shadow over Middle East construction prospects in recent months. As governments have published their budgets for the year, cutbacks in spending have been a common theme.
Saudi Arabia plans to trim budget outlays by 20 per cent; in the UAE, federal spending will be frozen at last year’s level.
Despite the implications for public-sector spending, many major infrastructure schemes are already committed and will go ahead.
At the same time, the leading role of the public sector is no longer so dominant. In several key Gulf markets, the private sector is an active investor in residential and commercial development and now has a life of its own.
Reconstruction in Lebanon and infrastructure schemes in Turkey present other major opportunities for international contractors.
MEED writers profile the latest developments in the main markets of the Middle East and North Africa:
POLITICAL and financial crises have undermined the economy. Big construction opportunities have been confined mainly to the hydrocarbons sector in the past year.
Major projects include construction of the Maghreb-Europe gas pipeline (GME), running from Hassi R’Mel to the Moroccan border and on to Spain, and development of liquefied petroleum gas (LPG) capacity.
Housing, roads and dam construction are the main non-hydrocarbons activity. Large industrial projects such as construction of the Bellara steelworks and an aluminium smelter remain in limbo.
More pressing are schemes that raise export revenues or provide basic infrastructure. Among these projects are:
Pipeline. The US’ Bechtel has a $365 million contract for engineering, construction supervision and procurement for the Algerian section of the GME. Sonatrach is also procuring pipes and other equipment, backed by a ECU 200 million loan ($177 million) from the European Investment Bank.
LPG expansion worth $2,000 million-3,000 million with the prospect that a long-awaited jumbo LPG unit may be built at Arzew in the next few years. The majority of contracts have been secured by Japanese companies, most recently a $368 million order for Ishikawajima-Harima Heavy Industries (IHI) and Itochu to double capacity at the Bethioua plant. This contract can only start once Japanese financing is unblocked, which needs a new IMF programme.
Housing. The World Bank has provided a $200 million emergency loan and the EU some ECU 70 million ($62 million) to relaunch house-building, which has for many years fallen far behind demand. The priority is to complete buildings where construction has started.
Dams were revived in 1993, promising new work for contractors. Among schemes under way are the EIB-financed Taksebt dam, where the main contractor is Italy’s Astaldi, Tichy-Haf and Koudiat Medouar, both awarded to the local Entreprise Nationale de Construction Siderurgique (Cosider); completion of the $165 million Beni-Haroun dam by Spain’s Dragados & Construcciones; and building the Tilsdit dam in Bouira province by Russia’s Selkhozpromexport. Among forthcoming projects, a $146 million African Development Bank (AfDB) loan has been mobilised for the Koudiat Acerdoune dam, also in Bouira province. The AfDB is providing $74 million for the Sidi M’Hamed Ben Taiba dam in Ain Defla province. Both dams should be completed by 2000.
Roads include the east-west motorway where local and Italian companies have played a leading role. Some 1,200 kilometres of motorway will eventually run from Annaba to Tlemcen, forming part of a wider Maghreb network. The Equipment Ministry plans to build 100 kilometres a year of motorway for the rest of the decade.
THE next few years will see the bulk of construction work originating from the private sector, as the state starts to manage its resources more carefully. The government has been stepping up efforts to attract private- sector investment into industrial projects and the power and water sector. If the projects now in the pipeline go ahead as planned, the construction industry should see a large-scale private power project and a stream of smaller private-sector schemes over the next years. At the same time, the government is still committed to long-term infrastructure developments ranging from a new port to the expansion of the petrochemical plant.
Power. By far the largest project now in planning is a venture by British Gas (BG) to build a 500-MW power and desalination plant under a private financing scheme. BG presented its technical and financial feasibility study to the government in late February. If the project goes ahead as planned, the total investment will be about $725 million.
Transport.In the public sector, the new port planned at Hidd will be the largest single civil works contract in the coming years. The government is to appoint a consultant to carry out detailed designs for the estimated $300 million scheme soon. The plan is to build a container terminal with a capacity of 400,000 containers a year, to be expanded by 50 per cent later. Also part of the project is a 100-hectare free zone and industrial area. Options for later expansion include a causeway to link Hidd to Sitra.
Industry. A new industrial venture, a tissue paper mill financed by the US/Saudi joint venture Olayan Kimberly-Clark Arabia, is being built by the local/UK Jalal Costain. This project is costed at about $33 million. Western Oil Corporation of the UAE will be looking for contractors to build its 60-tonne-a-year lube oil plant this year.
The largest industrial project in the planning stage is the expansion of the public-sector Gulf Petrochemical Industries Company (GPIC). The scheme calls for a $140 million expansion into urea production. There are signs that the project may move ahead this year with the planned appointment of a consultant. However, progress is expected to be slow. Gulf Aluminium Rolling Mill Company (Garmco) has begun prequalifying contractors for its expansion project, which involves doubling its rolling capacity.
Services. There are several smaller private construction projects for the services sector. Shopping malls, hotels and an office building of between $4 million-25 million are among the jobs to be awarded soon.
THE construction sector is under the spotlight at the moment for the wrong reason, from the government’s point of view. Even in a country where corruption is taken as a way of life, the scandal surrounding the so-called ‘millionaire of Nasr City’ has shocked many Egyptians. Fawzi el-Sayyid has built 89 apartment blocks in this northeast suburb of the city. He is now in detention facing questioning about alleged bribery, tax evasion and violations of building codes. The affair has provoked additional controversy because opposition newspapers have made further allegations against top figures in the regime including presidential adviser Zakaria Azmi and Prime Minister Atef Sedki. The newspapers concerned are now facing libel suits.
The attention being paid to the Nasr City affair has overshadowed new activity in the construction sector itself. After a quiet period, a number of new projects are coming to life.
These include a massive residential and commercial block being built on the Nile waterfront in Giza for a group of investors led by Hamza el- Khouli. The estimated $80 million contract for this project is being negotiated with a joint venture of the UK’s John Laing International and the local CRC Hassan Dorra.
In true Egyptian style, this project has not been without controversy. The neighbouring French embassy has lodged a protest on the grounds that the Giza governorate was at fault in giving the building a permit.
Tourism. On the other side of the Nile, John Laing and others in the select band of foreign contractors still working in Egypt have applied to prequalify for the construction of a 750-room hotel to be managed by Conrad International Company of the US. Bids are also expected to be invited soon for the expansion of the Meridien hotel. These three projects are all being supervised by Bechtel of the US.
The opportunities provided by tourism projects run counter to the general trend in this sector which has been badly hit by the two-year campaign of violence against the regime by Islamist groups. Tourism investors are for the moment sticking by their projects, arguing that the security situation will stabilise eventually. They are also reassured that even with the situation as it is now, more than 1 million tourists a year are visiting Egypt. Cairo hotel occupancy is reported to be about 60 per cent, and occupancy rates are even better in Red Sea and Sinai resorts. The region worst affected by the Islamist campaign is Upper Egypt.
Red Sea projects. In the Red Sea, bids will be invited in the next few months for contracts to build two hotels on the Ras Abu Soma peninsula, north of Safaga. One will be managed by Sheraton International Corporation of the US, the other by Germany’s Robinson Club.
Infrasructure. Egypt’s infrastructure needs also provide abundant scope for new construction projects. Work is well under way on the first stage of the second line of the Cairo metro. Studies are being carried out for a metro line in Alexandria, and the National Authority for Tunnels is studying financing options for the second stage of the Cairo metro second line.
US contractors are working on three waste water treatment plants in the Canal cities, and France’s Sogreah has started studies for an extension of the Alexandria waste water project.
The government’s priorities for construction are to tackle the problem of uncontrolled urban sprawl. This is consciously linked to the political objective of trying to deal with the roots of the Islamist opposition campaign. Substantial amounts of public money are being invested in new housing and infrastructure facilities in slum areas of Cairo, Alexandria and cities in Upper Egypt.
However, the government’s efforts in these areas are being undermined by the negative impressions given by affairs such as that of the Nasr City millionaire.
CONTINUING cash shortages have further reduced construction opportunities in Iran since 1992. Prospects for construction and engineering firms, particularly foreign ones, will be limited for another two years.
The showcase industrial and infrastructure schemes, such as giant steel mills, copper works, power plants and transport facilities, which characterised the late 1980s and early 1990s, may not be seen again until later this decade. In the meantime, contractors are concentrating on areas that look most promising:
Transport. About $1,000 million worth of work in various railway and airport construction projects may be approved in the coming year or two.
This would include short rail links to central Asia and Pakistan, as well as a major line connecting Mashad to Bafq and double-tracking of existing lines from Tehran to the south. Pakistan Railways has expressed interest in the Pakistan link, while Iran is still trying to generate interest in the other lines. Financing is the main problem, and Iran has even tried to see if Gulf Arab states wanting access to central Asia will fund the Mashad to Bafq line.
Work on Tehran’s new international airport has been slow because of lack of interest so far in the airport authority’s offer of build-operate-transfer (BOT) arrangements. However, expansion of the air transport network is a priority and a number of small airports are being built in the provinces. Among new airport projects is the expansion and modernisation of Kerman airport.
Several massive road projects planned since the 1980s do not seem likely to get the go-ahead for some time because of the cash shortage. These include the Tehran to Caspian Sea motorway which would have to negotiate the Alborz mountain range.
Housing. There is considerable construction work in the housing sector, though most of it is confined to local firms and rial payments. Among new projects that may require some foreign input is the construction of 15 industrial townships for which the cabinet recently gave the go-ahead. Plans for a further 10 are being considered. The various agreements of recent years with foreign firms for satellite towns appear to have been put on ice.
Oil and gas. Lack of funds is affecting upstream activity in the oil and gas sectors, but there is still significant work and the possibility of some big new projects by 1995 or 1996. The Oil Ministry, perhaps optimistically, projects a total investment of $30,000 million until the end of the decade. This would include $9,000 million in hoped-for foreign credits.
Most direct foreign involvement will be offshore, where a number of oil and gas reservoirs await development. Among the most promising offshore schemes are the North Pars gas field where Royal Dutch/Shell has completed a study and is now seeking finance, and three oil reservoirs near Sirri island where US companies have joined the French in looking for service contracts.
At least one big oil refinery awaits finance. This is the long-delayed Bandar Abbas refinery where all equipment is on site pending financing for the erection contract.
Power. Most construction work is concentrated on hydroelectric dams rather than thermal plants. The Karun-4 dam, with an untied Japanese concessionary loan of about $300 million, has perhaps the highest potential for foreign contractors. Agreements have also been signed with Chinese and Russian firms for nuclear power plants, but it is difficult to envisage these schemes being implemented under present financial and political conditions.
Industry. Construction and engineering work will at best average about $1,000 million in hard currency a year for the next two years. The single biggest scheme is likely to be the Bandar Abbas aluminium smelter, for which a $300 million-400 million financing package is now hopefully being arranged.
The Jordanian economy is waiting for evidence of real progress in the Arab-Israeli peace process.
However, it is already clear that purely domestic activity in all areas of private construction will be well down on the previous two years. These saw a rapid expansion in housing, office and hospital construction, and, in the Petra area, hotels. This year, private construction is expected to reach only 3 million square metres after a record figure of 6 million square metres in 1992 and 4.5 million in 1993.
Jordan’s two minerals producers will be the biggest providers of private work as both are involved in major expansion schemes. The Arab Potash Company is also planning a $140 million joint venture with the Ethyl Corporation of the US for bromine and bromine derivatives, and a second project to produce 75,000 tonnes of potassium sulphate and 50,000 tonnes of dicalcium phosphate at a plant at Aqaba. Most contracts for the Jordan Phosphate Mines Company (JPMC) projects have been awarded or are under evaluation.
Expectations for the public sector are low as government spending is down but many of the projects will go to foreign companies, much to the annoyance of local companies.
This trend was clear from the 1993 award of the $71.5 million contract for the Karameh dam to an Italian joint venture of Salini Costruttori and Italstrade. Also last year, the $69 million contract for the King Abdullah hospital at the Jordan University of Science & Technology went to Spain’s Entrecanales & Tavora.
The largest single project on the government’s books is the $240 million stage two of the Aqaba thermal power station together with the upgrading to 400-kV of the existing 132-kV transmission line between Aqaba and Amman. The technical demands mean that most of the work will go to foreign companies but local contractors are hoping the government will respect its commitment to give a minimum of 25 per cent of work to locals.
The new 71-kilometre desert highway project between Ras al-Naqab and Wadi Yutum in southern Jordan is the largest road building project coming up. Companies have already been prequalified.
The best prospects for substantial projects over the next 16 months are regional in scope and hinge on the success of the peace process, which may enable some of the schemes being floated at talks and conferences to be realised.
Offers for the Jordan to Egypt electricity grid link scheme, part of a wider regional project also involving Syria, Iraq and Turkey, are already under consideration and work on the Jordan to Syria section is expected to begin in 1995.
The Telecommunications Corporation (TCC) has an overall $50 million regional project that includes new international exchanges for Amman, a network to upgrade Amman’s international switching, cables to Saudi Arabia and Egypt, a new earth station, and the use of Syria’s submarine cable connections to Europe.
THE local construction sector has had little to cheer about of late. A smaller post-war population and the completion of the emergency repair programme leave few new business opportunities. In view of the government’s current budgetary problems and the widespread belief that major infrastructure projects are a low priority, an upturn in activity is not expected for at least two years.
For the past three years, contractors’ fortunes have fluctuated wildly. In 1991, the year of liberation, the total value of construction activity reached a six-year high at $645 million, or 6 per cent of gross domestic product. The following year, the dollar figure fell by more than 30 per cent as the reconstruction programme wound down. The Planning Ministry has still to release figures for 1993, but industry executives have no doubt that they will show a further decline.
Over the past 12 months, most project work has been on Ministry of Public Works (MPW) schemes that were initiated before the invasion. A series of contracts have gone to local contractors on the Emiri Diwan, the Bayan Palace and Kuwait university. On-site construction work has also resumed on the Kuwait telecommunications towers project.
Despite concerted efforts to attract more private capital into the sector, the government will remain the principal source of new business for the foreseeable future. Several areas are promising. These are:
Sewerage. Designs for the extension of the Riqqa treatment plant and the new 275,000-cubic-metre-a-day Sulaibiya facility are under way. Tender invitations are expected in early 1995.
Oil and gas. Kuwait Petroleum Corporation (KPC) and its subsidiaries are planning to implement several major schemes, which will incorporate significant civils work. These cover the estimated $500 million gathering centre project for the western oil fields, a new 100,000-tonne-a-year polypropylene plant, and the upgrading and installation of new units at Mina al-Ahmadi and Mina Abdullah refineries. A $2,000 million petrochemical plant is also planned.
Hospitals. Two new health projects are planned. A $30 million psychiatric hospital at Sulaibikhat is expected to go to tender by April. A plan to build a hospital for respiratory diseases is less advanced.
Power. The Ministry of Electricity & Water (MEW) says that 300 MW of additional capacity will have to be installed by mid-1997. However, it has still to decide whether this requirement will be covered by the proposed 2,400-MW Subiya station or the rehabilitation of the Shuaiba north facility.
THE pages of international newspapers have been filled in recent months with tender invitations for a stream of important new projects being carried out in Lebanon. From the expansion of the airport to the revival of Beirut’s commercial centre, the opportunities are varied but substantial. What they have in common, which is unusual for the Middle East, is well-prepared financing plans.
Infrastructure. The government aims to award construction contracts worth well over $2,000 million in 1994 alone. These will include the airport project, the infrastructure for Beirut’s commercial centre, as well as the construction of a new coastal railway, a network of roads, hospitals and universities. In addition, there are several ambitious build-operate- transfer schemes including a $600 million toll road to the Syrian border and a $300 million conference centre on the west Beirut waterfront.
The ability of the local construction sector to handle this volume of business and work effectively with international contractors has yet to be proven. The success of the collaboration between local and foreign companies will depend on the progress achieved in restoring Lebanon’s infrastructure and financial services industry. The news on that front is positive, as the Council for Development & Reconstruction has already made important strides in sectors such as electricity and telecommunications.
Most of the construction work at present is being carried out by small local contractors. But regional firms with Lebanese connections are mobilising for a return. These include the Athens-based Consolidated Contractors International Company (CCC), the Saudi Arabia-based Almabani General Contracting and the Doha-based Midmac Company. International firms already working are exclusively involved in infrastructure schemes. They include Ansaldo of Italy, Hyundai Corporation of South Korea, Bouygues of France, and telecommunications giants Siemens of Germany, France’s Alcatel and Sweden’s Ericsson.
The first pure construction job involving foreign contractors is the airport scheme, for which 14 bids were received. The lowest price according to the client’s designs was submitted by CCC, with Germany’s Hochtief, at $490 million. However, France’s Dumez, with partner Aeroports de Paris, quoted a price of $463 million for an alternative design. The result of the contest is due to be announced by the end of April.
PRIVATE operators are set to play a bigger role in infrastructure projects, as the state struggles to raise basic living standards. In the power sector, a chronic lack of supply from hydroelectric plants has persuaded the government that, in a fast-growing economy, state funding alone can no longer meet the demands made upon it. It plans to install 2,940 MW of new capacity by 2000. This has created an opening for international companies, with French, Spanish and US firms holding talks to construct build-operate- transfer (BOT) power plants, the first of their kind in North Africa. The government is expected to produce a new power policy by mid-year to help structure these deals.
State spending is focused on promoting regional and rural development, including road and water projects, and schemes which improve living conditions in urban areas, including a large-scale investment in sewerage and other sanitation work.
Among the principal projects are:
Power. These include a 350-MW BOT plant in Kenitra, for which negotiations are under way with Electricite de France and Spain’s Endesa, and an estimated 600-MW oil-fired scheme which has attracted the US’ AES Corporation. These two projects are initially costed at more than $1,000 million. Projects under way or planned and directly funded by state power company Office National de l’Electricite (ONE) include the 100-MW Tit Mellal plant, and a new 100-MW unit at Casablanca and the 240-MW Matmata hydroelectric project, now nearing completion. The main contractors at Tit Mellal and Casblanca are two French companies, Schneider and Technip, respectively.
Dams includes the estimated $900 million Wahda dam and power project, undertaken by Italian, Spanish, Russian and local companies; the Hachef dam to serve Tangier; and smaller schemes, usually undertaken by local contractors.
Water. All major cities have drinking water and sanitation schemes under way, with hundreds of millions of dollars estimated for Casablanca alone. Large-scale irrigation schemes include work in the Haouz and Abda-Doukkala regions.
Europe-Maghreb gas line. The project includes building two compression stations together costed at up to $200 million and a $37 million pipe plant at Nador. The project manager is the Casablanca-based Metragaz, a wholly-owned subsidiary of Spain’s Enagas.
Maroc Phosphore V and VI. These are acid and fertiliser units for state phosphate company Office Cherifien des Phosphates (OCP). Finalisation of an estimated $1,000 million contract for Japanese and Spanish contractors led by Mitsui & Company has been awaited for several years.
The $60 million Casablanca World Trade Centre is being built by an international consortium led by Bouygues.
LAST year’s mini-boom is over and budgets are being cut because of lower oil revenues. Cuts are already apparent in infrastructure work which is being scaled back. However, large-scale investment to develop gas, most of it for export, could draw billions of dollars into the market and create an array of opportunities.
Oil & gas. The planned 5 million-tonne-a-year liquefied natural gas (LNG) project will dominate construction in Oman in the next few years, if it goes ahead as planned. Contractors will be asked to build virtually all installations from scratch, from gas production facilities and pipeline to liquefaction plant, export harbour and tankers. Several companies have applied to be prequalified for the project specification work.
An alternative multi-billion-dollar gas scheme involves building a deep- sea pipeline to India. At the forefront of current technology, the project envisages a 1,000-kilometre pipeline crossing depths exceeding 3,000 metres. The government is expected to choose between the two projects early next year.
Infrastructure. In the meantime, construction companies are competing for a reduced range of infrastructure projects. A series of hospital projects from the government’s five-year plan is under way, with more to be awarded. Bids for Sohar and Nizwa hospitals, valued at about $50 million and $36 million, respectively, were submitted last year but the Nizwa project may not now go ahead.
Transport. The road projects have also been delayed or reduced in scope since the end of last year. Some design contracts are being retendered as the Communications Ministry is adopting a two-envelope bidding system, inviting separate technical and financial offers. At the moment, road projects worth an estimated $180 million are in the planning stage. The largest projects are the asphalting of the graded coastal road between Quriyat and Sur, and a road in the south to the Yemen border to link up with a new section over the frontier. Consultants have yet to be appointed for both.
Petroleum Development Oman, usually a reliable source of work for local contractors, is also feeling the effects of reduced revenue. It has awarded some mechanical work this year but has had to delay a 300-kilometre road project which was bid for last year.
Petrochemicals. In the long run, petrochemicals may provide construction opportunities. A $1,500 million investment could see a polymers plant and two fertiliser plants built locally. Neste of Finland completed a feasibility study for a polyethylene and polypropylene plant in 1993. The government said last year that financing arrangements and designs were to be finalised by 1995, but no date for design tenders has been announced. Oman Oil Company (OOC) is planning two joint ventures with Indian fertiliser manufacturers to set up a 3,000-tonne-a-day ammonia plant and a 5,000-tonne-a-day urea plant. The joint-venture partners are still negotiating.
An industrial project closer to realisation is the expansion of Oman Cement Company. Aimed at producing up to an additional 2,000 tonnes a day, the expansion will cost around $40 million. This is to raised by public subscription.
PATIENCE is a prequalification for contractors eyeing Qatar’s construction market. But, after a decade of waiting for a new generation of industrial projects, foreign companies are at last reaping the rewards. An estimated $3,000 million worth of new contracts was awarded in 1993 and deals worth a further $800 million are at an advanced stage of negotiation.