Medina site work halt leaves more questions than answers

13 January 2016

Contractors and bankers to closely watch Saudi Binladin Group and Ministry of Finance’s future course of action

Saudi Arabia’s Ministry of Finance has asked Saudi Binladin Group (SBG) to the stop work on the expansion of Prophet’s Mosque in Medina, a move which came to many as a surprise.

The Ministry, in a letter sent to SBG and the project consultant Dar al-Handasah didn’t give the reasons behind the move. It listed a series of tasks, which SBG has to finish before it secures the site and stop work on the project until further notice.

The project, along with the expansion of Grand Mosque in Mecca were deemed as priorities for the kingdom. Why would Saudi Arabia, which generates tens of billions of dollars from religious tourism every year, stop work on Islam’s second holiest site?

Is it because the country, the biggest oil producer in Opec’s basket, is trying to rationalise spending on state projects in the wake of falling oil prices? Very unlikely, is the answer to that.

The Ministry of Finance did not respond to an emailed request for comment and officials at the state’s Properties Department within the ministry couldn’t be reached by phone.

The $1.5bn project was awarded to SBG in June 2012 with target completion date of June 2016. It should be at an advance stage of construction and finishing it should not give policymakers headaches in terms of arranging enough financing.

Does the ministry decision mean that the government doesn’t want the current contractor on the job? Is SBG, the biggest contractor in the Gulf, being replaced? Is this merely a suspension of work and SBG will resume as the main contractor when the project comes back on-line? The answer to these questions is that we don’t know yet as an official at SBG declined to comment and Dar al-Handasah also didn’t respond to an emailed request for comment.


Saudi construction uncertainty in 2016

SBG has been heavily scrutinised the crane accident in Mecca that claimed more than a 100 lives. In the aftermath of the disaster at the Grand Mosque in September, SBG has seen its top-boss, Bakr bin Ladin, handing over reins to Saleh Mohammed bin Ladin. The company is barred from winning new contracts. However, if it is removed from the ongoing projects, such as the one in Medina as well, it will really compound the cash flow issues for the company.

Ramifications of that will be far reaching and it could affect the banks who are heavily exposed to SBG in terms of financing most of its projects across the kingdom. There’s no cause for concern yet though, according to one Riyadh-based banker, who said that SBG has been paying the bank on time so far.

The contractor is controlling its costs by retrenching workers. It planned to lay off 15,000 workers in the third batch of firings in its architecture and building construction division, according to an internal email seen by MEED in early December. It is not known how many the company had already laid off in previous phases.

Of the 15,000 employees, 8,000 were to be transferred to the King Abdulaziz International Airport project to speed up construction and fired thereafter. Construction Products Holding Company (CPC), Saudi Arabia’s largest manufacturer of building materials and a unit of SBG, was to see staff reduction as well, according to that email.

There are more questions at the moment than answers. However, one thing is sure that whatever SBG or the Ministry of Finance will do from here will be watched very closely by contractors and bankers in the kingdom and beyond.

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