Oil price hike lifts spending

28 March 1997

SPRING is a season of uncertainty for the Middle East. Oil prices always go into decline at this time of year and governments wait anxiously while they find a floor. Prices are of critical importance for contractors as oil revenues will determine how much money, or how little, there is to spend each year. This year began with a boost from the oil price windfall of 1996 which has plumped up government spending around the region. Capital budgets were bolstered and urgent projects moved forward. Many more are expected to come to market over the coming months.

A sprightly start to the year is evident in the $5,500 million worth of new contracts reported by MEED in the first two months of 1997. Most of the larger awards are for construction projects in oil, gas and petrochemicals which continue to attract a high level of investment. With the regional population still growing apace, power and water projects are another priority area for investment. The other major awards are divided among industrial schemes and classical infrastructure, ranging from a metro scheme in Turkey and university buildings in Lebanon, to a cement plant in Libya and two new fertiliser plants in Saudi Arabia.

The steady rise in oil prices and oil demand is reflected in the quickening pace of oil and gas developments in the region. In Saudi Arabia, the programme to upgrade domestic oil and gas infrastructure has speeded up over the past six months and a series of contracts is being awarded for refinery upgrades and the expansion of the master gas system. The largest such award so far this year is for the project management of a scheme to upgrade the Rabigh refinery; Saudi Aramco has let the $190 million contract to Foster Wheeler. This is the first stage of a comprehensive overhaul at Rabigh.

Several bids have come in this month for other Saudi Aramco schemes - the Riyadh refinery upgrade, the Shedgum gas plant debottlenecking and the overhaul of the bulk handling plants for petroleum products. In Egypt, the joint venture Midor refinery has let another big contract, worth $200 million, to the local Petrojet for offsite work.

Evidence of upstream activity is widespread. In the Gulf, several packages have been let for the offshore oilfield development in Qatar by Maersk Oil. The largest, worth $140 million, went to Abu Dhabi-based National Petroleum Construction Company. In Yemen, PetroFac International has a contract to develop production facilities for an oil field in East Shabwa. PetroFac also won a contract in Algeria as part of the massive Rhourde el-Baguel enhanced oil recovery project.

There are several major power and water schemes making progress through the bidding process. Two sizeable projects have been awarded in recent weeks, for new power stations in Bahrain and Syria. The Bahrain contract is the outcome of a tortuous process that began with a build-operate-transfer (BOT) proposal about five years ago. In the end, the government opted for a conventional approach for the 280-MW plant, with 30 million gallons a day of desalinated water. It is to be built by ABB Asea Brown Boveri and Italy's Fisia Italimpianti for $458 million. In Syria, Japan's Mitsubishi Heavy Industry has capped its already impressive record in the country with another $395 million contract. This calls for the construction of a 600-MW power plant at Al-Zara to the north of Homs.

Bids for the biggest new power plant in the region are due in the last week of March and will be a milestone in Saudi Arabia's slow progress towards new ways of financing its power sector. BOT-type proposals will be submitted for the 1,750-MW Shuaiba power station alongside more conventional options. The huge expansion at Shuaiba will be a litmus test of the authorities' willingness to take the BOT route and whether they can provide the legal protection that prospective developers will demand.

The other power contracts awarded recently are for transmission and distribution. The largest distribution contract registered by MEED was for the interconnection of five substations on the west coast of the UAE. The $70 million award went to the local Emirates Link Group. A companion contract went to Cimel al-Rostamani for $44.6 million. A water transmission contract in the UAE went to the local subsidiary of Kuwait's Mohamed Abdulmohsin Kharafi & Sons for the construction of twin lines from Umm al-Nar to Mina Zayed.

Private petrochems

In Saudi Arabia, Chiyoda Corporation of Japan has taken another industrial project, which is the largest private sector petrochemical contract to be let in the kingdom. The contract for the Saudi Chevron Petrochemical Company is estimated to be worth $650 million and calls for the construction of a plant in Jubail to produce benzene and cyclohexane. Chiyoda is already at work on an aromatics plant for Ibn Rushd, the affiliate of Saudi Basic Industries Corporation (Sabic).

Another Sabic affiliate has thrown up a $400 million contract for two fertiliser plants. Italy's Tecnimont signed the letter of intent with Saudi Arabian Fertiliser Company (Safco) at the turn of the year and is due to complete the work in 28 months. The scheme will double capacity at Safco's Jubail complex.

There have been several highlights among conventional construction contracts. Transport infrastructure development in Turkey is advancing with the award of a $311 million contract for the Bursa metro scheme to Siemens of Germany. Alexandria in Egypt is starting investigations for a metro system for the coastal city and has appointed a Franco-Italian led consortium to prepare detailed designs.

The largest bricks and mortar order has been placed by the Lebanese authorities for the rebuilding and expansion of the campus of the state-run Lebanese University. Germany's Ed Zueblin, which has been absent from bid lists in the region in recent years, took the $198 million contract in February.

A host of international and local contractors have walked off with $314 million worth of contracts for Egypt's ambitious media city, to be built southwest of Cairo. The UK-based consortium will build and equip studios that are intended to ensure that Egypt maintains its historic grip on pan-Arab media by modernising its facilities and becoming the undisputed regional centre for cinema and television production.

There has also been an interesting intra-regional development, heralding the kind of co-operation so often talked about yet so rarely achieved. In this instance, two states that suffer from varying degrees of US or UN sanctions are helping each other out. Libya has hired Iran's Ehdas Sanat Company to build a new cement works at Zliten at a cost of $150 million. The Iranian company beat rival offers from France, Germany, South Korea and Turkey to take the deal.

Endeavours by local companies to develop a portfolio of work outside the region have also borne fruit. Egypt's Arab Contractors (Osman Ahmed Osman & Company), a giant in the domestic market, has won an $18.5 million contract in a provincial Polish city. The contract in Radom calls for the construction of a complex with a hotel, residences, utilities and an indoor swimming pool. Another regional contractor that sought out opportunities in East Europe may now be regretting its enthusiasm -Kuwaiti contractor Mohamed Abdulmohsin Kharafi has invested millions of dollars in developments in Albania in recent years. Like the airline it owns in Tirana, Kharafi's projects in the troubled country are at a standstill.

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