The boost to Middle East oil revenues is starting to make an impact on government spending capabilities but private sector construction ventures will be the ones to watch in 1997. In markets as varied as Turkey, Egypt, Oman and Pakistan proposals based on the build-operate model are making progress and the potential of this approach to essential infrastructure schemes is also gaining adherents in the wealthier Gulf states.
Major spending will be concentrated in oil and gas projects and downstream industrial developments. These range from gathering centres in the oil fields of Kuwait to fertiliser plants in Oman, and include a private polypropylene project in Egypt and offshore oil field development in Iran. In this country- by-country survey, MEED writers outline the main prospects at the start of 1997. Further developments as the year advances will be monitored in quarterly MEED special reports on Middle East construction.
CONSTRUCTION companies in Bahrain are still facing a market characterised by tight public spending and low demand from the private sector. However, contractors are optimistic about the outlook for 1997. Public spending is likely to increase with higher government revenues from a strong oil price in 1996 and an extra allocation of oil revenue from Saudi Arabia. Contractors hope that extra public spending will also boost the private sector.
Movement on the financing package for the development of the Hidd power and desalination plant should mean work for local and international contractors. The package will include export credits and commercial loans. Tender documents for construction work should be issued by the developing consortium during 1997. The consortium is led by the Zurich-based ABB Asea Brown Boveri with Black & Veatch of the US.
Hidd is to be the site of further development in the form of a port and industrial free zone project. Posford Duvivier with Portia Management Services and Ewbank Preece, all of the UK, were awarded the consultancy contract in 1996 and tender documents are expected in 1997. Work will include the construction of three berths, warehouses and facilities for the industrial zone. Contractors will also be watching out for news of how the project is to be financed, which will be crucial to the scheme’s future. Closely tied to the Hidd project is the planned expansion at the Arab Shipbuilding & Repair Yard (ASRY). The expansion would provide a major source of work but is at a very early stage. Work will incorporate a 1,000-metre quay wall, workshops and land installations.
Another public sector project is the expansion of Bahrain International Airport. The local Bahrain Motors Company is working on an extension of the apron in front of the terminal building and the construction of an apron in the cargo and DHL areas. Further expansion work will be dependent on available government financing. But there are plans to contract out work on the existing terminal building as well as a fifth expansion phase. The fifth phase is likely to include a further extension to the terminal building and work on the runways.
In the private sector work by local firms on a range of projects is expected to move ahead. These include the new headquarters for National Bank of Bahrain, being built by the local/UK Jalal Costain; the civil works on Bahrain international golf course, which have been awarded to the local AA Nass Contracting and a new textile mill to be built by Charilaos Apostolodes (Chapo) of Cyprus.
Larger scale private projects will be to some extent dependent on the political situation, which will influence confidence within business and industry. Such projects, still at the early stages of planning include a $290 million sponge iron plant being developed by India’s Ispat Group and a steel rolling mill planned by Prakash Steel, also of India.
The outlook for the Egyptian construction sector is highly promising, as the economy is entering what is likely to be a sustained phase of expansion. Major opportunities are coming up in many areas, including tourism, infrastructure and the construction of heavy industrial plants.
The most recent major award was the $118 million contract signed with a joint venture of Balfour Beatty of the UK and the local Arab Contractors (Osman Ahmed Osman & Company) for the superstructure of the Alexandria Library. Next in line is likely to be the estimated $300 million contract for a new media city southwest of Cairo, for which Kvaerner Construction of the UK, with Arab Contractors and Arabian International Contractors, have been negotiating.
The first large tender due back in the new year is for the superstructure of a 35-floor, 1,000-room extension of the Cairo Meridien hotel, now owned by a Saudi group headed by Prince Abdel-Aziz Ibrahim. Another better-known scion of the Saudi royal family, Prince Alwaleed Bin Talal Bin Abdulaziz, is also setting up a number of new hotel projects. These include the Cairo Nile Plaza and a hotel in Sharm el-Sheikh, both in partnership with the local Talaat Moustapha Group. The two hotels will be managed by the Canadian Four Seasons Group, in which Prince Alwaleed holds a 25 per cent stake. A common thread running through all these projects is Bechtel of the US, which has carved itself out a major niche as project manager for prestige construction contracts.
On the infrastructure side, the most important scheme from the government’s point of view is the Sheikh Zayed Canal, which will take water from the Lake Nasser reservoir behind the Aswan High Dam to an area near the Kharga oasis in the Western Desert. The first international tender will be for a massive pumping station and siphon system at the southern end of the canal.
The new year will also see the invitation to bid for Egypt’s first build- own-operate-transfer power station, and for the estimated $300 million construction of a third terminal at Cairo airport. The government is evaluating three bids for a build-operate-transfer airport at Mersa Alam, on the Red Sea, and is to invite bids for four toll-road projects in the first half of the year.
Construction companies are also closely following a series of new oil and gas and petrochemicals projects. The contract for an ethylene cracker will be awarded soon, major tenders are out for gas field development, and a private group is studying offers for a polypropylene plant. In addition, private investors are planning to build a series of new steel plants, three of them in a new industrial zone in Suez.
SEVERE border restrictions imposed since the outbreak of violence between Israeli troops and Palestinians in late September have prevented any significant progress on most construction projects in Gaza and the West Bank.
If the political situation calms down and border restrictions are eased, donor-funded projects will be able to go ahead. In late November, donors committed $880 million to the Palestinian investment programme for 1997. Of that sum, $689.6 million has been assigned for construction projects, including $124 million for roads and $215 million for water and wastewater projects.
One major project that has gone to tender is the Gaza industrial zone. Bids for construction of the zone, which is located on a 50-hectare site close to the Karni checkpoint, are due in early January. The client is the Palestine Development & Investment Company (Padico).
Padico has tendered three packages. The first involved site development, including roads, the water and wastewater system, and power and telecommunications network. The second package is for the construction of factory buildings and the third for the administration buildings.
In the West Bank, the construction of the Al-Bireh wastewater treatment plant is expected to be tendered at the start of the year. The project is funded by Kreditanstalt fuer Wiederaufbau (KfW) and is expected to cost DM 19 million ($12.3 million). Contracts for the construction of the DM 10 million ($6.5 million) Salfeet wastewater system, which is also being funded by KfW, are also due to be awarded at the start of the year. Both contracts are open to German contractors with local partners.
The construction sector in Iran should provide improved pickings during the year, although most of the new work is bound to go to local contractors. Foreign firms will keep their sights lowered, unless they are prepared to enter build-operate-transfer (BOT) arrangements.
Construction schemes, mostly involving local firms, include 30 large dams and several small ones. Construction of the first of an eventual 110 hospitals, for which the cabinet approved bond issues to raise capital in 1995, may also start during the year. Such bonds are already financing a massive commercial centre in west Tehran and 1,000 department stores across the country.
Work is progressing on the big new international airport for Tehran on the road to Saveh, in which Aeroports de Paris became involved in late 1995 as consultant and designer. The turnkey construction contract is in the hands of the local Kayson. There are many other smaller airports under construction, again by local firms.
New thermal power plants and the metals industry will be providing considerable work. Of particular interest are steel-making plants in Khorassan and Mianeh, and expansions at the Isfahan and Ahwaz steel facilities, following clearance of a $561 million finance line by Italian and other foreign banks in 1996.
The housing sector is expected to be quiet during the year. This seems inevitable after house prices levelled off in 1996 following massive increases in the previous two years.
Foreign firms can expect some work in specialised areas such as sewerage and drainage tunnelling, as well as in the oil and gas sector, where at least two offshore development contracts are expected to be awarded and where work will intensify on development of the Sirri oil fields awarded to France’s Total. But outside the hydrocarbons sector, foreign firms are generally limited to BOT. Available schemes include railways and hotels.
The popularity of BOT is partly a reflection of the authorities’ ideological preference in the 1990s for private finance. But it is driven by the government’s inability, at a time of debt repayments, to finance anything but the most important and urgent projects. However, BOT deals will be limited unless there are improvements in the political atmosphere between Iran and other countries.
The tourism industry remains the focus of construction work in Jordan, despite the continuing tensions in the region, which have reduced the flow of visitors on which Jordan depends. Private investment in other sectors has fallen short of expectations; the list of projects presented by Jordan at the November Middle East & North Africa economic summit in Cairo was almost identical to the one drawn up when Amman hosted the 1995 conference.
The government aims to pass a number of economic reforms in the coming months to encourage trade and investment, but the benefits will need some time to take effect. The resumption of trade with Iraq will also take some pressure off Jordan, but the benefits will be felt most by pharmaceuticals manufacturers until the remaining UN restrictions on Iraqi trade are lifted.
Despite these limitations, an indication of both private investor interest in Jordan and the recent thaw in Jordanian-Saudi relations was given when the Petra Tourism Investment Company was established in October to build a Four Seasons hotel in Amman. Prince Alwaleed Bin Talal Bin Abdulaziz of Saudi Arabia holds a 20 per cent stake in the company, which is capitalised at JD 15 million ($21 million). The remaining $16 million required to build the 175-room hotel will be raised in loans. Arthur Andersen of the US completed market studies and financial feasibility studies for the hotel. It is also carrying out a feasibility study for a smaller Four Seasons hotel by the Dead Sea. The months ahead will see a number of other hotel developments in the area, following agreements between three local investors and the Jordan Valley Authority. Zara Investments Company, the most prominent of the three, increased its capital by JD 15 million in November to finance its hotel developments by the Dead Sea, Petra and Aqaba.
Zara’s subsidiary, the Amman Tourist Investment Company, is also behind the Amman Grand Hyatt and Zara Trade Centre Development. A consortium of the Saudi Binladin Group with the local Trans Arab Engineering & Contracting took the $63 million construction contract in December.
Preliminary construction will also begin on the Amman Sheraton, by the local Krayem Contracting Establishment, and the Dunes Club on the outskirts of the capital, by Mohammed Ahmad Abu Eisheh & Brothers Contracting Company.
A number of new developments planned by the local Arab Potash Company (APC) are due to move ahead in 1997. A consultant is expected to be appointed in the new year to carry out engineering designs and procurement for a $100 million hydroxide products plant in Aqaba. APC aims to release construction tenders for the scheme shortly afterwards.
APC is continuing negotiations with Israel’s Dead Sea Bromine Group to establish a joint venture to produce bromine products. The plant is expected to produce 35,000 tonnes a year (t/y) of elemental bromine, 20,000 t/y of calcium bromine and 20,000 t/y of tetra bromine. The construction costs are estimated at $80 million. APC is also carrying out pre-feasibility studies with Israel’s Haifa Chemicals for a liquid fertiliser plant to be located by the Dead Sea. The two companies aim to complete the studies for the estimated $60 million plant by the end of February.
The oil sector continues to provide the biggest construction opportunities as Kuwait seeks to boost production to 3.5 million barrels a day (b/d) by 2005. Elsewhere, work is now underway on new facilities at Kuwait university and a number of private sector projects are expected to move ahead early in 1997.
The year will start with the award of two major enhanced oil recovery schemes which are expected to cost about $200 million each. The first is the construction of gathering centre 25 in the Rawdatain oil field which is expected to boost production capacity by more than 250,000 b/d. The second project is construction and installation of new water injection facilities at the Rawdatain fields. Kuwait Oil Company (KOC) prequalified 24 international companies for the projects.
The export facilities at two of the country’s three refineries are also being upgraded by Kuwait National Petroleum Company (KNPC). In August, China Harbour Engineering Company was awarded a $61.2 million contract to rehabilitate the export jetty at Shuaiba refinery. Work includes the strengthening and upgrading of both the existing approaches and the northern arms of the loading pier. The southern arms of the loading pier will be demolished and reconstructed. Control systems on the jetty will also be upgraded and an extension will be built to accommodate new loading facilities for the new Equate petrochemicals complex which comes on stream next July.
Four international consultants have also submitted bids to KNPC to complete detailed designs for the renovation of the north and south piers at Mina al-Ahmadi refinery. The bidders include the Netherlands-based Frederic R Harris, the UK’s Rendel Palmer & Tritton and Engineers India.
The project involves making short-term repairs to the south pier to keep it operational for the next five years and long-term repairs to the north pier to keep it operational for another 15 years. Once work has begun on the two piers, KNPC is expected to begin the procurement process for a whole new pier to replace the ageing south pier.
Local contractors are hard at work building new facilities for Kuwait University. Construction of the library, social science and law department, computer building and conference hall is now underway. Real Estate Fabrication & Construction Company is likely to start work on the sports complex after submitting a low bid of KD 8.9 million ($30 million) for the project in November. Contractors are still waiting for the engineering faculty to be tendered. This is expected to be the largest scheme in the university expansion project.
The first of nine tender packages for the new KD 25 million ($83 million) Kuwait Petroleum Corporation headquarters should be issued in January. This contract will involve land clearance at the site on Arabian Gulf street. The construction packages on the 54,000-square-metre complex are expected to be issued once the design work has been completed. The project architects are the local Salem al-Marzouk & Sabah Abi-Hanna and the US’ Arthur Erickson Architects and the project managers are the Kuwait-based Project Analysis & Control Systems (Projacs) and the UK’s Bovis International.
There has been mixed progress on privately financed infrastructure projects. Six firms submitted bids to the National Housing Authority (NHA) in April to complete full infrastructure works on two plots of land in South Jahra and West Glib al-Shiouk. According to the project configuration, contractors would both finance and execute infrastructure works on the two plots. They would then be returned to the NHA who would pay the contractor from revenues generated from their sale. However, the NHA has been silent on the project since bids were submitted and contractors believe that it has now been abandoned.
The rehabilitation of Kuwait City waterfront is being executed by the city municipality on a build-operate-transfer (BOT) basis. Phase three of the scheme was awarded to National Real Estate Company in September 1994. Bids were submitted for phases four and five during the autumn and a contract award is still pending.
CONTRACTORS will be hoping that Lebanon’s reconstruction drive will move up a gear in 1997. The previous year saw work slow down and delays in contract awards as the country lurched from one political upheaval to another. It is conspicuous that almost all of the projects expected to progress in the coming year are backed by private finance; Lebanon will need to attract far greater private investment if it is to preserve its hitherto impressive record on reconstruction.
Beirut property company Solidere remains the mainstay of private Lebanese construction. The repair of the infrastructure in the Beirut Central District (BCD) is well advanced, and in the coming months improvements will appear above ground as well as below.
The local Almabani General Contractors with the Saudi Binladin Group were still in negotiations with Solidere as MEED went to press for the prestigious contract to refurbish the 40-storey Beirut Trade Centre. The discussions are understood to concern the costs of the scheme, for which Solidere is believed to have allocated about $60 million.
France’s Bouygues and Bouygues Offshore will begin work on the $230 million contract to build a system of marine defences essential to allow the development of the reclaimed land at the northern end of the BCD. However, since the work is due to take at least 30 months to complete, it will be some time before Solidere reaps the rewards of developing the site.
Work was originally expected to begin in early 1997 on the Beirut souks, which are to be completely rebuilt. However, the tendering process has been delayed by complex negotiations between Rafik Khoury & Partners, the principal consultants for the scheme, and the Order of Engineers, whose approval is needed to allow the construction work to proceed. The Order is understood to be concerned about the number of foreign architects involved in the design of the souks. Similar discussions must also be completed before construction work can begin on the new Banque Audi offices, designed by the UK’s Kevin Dash.
Bids were submitted in late December for the contract to refurbish the Phoenicia hotel. Some $80 million has been raised to finance the work.
Talks continue aimed at securing finance for the construction of the Arab Highway linking Beirut to the Syrian border, and the Beirut ring road. Both schemes are to be carried out on a build-operate-transfer (BOT) basis. Dumez and Bouygues, both of France, have won the contract to build the highway and the southern section of the ring road, expected to cost up to $700 million. A consortium of Bouygues with Walter Bau and Dyckerhoff & Widmann, both of Germany, will build the northern section of the ring road at a cost of up to $350 million. However, the details of the concession agreements were not finalised with the government until the end of 1996 and the extent of the government’s subsidy for the highway – first offered in early 1996 – remains undecided.
The construction of the new Lebanese University is due to begin in the weeks ahead following the renegotiation of the $200 million contract, mainly financed by the government. Three international contractors pulled out of the consortium in November, leaving only Germany’s Ed Zueblin. Zueblin will now carry out the work alone, awarding sub-contracts when necessary. Egypt’s Megicon is already understood to have been taken on to carry out the electro-mechanical works.
Moves are expected in the first quarter of 1997 to raise capital of up to $200 million for the Linord company, modelled on Solidere and established to develop an area of the coast north of Beirut. The site will include a commercial, tourist and residential area and a free zone.
A private company on the same pattern was originally mooted to oversee the redevelopment of the southern suburbs of Beirut. However, it was eventually decided to carry out the Elyssar scheme with public finance. The project includes the construction of infrastructure and new accommodation for the mainly Shia Muslim squatter population. International contractors applied to prequalify for the work in early 1996, but Elyssar has yet to invite shortlisted companies to submit offers for the work. The delay is partly due to the Housing Ministry’s decision to ask contractors to arrange the finance, industry sources say. This is despite the government’s original intention to finance the work from the two Eurobonds issued in 1994 and 1995, which raised a total of $700 million.
The government’s clampdown on private business is stifling private sector investment and contractors have to rely on government investment and the oil sector for work.
Virtually all of the government’s investment funds have been channelled into the great man-made river (GMR) project and most of the work is carried out by one contractor – South Korea’s Dong Ah.
The company is continuing work on the Jebel Hasouna well fields of GMR 2, after completing the pipeline to Tripoli for inauguration on 1 September 1996. A decision to proceed with the third phase has now been taken formally, with the award of a letter of intent to Dong Ah in November for the construction contract. GMR 3 will link GMR 1 and 2 by a pipeline between Tripoli and Sirte and supply water to Tobruk from the Ajdabiya reservoir. It will also increase the capacity of GMR 1 by extending it to another well field in Kufra.
The coming year should see the tendering of irrigation projects associated with GMR. However, the government has been reducing the scope of some of the schemes to bring down costs.
Turkish contractors have said they would like to be involved in public sector projects again after an agreement was reached between Revolutionary Leader Muammar Gaddafi and Turkey’s Prime Minister Necmettin Erbakan to repay some of Libya’s outstanding debts for past work.
Most of the opportunities will come from the hydrocarbons sector, where private companies are investing to develop oil and gas fields. Contractors are waiting to see how fast Italy’s Agip will proceed with a $2,100 million plan to produce gas and export it to Italy. The project will involve developing gas production at the Wafa field in the southwest, near the Algerian border, and the offshore block NC-41, and building a 1,000-kilometre pipeline. Agip has signed the production sharing agreement with National Oil Company and says detailed designs will be completed soon, but it is unclear whether the project will fall prey to US sanctions targetting companies investing in the Libyan oil and gas sector.
The sanctions have not affected work at the Murzuq field, operated by Spain’s Repsol, where most contracts for the first development phase were awarded in 1996. A contractor for the supply and installation of flow lines was to be appointed in late December.
BOTH international and local contractors working in Oman are looking forward to a busy year. Progress on the liquefied natural gas (LNG) plant, the new port at Salalah and private infrastructure projects is likely to mean there will be no shortage of work. In some cases, however, there are still financing details to be firmed up. In the longer term ambitious plans for gas intensive industries mean that contractors can afford to be optimistic. ‘It may be winter but things are hotting up here,’ says one contractor.
Many contractors are looking forward to sharing in the huge amount of work on the $2,250 million LNG project. Chiyoda and Foster Wheeler & Company have the engineering, procurement and construction (EPC) contract for the liquefaction plant. Subcontracted construction work will start during 1997 and will include site preparation, which has already been awarded to the local Desert Line Projects; camp infrastructure; the jetty and plant foundations. Construction companies can also expect a share of the upstream work, being handled by Petroleum Development Oman. Awards have already been made for the upstream facilities, the gathering system with the inter-field pipelines and the supply pipeline to the liquefaction plant.
Tender documents have also been issued for the development of Salalah port and work is expected to start in 1997. Two major contracts are expected to be awarded – one for dredging and land reclamation and one for the construction of two berths and all terminal facilities.
Oman will continue to give detailed consideration to the implications of private sector involvement in wastewater, water and power projects throughout 1997. The country is taking the concept seriously but projects have so far been slow to move ahead. However, a number of projects should reach the construction stage in 1997. The management of the Salalah wastewater scheme and construction of collectors and pumping stations will be led by the local/UK Yahya Costain. The local Galfar Engineering & Contracting should commence work on the construction and management of the system at Muscat.
New opportunities for construction work in the power sector are likely. However, these will be very much dependent on the government taking final decisions on which projects it will implement and how they will be financed. A substantial amount of effort has already gone in to preparing documentation for build-own-operate (BOO) type schemes. Construction firms will welcome new opportunities but are aware that there will be tough competition for work. New power stations are planned at Salalah and Sur but tender documents have not yet been produced. Oman Cement Company is to provide a further source of power-related construction work on a 60-MW power station to serve the expanded cement plant.
Plans for gas-based industries are still at an early stage but 1997 is expected to see progress on a number of projects. Oman Oil Company expects to award the EPC contract for a fertiliser plant. The two main bidding groups are led by Germany’s Uhde and Italy’s Snamprogetti. Industry sources say Snamprogetti is well-placed for the award. The UK’s BP Chemicals has been appointed as the government’s partner in a petrochemicals complex and will be studying technical and financial aspects of the project in 1997. An aluminium smelter has received government approval and the developers hope to have the project on stream by 2000.