LOCAL CONTRACTORS are feeling the pressure of lower oil prices. They are finding it harder to win orders as government investment in infrastructure and the oil industry has been scaled down.
Yet, most contractors have enough work in hand to keep their workforce busy for another year or two. And a mini-boom in private property development is helping to fill any gaps in the order books.
Tougher competition has forced construction prices down and local contractors are gaining market share at the expense of their international competitors. Under increasing pressure at home, some local companies are also looking for opportunities to export their skills. All are waiting for the big prize, a liquefied natural gas (LNG) project, that could generate enough work to keep the construction industry busy until 2000.
‘Most contractors have one large contract, but work is spread a bit thin,’ says Peter Hoare, chief quantity surveyor with the local Desert Line. Several government projects have been frozen or scaled down under the impact of a 38 per cent cut in capital spending in this year’s budget. ‘There are few projects over RO 5 million ($13 million) these days,’ a contractor says.
The Batina highway rehabilitation project is a case in point: it is being redesigned to cost RO 3 million ($7.8 million) instead of the original RO 11 million ($28.6 million). One of the largest in a series of hospital projects, a RO 14 million ($36.4 million), 350-bed hospital in Nizwa, has been put on hold.
For the moment, contractors are still busy with an array of small jobs for various government and private clients, and a few large projects.
The local/UK Taylor Woodrow Towell is working on an Olympic-size stadium in Nizwa to be completed at the end of this year. Consolidated Contractors Company (CCC – Oman) has started work on the Rusail to Nizwa road after final agreement on the contract, and the Cyprus-based Joannou & Paraskevaides (J&P) has clinched an estimated RO 18 million ($46.8 million) contract to build the country’s second largest hospital in Sohar.
But government funding has not completely dried up. Although most contracts out for tender are small, several larger jobs are to come on the market soon. Bids have already been invited for several military camps for the Ministry of Defence, each estimated to cost over RO 5 million ($13 million).
The Agriculture & Fisheries Ministry is planning three fishing harbours in Sur, Quriyat and Raysut, estimated at RO 28 million ($72.7 million) in total. At least one of them is to go out to tender later this year. The largest will be the RO 12 million ($27.2 million) Sur project, designed by Sir Alexander Gibb & Partners of the UK.
Contractors will also be asked to bid for a series of smaller fishing harbours on the Batina, Sharqiya and Dhofar coasts later this year. Bids have already been submitted for the first, a RO 3 million ($7.8 million) harbour at Bukha.
Petroleum Development Oman (PDO) is still a reliable source of work, although it is postponing major projects until better times. ‘PDO will continue with its medium and larger-scale design projects but the decision to go into construction is more difficult,’ says Peter de Weijs of Comprimo, which is doing design work for PDO.
Civil and mechanical service jobs are contractors’ bread and butter at PDO. ‘There should be a lot of maintenance contracts going out to tender, but PDO is delaying and extending them,’ Hoare says. The next service contract coming up is for northern Oman mechanical service contract, held by the local Galfar Engineering & Contracting until the end of the year.
Similar jobs are providing a basic work load to several local contractors, including Desert Line, which has a rig-moving contract, Bahwan Engineering Company, which does mechanical and electrical service work in the north and south of Oman, and Al-Turki Enterprises, which has a civil service contract for northern Oman.
The other oil companies, operating east and north of PDO’s concessions, are a source of minor jobs. Desert Line has been building and maintaining roads for Occidental Petroleum for the past 10 years and is building new access roads for Japex (Oman).
Although contractors are busy, many are worried they will not be able to fill their order books next year. ‘We have been luckier than most, but turnover will go down by 50 per cent,’ Hoare says. This is echoed by Galfar, the largest local contractor. ‘We have lots of jobs coming to an end. This is a problem. We have to find work for our 4,500 people,’ says Galfar engineering & construction division manager KJ Bastian.
The company is now turning to new markets to escape the pressure at home. Says Bastian: ‘We are planning ahead. I don’t think it will be any better in three or four years’ time. We are expanding to Abu Dhabi and Qatar.’ Desert Line chairman Ahmad Farid has been looking at opportunities in his native Yemen.
Better times are expected if the LNG project goes ahead as planned. Contractors estimate the $5,000 million scheme should generate civil and mechanical work worth RO 400 million-500 million ($1,040 million-1,300 million). Construction is to start in 1996 and will take four years. Until then, the largest investment to go ahead will be the first private power station, a RO 82 million ($213 million) project signed in late June. Construction work, to begin in 1995, will include opportunities for civil and mechanical contractors.