Power deals lead market recovery

06 October 1995

MIDDLE EAST countries have signed new construction orders running into billions of dollars in recent months. In some markets, this marks a return to form after a period in which spending was restrained. Efforts to control budget deficits against a backdrop of softer oil prices restricted spending on all but the most essential projects. Those constraints are no longer so acute and spending has loosened up this year. In other markets, financial or political constraints still temper activity and there are fewer opportunities for international contractors.

Despite the many regional variations, a survey of contracts reported by MEED in the first eight months of 1995 shows some clear trends:

The power sector is enjoying another buoyant year with major new construction projects signed in Saudi Arabia, Iran, Oman, Pakistan, the UAE and elsewhere.

Pipelines and infrastructure for the oil and gas industries are making a strong showing.

Reconstruction in Lebanon is one of the biggest construction opportunities in the region. Contracts worth more than $2,000 million have been signed already; contracts worth a further $1,000 million could be signed next year.

Construction of new corporate headquarters and prestige office and residential building is flourishing, notably in the UAE.

Specialist building for new industries is one segment which is still dominated by international contractors.

With few exceptions, civil contracts are now the preserve of local companies or long-standing joint venture companies with an international partner.

Recent months have seen a flood of power station projects signed, which makes the power sector by far the largest sector of infrastructure spending in the Middle East. Power can typically account for about 30 per cent of a government's budget in the developing world and this year is proving to be no exception in spending terms.

The largest deal was the $1,300 million PP9 project in Saudi Arabia, awarded in June to a consortium led by Saudi American General Electric Company (Samge), the local joint venture of the US' General Electric Company (GE). The UK's Reyrolle, a division of Rolls-Royce, won a $320 million contract for the substation. The kingdom has bids for several other large power schemes either under evaluation or out to tender. In July alone, MEED recorded another $210 million worth of power contracts in Saudi Arabia, awarded to local firms as well as Hitachi, Siemens and the local arm of Germany's Suedrohrbau.

Power projects were among the most valuable deals to be awarded elsewhere in the region during the first three quarters of this year. Zurich-based ABB Asea Brown Boveri won the $145 million contract for the Aqaba thermal power expansion in June and Iran turned to China for its award of a $264 million contract for a combined-cycle power plant at Arak. In May, Kuwait awarded substation and overhead line contracts worth over $200 million to power engineering contractors from France, Hungary, Italy and Switzerland.

Despite the lengthy delays that have hit its own power expansion schemes, Turkey is managing to export its skills as a power contractor. In June, Turkish contractor BMB won a $796 million contract, in partnership with Siemens, to build a 954-MW combined-cycle plant in Kazakhstan. Even more ambitious is the deal struck by Hong Kong-based Consolidated Electric Power Asia (CEPA) to build several power stations in Pakistan. CEPA has pioneered private power projects in the Far East and has committed itself in Pakistan to install $1,600 million worth of new coal-fired capacity.

Expansion of the region's oil and gas infrastructure strongly among the contracts let so far this year and is destined to be a leading source of work in the coming period. The development of new fields, the laying of pipelines to link them to existing networks, and a whole range of new gas projects are all in prospect. Several major deals are already taking shape. After three years of deliberation, Kuwait Oil Company has agreed a deal worth about $390 million with China Petroleum Engineering & Construction Corporation for the expansion of production facilities in the western oil fields. A contract was due to be signed in late September. Earlier in the summer, as part of the Murzuq oil field development in Libya, Athens-based Joannou & Paraskevaides (J&P - Overseas) took an estimated $80 million contract for laying 380-kilometres of pipeline to join up with an existing line.

In the Gulf, Saudi Aramco has raised huge expectations with its decision to go ahead with development of the Shayba oilfield. Shayba is so remote that investment is expected to reach $2,500 million in the first phase of bringing it into production. This will include complete infrastructure and a pipeline which will have to run 600 kilometres to join the existing network at Abqaiq. Companies are prequalifying for work on schemes for liquefied natural gas (LNG) exports from Qatar and Oman which could start to generate construction business next year.

The momentum of reconstruction in Lebanon has gathered pace during the year with many of the first contracts now being implemented and a range of new deals agreed in recent months. Repaired generating capacity, executed by Italy's Ansaldo Energia, is due to come on stream at Zouk and Jiyeh later this year, restoring output to something approaching full capacity. Bigger power projects to expand capacity significantly are also getting under way. Ansaldo and Siemens are to build two new 435-MW units at Beddawi and Zahrani, serving the north and south of the country, respectively, while European Gas Turbines (EGT) is installing a total of 130-MW at Baalbek and Tyre.

Local contractors are at work on the first stage infrastructure for the redeveloped Beirut central business district and on a range of road improvement projects in and around Beirut and on the coast roads out of the capital. Among the major projects let to foreign contractors and already underway are the Cite Sportive, being rebuilt by the UK's Trafalgar House, and the Beirut airport scheme which was won by a joint venture of Germany's Hochtief and Lebanese-owned Consolidated Contractors Company (CCC). Saudi Arabia's El-Seif Engineering and its local partners are building a hospital for Beirut university. The telecommunications network is being restored at a cost of about $500 million by Alcatel, Ericsson and Siemens.

And there is more to come. Bids are being evaluated for the Beirut central district shoreline protection scheme which could be worth about $300 million; Wimpey Construction Management has a contract to rehabilitate the Murr tower which will cost about $50 million; and a contract will be awarded for the Beirut to Damascus highway scheme. Lebanon's other opportunities include a proposed conference complex which would help put the country back on the map as a regional business centre.

The demands of growing businesses have produced a healthy stream of major building contracts in the UAE in recent years which shows no sign of slowing down. Private companies and government-owned corporations have outgrown many of the buildings built in the 1970s during the oil boom years and there is a constant demand for modern office space in Abu Dhabi and Dubai. Most of these high quality, prestige projects are won by long-established local joint ventures.

UAE active

Among the most recent awards was a new headquarters for the Abu Dhabi Company for Onshore Oil Operations (Adco), which is to be built by the local/UK Laing Abu Dhabi for $37 million. Similar awards in recent months include Arabian Construction Company's $65 million contract for a commercial and residential complex next to the Etisalat headquarters in Abu Dhabi, which was reported in June, and Dutco Balfour Beatty's $25 million deal for a similar complex on Sheikh Zayed road.

In Dubai, the local/UK Al-Naboodah Laing took a $56 million contract for a new tower block in April while another UAE/UK venture - Al-Futtaim Wimpey - is expanding the Dubai World Trade Centre in a $22 million deal. Another very active sector in the UAE, but very much the preserve of the local contractor, is the road network expansion and upgrade work in Abu Dhabi and Dubai.

With the development of local industry and manufacturing capacity in the region, there is more demand for specialised contracting for the erection of sophisticated facilities. This can call for specialist skills which still have to be sought from outside the region. Recent examples include the $27 million pharmaceutical plant contract won by Taylor Woodrow International in Saudi Arabia for the Al-Haya Medical Company. Earlier in the year Technipetrol of Italy won a $40 million contract to set up a sanitary ware manufacturing plant in the kingdom. Projects in Oman and Egypt, for a flour mill and a steel plant expansion scheme, also went to foreign contractors.

Looking to the months ahead in the Middle East, local and international contractors will be hoping that the modest improvement in conditions can be sustained. Average oil prices have picked up in the year to date, improving government receipts in the Gulf states, but worries about the direction of oil prices in 1996 are starting to surface. State spending targets are likely to be tight again next year and contractors will be hoping that the promise of more private sector investment will be kept.

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