CLASSIC construction projects are an endangered species in the Middle East at the start of 1995. Private solutions to infrastructure problems are being canvassed across the region. Toll roads, independent power projects and build-operate-transfer proposals are proliferating. Project financing is becoming essential and most states are looking for private initiatives in areas which used to be reserved for the public sector.
The common thread in all the changes is a harsher economic environment. Lower real oil prices are forcing adjustments on Middle East governments. Budgets must be balanced and cuts in capital spending are easier to order than reductions in the public payroll. The region still retains considerable interest for international contractors, especially those with specialist skills in power engineering, waste water, petrochemicals and oil and gas. Below, MEED writers outline the major areas of opportunity for contractors across the Middle East and North Africa in 1995.
RESCHEDULED debts mean there is more money to spend and Algeria is likely to borrow on a large scale from the IMF and other financial institutions.
A $3,000 million railway expansion programme, completion of the Algiers metro, airports, ports and dams and water supply systems are all planned for the next few years. Such schemes would normally have contractors flocking to Algiers.
But these are not normal times. Contracts are being signed but even contractors that have specialised in Algeria are reluctant to send expatriate workers. Work has yet to begin on many projects.
Companies are inclined to invoke force majeure due to the civil conflict which has targeted foreign workers.
Even work in the hydrocarbons sector for state energy company Sonatrach and others is being affected because oil and gas companies no longer feel safe. In October, Gaz de France began withdrawing personnel from its Skikda project despite increased military protection.
With the US’ Bechtel also reviewing its position, even a strategic priority like the Europe-Maghreb gas pipeline is now at risk.
Local companies will have to soldier on alone with limited overseas assistance. There is no shortage of schemes and a project list drawn up by Prime Minister Mokdad Sifi, a former equipment minister, in mid-1994 focuses on infrastructure development as a means of stimulating growth and creating jobs.
The Equipment Ministry has 20 dams and 14 irrigation reservoirs planned or under construction. The Islamic Development Bank is funding studies for another 12 dams. Rail and metro plans could cost up to $5,000 million by the end of the decade if foreign support is forthcoming. Completion of the new terminal at Algiers airport could be offered as a build-operate- transfer (BOT) scheme to private developers.
Such projects are undoubtedly exciting but the proposals may have come too late in Algeria’s cycle of violence to make much headway in 1995.
THE 1995-96 budget has hit hopes of a construction upturn. Government spending has been frozen for the next two years, leaving many projects on hold. More than ever, the private sector is expected to set projects in motion. The most urgent need is an expansion of utilities, which are under pressure to meet rising demand for both water and electricity. Private proposals for a power station and a desalination plant have moved slowly so far, as the regulatory framework is negotiated.
Plans to build a new port and industrial area, a urea plant and to modernise the refinery and power station in Sitra will be stalled until more funds are available. The budgetary constraints are obliging the government to consider other ways of financing the ambitious projects it has initiated. It has a good track record for managing major loans, and a new $95 million expansion scheme at Aluminium Bahrain (Alba) will be financed commercially.
The projects likely to proceed in 1995 are:
A 360-MW combined-cycle power plant at Hidd, sponsored by British Gas (BG). The nominated turnkey contractor is Germany’s ABB Kraftwerke. The construction phase is scheduled to begin by mid-1995 for completion in March 1998. Equity for the project is likely to be supplied by BG and other international investors.
A 10,000-cubic-metre-a-day reverse os-mosis desalination plant for Alba at an estimated cost of $250 million. Bids were resubmitted in September by seven international companies, but the project is being delayed as Alba identifies buyers for the desalinated water. The consultant is the UK’s Ewbank Preece.
The construction of four new 66/11-kV substations at an estimated cost of $42 million. Bids were submitted by four international companies in November to the Works, Power & Water Ministry. The consultant is the Electricity Board of Ireland.
An $18 million extension to the international airport for completion by early 1996. This follows the recent completion of a new $101 million passenger terminal. The consultant for the first phase was the UK’s Scott Wilson Kirkpatrick.
A new 17-storey headquarters building for Bahrain Islamic Bank. Eight contractors have been prequalified for the estimated $13.8 million job, and tender invitations were due to be issued by the end of December. The consultant is the local Mohamed Salahuddin Consulting Engineering Bureau.
AFTER years of slim pickings, the Egyptian construction market is starting to provide a number of interesting opportunities for international contractors. Many of the new projects are in the tourism sector, which is reviving as Islamist attacks are declining. There are also a number of infrastructure projects coming to the tender phase, including the construction of a third terminal at Cairo airport and an estimated $300 million scheme to pipe gas to Israel.
Tourism – bids are due to be invited in the first few weeks of 1995 for the estimated $100 million contract to build a 750-room hotel in Cairo to be managed by Conrad Hotels of the US. Conrad also has 7 per cent stake in the capital of the investment group carrying out the project.
An estimated $30 million-40 million contract is expected to be awarded to one international contractor for the construction of two hotels in the Red Sea resort of Ras Abu Soma, to be managed by Sheraton Corporation of the US and Germany’s Robinson Club. The clients are two companies majority owned by the Egyptian Finance Company. Bidders include Kajima Corporation of Japan, Dragados & Construcciones of Spain, the UK’s Balfour Beatty Construction, Italy’s Grassetto Costruzioni and the local Hassan Allam.
A new hotel is also planned to be built next year in the Sinai resort of Sharm el-Sheikh for Raja Travel & Hotels, to be managed either by Conrad or the Brussels-based Radisson SAS.
The state-owned Egyptian General Company for Travel & Hotels (Egoth) is planning to invite bids early in 1995 for the construction of a hotel in Luxor, to be managed by Marriott Corporation of the US. South Korea’s Doosan Construction & Engineering is working on another hotel for Egoth further south in Aswan, according to a $27 million contract signed in June 1994.
Commercial and residential – One of the biggest projects due to go ahead in 1995 is the Nile Plaza complex in the Garden City district of Cairo. It is being carried out by a company controlled by the Talaat Moustapha Group, which includes a leading Alexandria-based building company. The Nile Plaza will comprise 29 floors for hotel rooms and residential units and five floors of offices and shops. The hotel section will be managed by Canada’s Four Seasons Hotels. Total costs are estimated at about $180 million. A similar scheme is being carried out across the Nile in Giza by a group led by Saudi/Egyptian businessman Hamza el-Khouly. The $94 million contract was awarded to John Laing International of the UK with the local CRC Hassan Dorra in April, one of the largest building contracts to be let in Egypt for several years.
International companies are also lining up for the contract to build a 22-storey office block in Giza for Faysal Islamic Bank of Egypt.
Cultural – a team of Norwegian and British architects and consultants has completed designs for the Alexandria library, which is expected to cost some $150 million in total. Foundation work has started, and contractors will be approached in the new year for the main construction work. The scheme is being backed by UNESCO, which has gained some notoriety in Egypt in recent weeks by forcing the government to stop work on the Greater Cairo Ring Road because of the damage it would inflict on the Pyramids at Giza.
Infrastructure – Netherlands Airport Consultants (Naco) has finished designs for the third terminal at Cairo airport, and bids are expected to be invited in the first quarter of 1995. Costs of the terminal, which will be able to handle 14 million passengers a year, are estimated at about $300 million-400 million.
Contractors will also have opportunities to bid for the civil works portion of the Sidi Krier and Ayun Mousa power station contracts, for which bids have recently been invited.
In the oil and gas sector, work is due to start soon on an Israeli-backed refinery in Alexandria, and a company has been formed to build a gas pipeline from the Port Said area to Israel at an estimated cost of about $300 million.
PALESTINIAN officials and donors are hoping the development programme will pick up momentum this year, after the halting progress made in 1994. Tensions and confusion in the nascent bureaucracy have plagued the aid initiative but Palestinian officials say these issues have now been mostly addressed.
The Palestinian Economic Council for Development & Reconstruction (PECDAR) will co-ordinate the programme and issue and evaluate tenders for basic infrastructure projects covering solid waste, water, power distribution and transport. PECDAR officials are working closely with the UN Relief & Works Agency (UNRWA) which will focus on areas of particular expertise, such as the environment. New departments set up within the Palestinian National Authority will be in charge of strategic projects, including power generation and the Gaza port and airport schemes.
Project to watch:
Bids are being evaluated for a $15 million airport for Gaza City. Contractors have had to offer concessionary financing terms with their bids.
A consortium of three European firms has signed a memorandum of understanding to build an estimated $60 million fixed port. The Dutch government has agreed to back the project with a $20 million grant, but more bilateral assistance is required.
Design work for an estimated $57 million sewage and drainage project in Rafah in Gaza began in late 1994. Construction work on the EU-backed scheme, one of a series of similar projects in the Gaza Strip, is expected to start in late 1995.
Construction of a 210-room, $21 million-26 million hotel in East Jerusalem is planned to start in spring 1995. Pending Israeli approval, a host of similar projects in the east of the city could follow.
The Palestinian Fuels Company plans to start engineering, procurement and construction for a 20,000-barrel-a-day refinery in early 1995. The project is awaiting formal approval.
CONSTRUCTION opportunities for foreign contractors in Iran have declined since 1993 but the start of the second five-year plan in March 1995 could speed up new project approvals and help a limited recovery.
In 1994, the government decided to rely on local contractors for a wide range of projects, even specialised oil industry schemes. The decision was made inevitable by reduced financial circumstances and the need to devote future revenues to repaying external debts accumulated in the early 1990s.
Many new projects have been postponed or handed over to local contractors. These include the massive South Pars and North Pars gas fields, the Sirri oil fields and reconstruction and expansion of the Abuzar crude oil platform. National Iranian Oil Company (NIOC) subsidiaries and joint ventures have won most of these projects, but some foreign involvement is inevitable.
Several large hydroelectric dam projects, including the Karun-3 and Karkheh dams have gone to local companies. A promising opening for foreign firms is the Godar-e Landar dam, once known as Karun-4, for which Japan has provided an initial untied soft loan of $380 million.
The country’s eighth refinery at Bandar Abbas is being completed by local contractors but the smaller ninth refinery, at Bandar Asaluyeh, has yet to be contracted out and may require greater foreign participation.
Five large petrochemical projects, requiring a government investment of at least $1,800 million, are also scheduled for the second plan. Here, there may be possibilities for foreign firms through joint ventures.
There are potential opportunities in railway construction, mineral exploitation and power generation. A number of medium-size mining projects were either awarded or finalised in 1994, but the fate of the rail and power schemes depends on the availability of finance.
There are several in-principle agreements for ambitious pipeline projects to carry gas to Pakistan and India and to Europe. But these are long-term propositions and heavily dependent on foreign finance.
The main prospects are:
The $700 million Bandar Asaluyeh refinery scheme to process 70,000 b/d of condensates from gas fields. Proposed financing is on a buy-back basis. Contractors should be selected in 1995.
Contracts for the first phase of the Godare Landar dam, generating 1,000 MW, will be worth about $500 million. The schedule depends on the release of Japanese finance.
The $1,400 million Al-Mahdi aluminium smelter in Bandar Abbas, a joint venture with an international consortium headed by Dubai’s Al-Tajir International. Financing problems have forced a 50 per cent cutback in size and a slowdown in construction.
The go-ahead is expected for five petrochemical projects approved by the majlis. These are a methyl tertiary butyl ether (MTBE) plant, doubling the capacity of the olefin unit of the Bandar Khomeini petrochemical complex to 530,000 tonnes a year, a methanol unit on Kharg island, and two plastics projects.
THE government is brimming with confidence after signing a peace treaty with Israel and has unveiled an $18,000 million development programme including 121 major projects. Among the proposals are a $460 million Amman- Aqaba railway, a $500 million refinery in Aqaba and a $3,000 million Red Sea-Dead Sea canal. This is more of a wish list than a programme for prompt action, however. The government does not want to acquire fresh debt and, as yet, there is no aid or private finance available for such grandiose schemes.
Genuine opportunities for 1995 exist in the water supply and sewerage sector, particularly in Amman. Developing new water supplies will offer the greatest scope for contractors, as studies on joint Israeli-Jordan projects get under way. The government is also eager to develop the power and transport sectors. Projects to watch include:
The Jordan Electricity Authority is expected to award contracts in early 1995 for the $260 million expansion of the Aqaba power station. Separate bids for turbines, boilers, fuel tanks and civil works, and two turnkey proposals are being evaluated.
Bids will be invited for the Syria-Jordan electricity link in mid-1995. The $150 million project will include transmission lines and substations. Evaluation of bids for the consultancy contract began in mid-December.
Bids for a feasibility study and design of a 340-kilometre pipeline from the Disi aquifer to Amman should produce an award in early 1995. This is an estimated $300 million-350 million build-operate-transfer (BOT) project.
Tender invitations are expected later in the year for a trunkline between Amman and the Khirbet al-Samra sewage treatment plant. The $50 million project is German-funded.
Construction offers will be invited soon for a 260-room, $14 million Moevenpick hotel on the Dead Sea for Zara Investment Company.
A GROWING budget deficit is limiting potential investment in public sector projects, despite improvements in the wider economy. The actual deficit for 1994/95 may come in lower than the $5,940 million that is forecast but the project budget is being squeezed.
The Iraqi military build up on the border in early October added new urgency to the budget deficit debate. Bad news for contractors followed in November when the cabinet approved a proposal by Finance Minster Nasser Abdullah al-Rodhan to cut the projects budget by 25 per cent to help cover the costs of the allied military response.
Housing and sewerage may be the only growth areas for contractors. Population figures for mid-1994 show a growth of 29 per cent on the previous mid- year estimate with a further 15 per cent growth predicted to mid-1995. Several wastewater schemes are already under way to cope with the long- term inadequacies of the system.
Only the oil sector is to be spared in the spending cuts and contractors can expect some major civil work in 1995. Major construction projects likely to get under way include:
The Western oil fields gathering centres. A decision was expected by end-1994 on the award of the $400 million scheme to install gathering centres 27 and 28 in the Minagish and Umm Gudair fields.
The Mina al-Ahmadi MAFP scheme. Japan’s Mitsui Engineering and Shipbuilding Company bid lowest in November to revamp the refinery’s fluid catalytic cracker and install an alkylation unit and a methyl tertiary butyl ether unit.
The Shuaiba polypropylene plant. Japan’s Toyo Engineering Corporation was the low bidder in December for the 100,000-tonne-a-year plant for the Petrochemicals Industries Company (PIC) scheme.
The Riqqa sewerage scheme. Bids were due on 27 December for an estimated $85 million contract to upgrade and expand the Riqqa sewage treatment plant for the Ministry of Public Works.
WHEN Habib Ltayef invited construction companies to prequalify for the contract to refurbish the Casino du Liban, the casino’s managing director had little inkling of the deluge of offers he would receive. The 87 companies that responded have now been reduced to a list of 10 prime international contractors.
The strong response has been repeated for other, more substantial, public sector contracts. Sixteen groups bid to expand Beirut airport, eventually awarded to Germany’s Hochtief and Athens-based Consolidated Contractors International Company (CCC) for $400 million, and 32 companies have been prequalified for the estimated $200 million job to build a new university southeast of Beirut.
One of the reasons for the positive response is the favourable impression given by the main executive agency for the reconstruction programme, the Council for Development & Reconstruction (CDR). The CDR, now under the chairmanship of Al-Fadl Chalak, has a network of project management and sector units operated by international consultants, ensuring that contracts go through a meticulous vetting procedure. Most major contracts have been awarded to the low bidder.
This factor has left some international contractors complaining that prices have been pitched at a ridiculously low level. The first stage infrastructure contract in the giant urban regeneration project being carried out by Beirut property company Solidere finally went to the local Khlat & Moawad with Italy’s Consorzio Co-operative Costruzioni for only $63.7 million, but with the promise of an extra $13 million if the work is completed in three years, rather than the originally specified four.
The main construction orders due to go out to tender in the next few months include:
Casino du Liban – the 10 prequalifiers are due to submit bids for the estimated $15 million first phase in mid February.
Beirut university – financed by Saudi Arabia and Oman, this project is due to go out to tender soon.
Solidere marine works – a list of international prequalifiers will be issued within weeks for this estimated $200 million contract.
Beirut port rehabilitation – companies have been invited to prequalify for this estimated $130 million contract, part-financed by the European Investment Bank.
Beirut-Damascus toll road – five European companies have prequalified for this estimated $500 million build-operate-transfer scheme, and are to submit initial proposals in the next few months.
WAITING for payments is a fact of life in Libya, but the lengthening delays of the past 12 months have left contractors disillusioned about prospects for the coming year.
The growing payments problems are put down to the freezing of some assets abroad in accordance with UN sanctions. The stricter sanctions brought in a year ago, which included the ban on sales of selected equipment to Libya, have also affected the progress of projects in the oil industry. Even as foreign companies hang on, hoping for an improvement, they are becoming concerned about security. Thefts in Sirte have unnerved foreign residents.
Many projects awarded over the past two years have yet to be activated; the most likely prospects for action in 1995:
A 400-kilometre oil pipeline from block NC 115 in the Murzuk basin to link up with a pipeline to the Azzawiyah refinery, to be ready for production start-up in mid-1996. Six international companies bid for the work in 1992.
Further work on the second phase of the great manmade river (GMR) project. South Korea’s Hyundai Engineering & Construction is to install 320 kilometres of overhead transmission line by April 1996. Bids for up to 11 66/11-kV substations have been submitted to the GMR Authority.
The interconnection of offsite facilities for the second phase expansion of the Ras Lanuf Oil & Gas Processing Company (Rasco) petrochemical complex. Germany’s MAN Ghh won the contract in November 1993.
Installation of a third direct reduction module at the Misurata iron and steel complex for the Libyan Iron & Steel Company. Austria’s Voest Alpine Industrieanlagenbau (VAI) secured a downpayment for its $224 million contract on 1 October and construction is expected to start in early 1995.
Provision of general utilities in the Slawi area of Benghazi. South Korea’s Daewoo Corporation is expected to begin work on the $200 million project to build roads and water, power, sewerage facilities early in the year.
STRONG growth is stretching Morocco’s infrastructure, evidenced by power cuts in mid-1993. This has persuaded the authorities to look to the private sector to build power plants and other utilities.
More independent power projects (IPPs) are expected. Water and telecommunications schemes will also be offered to the private sector.
Donor financing remains essential for most major projects. Projects with funds from multilateral or Arab agencies attract long bid lists; those supported by mixed credits are more restrictive and draw a narrower field.
Local firms and the local affiliates of international companies are taking a leading role in office and quality housing projects. For example, Bymaro, the local subsidiary of France’s Bouygues, is working on a headquarters building in Settat for the Rocas health goods company, a 100-bed hospital and a teacher-training faculty at the new Ifrane university.
Forthcoming major projects include:
The Jorf Lasfar III and IV power plants, to be built as a BOT project. Technical assessment of 12 bids will be completed in early 1995. The successful bidder will have to run the existing power station and commit to further expansion at a later date.
Construction of the Moroccan section of the Maghreb-Europe gas pipeline. This will be linked to power station projects, including a new unit at Kenitra. Contracts worth $180 million have gone to Spain’s Dragados Auxini International Pipelines with France’s Entrepose Montalev and to Germany’s Mannesmann Anlagenbau with Spain’s Fomento de Contratas & Construcciones for different sections of the line.
The Casablanca World Trade Centre, the largest office building in the commercial capital. Contract difficulties have delayed the start of this prestige project but action is expected soon.
The Mohammedia sewage outflow, which is the second half of a project to tackle pollution in the Casablanca area.
THE main impetus in the coming year will come from the private sector as the government cuts budgets further to reduce the deficit and actively promotes private investment in infrastructure. Power stations, wastewater projects and roads in the capital area could be privately financed. Government investment will focus on the $5,000 million liquefied natural gas (LNG) project.
Spending on roads and other civil construction projects will be kept to a minimum, as in 1994. The most important government contracts out for tender are a grand mosque and a series of fishing harbours. Other work is expected for the construction of water recharge dams and town beautification schemes. Petroleum Development Oman (PDO), a regular source of work for maintenance contracts, is expected to raise spending, after budget cuts in 1994.
The main prospects are:
LNG project. Bids for the engineering, procurement and construction contract for the liquefaction plant are to be invited in April. Contractors expect up to $1,300 million worth of civil works. The project will depend on Oman LNG securing an offtake agreement and project financing.
A contract worth about $520 million is expected in the first half of 1995 to expand the Muscat sewage system and operate it for 30 years. Bids were submitted in mid-December.
Salalah sewerage. Private contractors were to bid by 21 December to build a new collection and conveyance system and manage and operate the system for 30 years. Separate bids for the construction of a US-funded 4.4 million-gallon-a-day treatment plant will be submitted by 23 January.
A contract for the estimated $49 million Grand Mosque is to be awarded in early 1995 for completion in time for the twenty fifth national day celebrations on 18 November 1995. The local Oman Shapoorji Company was the low bidder.
Main contractors European Gas Turbines and AMEC Power of the UK are to appoint subcontractors for civil works on the Manah power project.
The delayed Izki-Qarn Alam road for PDO may go ahead. Detailed design proposals are being evaluated.