IT HAS been a year to remember for international contractors in Qatar. In the space of 12 months, more than $4,500 million worth of contracts has been awarded, as Doha has successfully translated its industrial plans into real projects. And, there is more to come. A second integrated gas project, a refinery upgrade and a major expansion of the Umm Said steel plant are all on the drawing board.
The unprecedented level of activity is all the more remarkable in view of the market’s size. Qatar has fewer than 500,000 inhabitants, and after Bahrain, is the smallest GCC state.
Nor does Doha have a good track record for implementing major projects, least of all at times of low oil prices. Although numerous schemes were unveiled during 1985-1991, only one, the $800 million first-phase development of the North Field, succeeded in getting off the ground.
Two factors came into play to change Qatari fortunes. The first was in autumn 1992, when a long-awaited cabinet reshuffle and shake-up in ministry responsibilities was announced. ‘Those events ushered in a new dawn for Qatar,’ says a Western diplomat in Doha. ‘The new appointees in ministries such as energy and industry had a greater sense of purpose. They were more approachable and were intent on instilling greater transparency into business affairs.’
The second catalyst was Doha’s discovery of international finance. Before last year, Qatar could not point to a single project financing success. Since then, four major projects have proceeded on the back of external finance, underlining the growing willingness of the international banking community to take on Qatari risk.
Various financing arrangements have been used, and different financial markets targeted. For the $385 million extension of the Qatar Petrochemical Company (Qapco) plant, $200 million was raised from local and regional institutions. Qatar Fertiliser Company (Qafco) adopted a classic project finance model to raise funds for its $500 million expansion: Italian and German export credits were supported by European commercial loans. Qatar Liquefied Gas Company (Qatargas) secured $2,000 million of export credits and commercial loans from the Export-Import Bank of Japan and four Japanese banks to finance the downstream portion of its integrated gas project.
Doha’s industrial programme has also benefited from cut-throat competition among international contractors. Prices for the main engineering, procurement and construction (EPC) contracts have all come in well below budget. The Qatargas liquefaction plant contract went to Japan’s Chiyoda Corporation for just under $1,400 million, almost half the original estimate. The trend reflects a downturn in opportunities in other regional markets and a belief among international contractors that an early foothold in Qatar will ensure future contract success.
Despite the award of the main EPC contracts, contractors are still monitoring projects such as the Qatargas scheme and the Ras Abu Fontas B power station project in the hope of clinching subcontract work. Several sizable orders are waiting to be placed. Chiyoda recently issued the instrumentation tender for the liquefaction plant at Ras Laffan. A decision is pending for the offshore civils subcontract on the $1,100 million power station.
Contractors are also keeping close tabs on the recent decision by Qatargas to add a third gas train at its 4 million tonne-a-year (t/y) facility. Chiyoda has the option to carry out the additional work, which is scheduled to be completed in 1998. Similar interest is expressed in the Qatar National Cement Company project, involving the construction of a 2,000 tonne-a- day clinker line near Umm Bab. Three European companies – CLE Technip and Fives-Cail Babcock, both of France, plus Denmark’s FL Smidth & Company – submitted the low bids for the estimated $150 million turnkey contract in May.
Plans are now being drawn up for the next generation of industrial schemes. Costed at over $5,000 million, their fortunes will again hinge on the willingness of the international financial markets to provide the funding. The feeling in banking circles is that the funds will be forthcoming. Says one London banker, ‘There are still many financial institutions and export credit agencies that have not participated in Qatari lending. At the same time, there are enough bankers around who have the market knowledge and experience to explain to newcomers the pitfalls and advantages of the market.’
Whether Doha will want to take on further borrowing commitments is more doubtful. Money could be tight over the next 10 years, as state-owned industries look to meet their loan repayments and await the full financial benefits of the gas revenues. The upshot may be that the government will look to postpone further project work until existing debt levels have been reduced.
Among the schemes planned are:
The Ras Laffan LNG Company (Rasgas) project. The estimated $5,000 million scheme, promoted by Qatar General Petroleum Corporation and Mobil Corporation of the US, is poised to enter the tendering phase this autumn: Rasgas is finalising the list of prequalifiers for the two main EPC contracts, covering onshore and offshore works. Both contracts are scheduled to be awarded in mid-1995, allowing the 5 million-7.5 million t/y liquefaction plant to begin operations in 1998. Prospective bidders expect to be asked to incorporate a financing package in their bid submissions and say that US contractors are the early favourites to take the work. Rasgas has still to sign gas sales and purchase agreements with Far East power utilities.
The National Oil Development Company (Nodco) scheme. Initial offers are due to be submitted by international contractors in early August for the $400 million-500 million scheme. Companies have been requested to submit a pre-front end engineering and design study, a quote for the EPC contract, and details of a financing proposal covering the entire project costs. The Umm Said job entails the installation of a 20,000 barrel a day (b/d) fluid catalytic cracker (FCC), the construction of a 30,000 b/d condensate refinery and a 25 per cent expansion of the number two refinery unit.
Expansion of the Qatar Steel Company (Qasco) plant. Qasco is planning two schemes which will upgrade and expand its Umm Said facility. For the first, covering internal modifications, the company is on the verge of selecting an international contractor for the $40 million order. The second, larger project – known as Qasco-2 – calls for a 500,000 t/y capacity increase. A feasibility study has recently been completed for the 36-month scheme and tender invitations for the first construction packages should be issued in early 1995. Qasco is likely to seek some finance from export credit agencies to cover the estimated $300 million construction costs.
The company’s decision to divide Qasco-2 into packages reflects the management’s desire to place some business in the local market. ‘We would like everyone to benefit from the project,’ says Qasco general manager Nasser Mohammed al-Manssory.
The decision will be warmly welcomed by many Doha-based contractors. A feature of the recent industrial construction boom has been the lack of local involvement. The exception is Midmac Contracting Company, which has emerged as the only serious local contender to challenge the foreign domination of the market. It has picked up civil subcontracts on Ras Abu Fontas B, the Qafco expansion and the cryogenic storage units package for Qatargas.
Local frustration at seeing project after project go offshore has been compounded by the downturn in other sectors of the construction market. Over the past year, companies have had to console themselves by competing for work worth around $5 million a project.
Local hopes for the future are vested in a series of prestigious building and infrastructure projects. Bids were submitted in mid-July for an estimated $30 million contract to construct a new headquarters in West Bay for Qatar Public Telecommunications Company. The Beirut-based Dar al-Handasah has started work on designs for a $47 million housing project at Ras Laffan. The Municipal Affairs & Agriculture Ministry is planning to tender $120 million of infrastructure work for the West Bay lagoon project.
The West Bay scheme highlights the ministry’s new drive to secure private- sector finance for many of its development schemes. Local investors have bought housing plots around the lagoon, which will in turn pay for the necessary infrastructure. They will then be asked to choose – and pay for – one of several styles of housing designed by the ministry.
The success of the project has encouraged the ministry to draw up a more ambitious proposal. International contractors are scheduled to be invited in the autumn to prepare build-operate-transfer (BOT) offers for the new Doha international airport. Estimated to cost $350 million, the airport is due for completion by 1998.
Back in early 1993, foreign contractors would have scoffed at the idea of a BOT airport in Qatar. But 18 months on, and with $5,000 million worth of industrial project work placed, there are few willing to stake their reputation on the project failing to go ahead in some form. For as the change demonstrates, Qatar is no longer a backwater of the Gulf construction market, the final destination on a regional business trip. Rather, it is a place where major projects are still being planned and will almost certainly proceed if the financing is secured.