Sabic warns of project cancellations

14 December 2007
The head of Saudi Basic Industries Corporation (Sabic) has warned the industry faces delays and potential project cancellations over the next few years because of a spike in engineering, procurement and costs (EPC) costs and a shortage of materials.

“[Rising construction costs] are of great concern as capital costs have gone through the roof,” Mohammed al-Mady, chief executive officer of Sabic and chairman of the Gulf Petrochemicals & Chemicals Association (GPCA), said at the industry body’s annual meeting in Dubai on 12 December.

“This in turn makes it difficult to achieve acceptable financial targets, and will result in project delays and probably some cancellations over the next few years. In time, this bubble will deflate, as it is not at sustainable levels.”

Al-Mady blames the sheer number of projects and the shortage of materials as the primary reasons for rising EPC costs, which he says have increased by 60-70 per cent over the past five years.

“Titanium for heat exchangers, for example, is very scarce,” he said. “Steel, aluminium and copper are stressed again, so prices are escalating.”

Hamed al-Terkait, vice-chairman and chief executive officer of Kuwait-based Equate Petrochemical Company, agrees with the analysis.

“The increase in EPC costs has led to many projects being delayed,” he says. “But it is important to note that not many have been cancelled. What has changed is the financial model.”

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