Slow 2015 in store for contractors

02 June 2015

Abu Dhabi’s construction market has struggled to deliver on the promise it once showed, with the decline in oil prices and the revised population forecast set to delay progress with new projects

When the estimated AED10.6bn ($2.9bn) contract to build the Midfield Terminal at Abu Dhabi International airport was awarded to a consortium of Turkey’s TAV, Athens-based Consolidated Contractors Company and the local Arabtec Construction in 2012, contractors hoped it would usher in a new period of growth as Abu Dhabi finally deployed its vast financial reserves to develop new infrastructure.

In the two years leading up to the award, there had been a prolonged review of capital expenditure projects in Abu Dhabi, which resulted in delayed contract awards, cancelled projects and retendering. Many major schemes were affected.

The award of contracts to build the sewage tunnels and pumping station for the Strategic Tunnel Enhancement Programme was delayed by more than a year, projects such as the new football stadium at Khalifa City were cancelled, and the Louvre Museum was retendered.

Arabtec deals

Several other major contracts were let following the Midfield Terminal award, with the main beneficiary being Arabtec Construction, in which Abu Dhabi-based investment vehicle Aabar Investments had recently taken a controlling stake. In late 2012 and 2013, Arabtec won deals including a AED2.4bn contract to build the Louvre museum as part of a joint venture with Saudi Arabia-based Oger’s Abu Dhabi office and Spain’s San Jose, a AED1bn deal to build a Fairmont hotel, and a AED4.4bn contract to build Al-Ain hospital as part of a joint venture with San Jose.

Selected Abu Dhabi awards, 2010-14
Project nameValue ($m)
Midfield Terminal building2,960
Cleveland Clinic hospital1,540
Presidential palace1,100
Al-Ain hospital1,100
Jebel Hafeet housing project1,000
Fairmont hotel1,000
New York University920
Etihad Railway: phase 1899
Ruwais housing project699
Louvre Abu Dhabi museum653
Shamkha South infrastructure: lot 1600
Shamkha South infrastructure: lot 2600
Shamkha South infrastructure: lot 3600
Shamkha South infrastructure: lot 4600
Mafraq hospital600
Yas mall554
Sources: MEED Projects; MEED

Other contractors that have fared well over the past three years are the local Ghantoot Group, the local National Projects Construction and the local Trojan, which, like Arabtec, have connections with either government or ruling family-controlled investment vehicles.

In recent times, the market has been consistent when it comes to the volume of deals awarded. In 2014, about $10bn of construction awards were made in the capital, according to regional projects tracker MEED Projects. This was just under the value awarded in 2013, and slightly more than the $9.5bn of awards in 2012.

Al-Jaber Group

Unlike 2012 and 2013, when Arabtec was the market leader, the most successful contractor at securing new orders in Abu Dhabi during 2014 was the local Al-Jaber Group. After struggling to pay an estimated $4.5bn in debts since 2010, the group’s fortunes finally turned in July 2014, when it concluded a debt restructuring deal with banks.

The awards have firmly re-established the group as the dominant player in Abu Dhabi’s construction market. The largest order was an estimated $700m deal to build married staff accommodation buildings in Ruwais for Abu Dhabi National Oil Company. The contractor also won deals totalling $558m for two packages on the Mafraq-Ghuweifat highway running through the Western Region of the emirate.

At the start of 2015, however, it feels like Abu Dhabi’s construction market is stagnating once again. Several major contract awards have failed to materialise. Two contracting consortiums have been waiting for awards for more than a year on the second phase of the Etihad Railway network that will link Abu Dhabi and Dubai, and deals for the Zayed National and Guggenheim museums show little sign of being let soon, despite prices being submitted last year.

Spending cuts

Following the oil price plunge during the second half of 2014, it seems unlikely these projects will gain any renewed vigour in 2015. According to government officials in the capital, spending plans will be revised down this year, and although this may not affect projects that are already on site and being built, it is expected to delay the award of new projects such as the railway and the museums.

The pressure to cut capital expenditure during 2015 will mean the launch of tenders for other new projects appears increasingly unlikely. The largest awaited tender is for work on the Abu Dhabi Metro and the light rail transit (LRT) scheme. The metro is planned to be a single 18-kilometre line between Zayed Sports City and the Mina Zayed/central business district area, with 17 stations, 13 of which will be elevated.

Key fact

The largest awaited tender is for work on the Abu Dhabi metro and the light rail transit scheme

Source: MEED

The LRT will have two lines. The first will run from Marina Mall to Reem Island. Known as the Blue Line, it will be 15km long and will have 24 stations. A second LRT line will run from Karama to Saadiyat Island. Known as the Green Line, it will be 13km long and will have 21 stations.

In late 2013, it appeared the project was finally beginning to move ahead as the Department of Transport (DoT) delivered industry briefings and firms began building consortiums. After a flurry of activity that saw teams starting to form between major international and local contractors, negotiations waned as the expected February 2014 tender date lapsed and no further communications came from the DoT.

Bureaucratic changes

Although lower oil prices will complicate decisions on multibillion-dollar schemes such as the metro and the LRT, the project delays pre-date the oil slump. Consultants were appointed to work on the transport scheme in 2010 and after delays during the review of capital projects in 2011, bureaucratic changes in the capital then set back the start of the project.

In late 2013, responsibility for the delivery of the project appeared to change hands as Abu Dhabi General Services Company (Musanada) was charged with managing all government construction projects in the emirate, including transport, healthcare and other general building projects.

The slowdown in awards will not be viewed as a major problem by the leadership in Abu Dhabi as the urgency of new infrastructure projects has diminished following a downgrade of the capital’s population growth forecasts.

Population forecast

The emirate’s Urban Planning Council updated the city’s urban masterplan in 2014 and the 2030 population projection was revised down to 2.4 million people. Projections from the 2007 urban masterplan forecast that the population of Abu Dhabi would reach 3.1 million by 2030. The capital currently has a population of about 1.5 million.

The slower population growth means utility and housing demand projections will also be revised downwards over the next 15 years.

Despite the lacklustre outlook for 2015, some private sector projects are expected to move into the construction phase this year. The largest is the estimated $1bn contract to build the local Gulf Related’s Al-Maryah Central retail complex, which is planned to open on 1 March 2018, meaning construction has to start this year.

Companies submitted bids for the construction work in mid-January for the project, which involves building a 170,000-square-metre retail centre and two towers. The first will be a residential tower with serviced apartments, the second will be a hotel with 200-330 rooms. It will be built on Al-Maryah Island in Abu Dhabi, next to Gulf Related’s 35,000-sq-m The Galleria mall, which opened in late 2013.

Cargo terminal

Another major contract that is being tendered is the design and build of a new cargo terminal for flag carrier Etihad Airways at Abu Dhabi International airport. The tender was launched in late January, with a closing date in mid-February. Like Al-Maryah Central, the project has a firm opening date. It is set to commence operations by 2017 and the 400,000-sq-m facility is an important part of the airline’s growth plans as it will enable Etihad Airways Cargo to handle 2.5 million tonnes a year by 2025.

These tenders will help keep the big players in Abu Dhabi distracted for the first half of the year. But if the market remains subdued throughout the rest of 2015 and into 2016, then construction companies in Abu Dhabi will have to endure another slowdown. That would mean local and international firms will have to look for opportunities in other markets.

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