Specialists gain the upper hand

25 April 2008
With reclamation projects transforming the Gulf coastline, specialist marine contractors are finding their skills in high demand. But competition is growing.

Offshore construction activity in the Gulf has boomed since the launch of Nakheel’s Palm Jumeirah project in Dubai in 2003. The UAE coastline is unrecognisable from even five years ago, thanks to a raft of reclamation projects such as The World, Palm Deira and Palm Jebel Ali. These real estate ventures have spawned numerous variations on the theme, from Qatar’s Pearl to Oman’s The Wave and the Bahrain Bay development.

Such projects put the specific skill sets offered by specialist marine and dredging contractors such as Belgium’s Jan de Nul and Dredging International, and the Netherlands’ Van Oord and Royal Boskalis Westminster, in high demand.

Such companies have had a presence in the Gulf for many years, but since 2003, when Nakheel announced the first Palm project, their opportunities have grown exponentially.

Demand growth

The market is struggling to keep up with demand. While previously the clients could choose who worked on which project, it is very different today. One dredging contractor says it has become a sellers’ market as far as marine contractors are concerned.

“The market is changing,” he says. “It seems only the most reputable clients are getting contractors. In the past, the onus was on what the client wanted. Now the client is struggling to get anyone. There is far more work than equipment and the contractors are now after the good clients.”

This, he adds, is not necessarily due to the arrival of a large number of new developers in the region, but because of the magnitude of projects under development such as Palm Deira, which extends 15 kilometres into the Persian Gulf from the coast. By comparison, Palm Jumeirah is just 5 kilometres in length.

The lack of dredging capacity in the region is not helped by international demand for dredgers and marine specialists. “We are not just concentrating on the Middle East,” says the contractor. “It is not the only place that is booming. Australia, South America, Europe and China. They are all booming.”

There are two principal drivers behind the boom in marine works in the Gulf. The growth of the real estate market in the region, which, despite the massive investment and construction that has taken place offshore is still struggling to meet demand; and the surge in port construction to support the growth in mining activity and industry.

For example, Jan de Nul secured the $1bn causeway package on the Manifa offshore oil field development programme in the Eastern Province of Saudi Arabia. The project is part of Saudi Aramco’s plan to bring production from the field to 125 million barrels a day by 2009.

The contract will include the construction of a 41-kilometre-long causeway stretching from onshore Manifa to the last oil production platform on the oil field development, as well as the dredging of islands.

The causeway, which will comprise 27 islands and bridges, will provide access to about 20 production and process platforms.

But unlike the general construction sector, the specialist nature of marine works has resulted in few new entrants to the market.

“There is no sign of an increase in competitors,” says another marine contractor. “The major players in dredging are still the same. We don’t anticipate any new entries. Dredging requires a very big investment.”

One source of new competition is Asia. There can be no doubt that firms from the Far East are targeting the region.

Such firms come to the Middle East with a plan to gain work through competitive bids, which enables them to gain the experience to then bid for the larger, more complex work.

“We should not underestimate our friends from China,” says one Dutch dredger. “They come with price levels that are dictated by politics, which insists on turnover abroad in order to collate experience and knowledge.

“It is cheap now, but it will be more expensive once they have gained experience. That is the development you see - companies who were established in China, Korea and Japan. They go abroad to gain experience and open up more possibilities for future work.”

Government support

This theory suggests that, initially at least, such companies can afford to bid low thanks to government support. “They can afford to come in at a low level with strong political support to get projects,” says the specialist. “They might have some problems along the way, but these can be solved. This is engineering - anything can be solved, it just takes time. With experience gained, they approach on the bigger, more complex projects. It is a market mechanism.”

One thing that is clear is that the move- ment of contractors to the Middle East is not reciprocated in China. “We are in China, but not to the extent that the Chinese are abroad,” says the specialist. “It is very complicated. You can work there but the conditions are quite tough. You have to establish yourself, and it takes time to get Chinese staff and equipment, so you go in with European staff and equipment, which is not as easy.”

The extent of China’s growing influence in the market was seen earlier this year when it was announced that China Harbour Engineering had secured the contract to build the Ras al-Zour industrial plant in Saudi Arabia.

The Chinese group beat competition from Belgium’s Dredging International with the local Huta Group, and a joint venture of Dutch Royal Boskalis Westminster with Geneva-registered Archirodon Construction (Overseas).

Partnership deal

China Harbour has partnered with the local Rafid Group to form China Harbour Engineering Arabia Company for the project. The contract is estimated to be worth up to $600m.

The marine specialist says the flow of contractors into the region is merely symptomatic of the industry as a whole. “Be it from Korea or China, you see players coming out and new ones coming in,” he says.

“It is a moving industry worldwide, especially where we are. There is work in Europe, Africa and the Far East, China and Singapore, and Australia.”

Complex marine work is not restricted to the coast. Limitless, the master developer arm of Dubai World, announced in October 2007 the launch of the $11bn Arabian Canal. At 80 kilometres long, it is the largest civil engineering project ever launched in Dubai.

The excavation works are expected to take three years, and will involve moving about 1 billion cubic metres of material, at a rate of 1 million cubic metres a day.

This will be used for landfill and landscaping on adjacent developments.

The canal will also pass through the Dubai Waterfront and Discovery Gardens developments planned by Nakheel, Dubai Industrial City, the Jebel Ali Business Park planned by Emaar Properties, and the Jumeirah Golf Estates project that is being built by Istithmar Leisure. Up to 150 metres wide and six metres deep, it will be able to accommodate boats up to 40 metres long.

MEED reported in January that two contracts had been awarded, to the local Bund Con-struction for the enabling and excavation work on the inland area close to Jebel Ali, and to South-Korea’s Samsung Corporation to carry out pilot excavation towards the northern end of the inland area that will make up the canal’s final profile.

According to Ian Raine, development manager on the Arabian Canal, the work requires some conventional marine works that general contractors can deal with. But for the more specialised areas - for example, within the canal there will be a series of tidal systems and navigation locks - various subcontracts will be let.

Raine agrees with the European-based dredger that the high-profile nature of the project is an advantage in securing contractors’ interest. “Clearly there are limitations on the resources available, but certainly with the contractors we have been speaking to we are not seeing any difficulties,” he says. “Probably with the scale and nature of the project, it is attracting a lot of interest from these companies.”

On the impact of Chinese firms entering the market, Raine confirms that interest has been shown, but says it is too early to reveal how competitive the bids will be. “We have had a lot of interest from Chinese companies and a number of the major Chinese corporations have come in and discussed the project with us,” he says. “But we have not got to the bid stage so we do not know how they will pitch their pricing levels. Looking to the future, the challenge is in the scale of the project, but the companies we have been speaking to are all aware of the scale and understand the complexities of the project.”

With finite resources available and a large volume of projects, the onus currently is on the client to sell the project to the contractor. But with a growing influx of Far East companies looking to secure work in the region, competition for the top jobs is likely to become more intense. In a niche sector that traditionally permits an established number of players, competition for contracts on forthcoming high-profile jobs could be stronger than ever.

Key fact:

There is $536bn worth of marine works planned or under way in the Gulf.

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