meed-logo

line1 line2 line3
SIGN IN / REGISTER

Belt and Road woes could benefit the Gulf

31 March 2023

The Gulf region could benefit from the growing signs of strain affecting China’s Belt and Road Initiative (BRI).

Beijing has substantially increased its lending for bailouts to developing countries following a series of debt write-offs, controversies and corruption allegations. As the financial burden increases, Chinese companies and financial institutions could respond by shifting their focus to less risky markets such as the Gulf. 

A study published by the Kiel Institute for the World Economy found that between 2019 and the end of 2021, China extended $104bn in rescue loans to developing nations, almost equal to its bailout lending over the previous two decades. From 2000 until the end of 2021, China carried out 128 bailout operations in 22 countries with a total value of $240bn.

Interest rates

Compared to loans from agencies such as the IMF with interest rates of about 2 per cent, the Chinese emergency loans come with interest rates in the region of 5 per cent, making them unaffordable for some countries. This has led to criticism of China’s aid strategy – claims that Beijing has publicly rejected.

The BRI is a global infrastructure initiative that aims to build a network of trade and infrastructure projects connecting China with more than 100 countries across Asia, Europe, Africa and the Middle East.

The BRI has been a way for China to expand its global economic and political influence by financing and constructing infrastructure projects such as roads, railways, ports and power plants, among others, in participating countries.

Chinese President Xi Jinping formally announced the initiative during a speech at Nazarbayev University in Kazakhstan in September 2013. During the speech, Xi Jinping proposed the creation of a Silk Road Economic Belt and a 21st Century Maritime Silk Road. The initiative promoted regional and global economic development, strengthened cooperation and connectivity among participating countries, and enhanced cultural exchange and mutual understanding.

As well as burdening countries with unaffordable debts, another criticism of the BRI is that it needs to be clearly defined and centrally managed in Beijing. After being announced in a speech, Chinese companies have been tacitly encouraged to support development projects overseas. Without oversight, these projects and associated loans have sometimes failed to succeed commercially.

Regional connection

While the BRI has yet to be clearly defined, the Middle East is part of it. The clearest demonstration came in December last year when Saudi Arabia’s King Salman bin Abdulaziz al-Saud and President Xi Jinping signed a comprehensive strategic partnership agreement in Riyadh, and a series of high-level commitments, including one to harmonise the goals of Saudi’s Vision 2030 with China’s BRI.

If China chooses to become more risk-averse with its BRI investments, Saudi Arabia and several other key Middle Eastern markets could be prime areas of focus. The other countries are the UAE, Kuwait, Iran, Iraq and Egypt. The Gulf countries have large hydrocarbon reserves, which are a strategic priority for China. The revenues they generate also give countries the cash flow to service any loans extended by Beijing.

According to the US Energy Information Agency, China was the world’s second-largest oil consumer behind the US in 2021. It consumed 14.76 million barrels a day, which equates to 15 per cent of the global total.

Egypt is considered strategically important because of the Suez Canal. The waterway enables China to import raw materials from the Middle East and Africa and export finished goods to Europe and other markets. Any disruption to the flow of goods through the canal, such as the blockage caused by the Ever Given container ship in March 2021, can have significant economic consequences for China.

Busy working

China is already backing significant levels of project activity in these countries. Major contract awards secured by Chinese construction companies in Saudi Arabia during 2022 include contracts to build photovoltaic solar power plants, tunnels, roads, bridges and a cement plant.

This year a Chinese-led consortium is well placed to win work on the $7bn Saudi Landbridge project. It was reported in January that negotiations are ongoing for the final cost and financing of the scheme, which involves building a railway network across the kingdom from the Red Sea coast to the Gulf.

China National Nuclear Corporation is also one of the companies bidding for the contract to build the kingdom’s first nuclear power plant.

Chinese companies are involved in various major projects in the UAE, including Etihad Rail, the Hassyan coal-fired power plant and the Mohammed bin Rashid Solar Park. China’s oil and gas infrastructure investments include China National Offshore Oil Corporation (CNOOC), a subsidiary of China National Petroleum Corporation (CNPC), which holds a 4 per cent stake in Abu Dhabi’s hydrocarbon blocks. In addition, Chinese companies are investing in other sectors, such as the development and operation of Khalifa Port’s second container terminal and the China-UAE Capacity Demonstration Park.

In Egypt, China State Construction Engineering Corporation (CSCEC) is working on the New Administrative Capital project east of Cairo. China is also involved in constructing a new industrial zone in the Suez Canal Economic Zone, which aims to attract foreign investment and boost economic growth. For example, at the end of March, it was reported that Chinese company Xinxing Ductile Iron Pipes plans to invest $2bn in iron and steel plants in the economic zone.

In Iraq, Chinese companies are heavily involved in the oil and gas sector. Chinese contractors dramatically ramped up their activities in Iraq’s energy sector, winning 87 per cent of all oil, gas and power project contracts awarded in the country during 2022.

There is plenty of room for Chinese involvement to grow in the future. According to regional projects tracker MEED Projects, there are $1.3tn of projects in the pre-execution stages across Saudi Arabia, the UAE, Kuwait, Iran, Iraq and Egypt.

https://image.digitalinsightresearch.in/uploads/NewsArticle/10723660/main3424.gif
Colin Foreman

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles
  • Contractors submit bids for next phase of Duba port

    2 June 2023

    Contractors have submitted bids for the next phase of the Duba port expansion at Oxagon industrial city.

    The bidders are Belgium’s Deme with Greece’s Archirodon; Van Oord of the Netherlands with South Korea’s Hyundai Engineering & Construction; a Belgian joint venture of Jan de Nul and Besix; Netherlands-based Boskalis with France’s Soletanche Bachy; South Korea’s Daewoo; and China Harbour Engineering Company.

    The tender for the project’s second phase follows the award of a contract to deliver the first phase of the port expansion. A team of Boskalis, Besix and the local Modern Building Leaders (MBL) was awarded that estimated SR3bn ($800m) contract in mid-January.

    The scope of the Duba port expansion package includes excavation and dredging, revetments for channel widening, demolition, container terminal quay expansion and earthworks, in addition to the development of a flexible quay, a roll-on/roll-off (RoRo) berth and quay walls to a marine services berth and a coast guard facility.

    Jacobs is the main design consultant, with Moffatt & Nichol, IGO and Trent as the main sub-consultants.

    Contractors are preparing to submit bids in June for a contract to build tunnels connecting the offshore elements of the Oxagon industrial city at Neom to the mainland.

    The design-and-build contract involves digging a 6.5-metre-diameter tunnel using a tunnel boring machine (TBM) under the sea that will link the Neom Connector with the offshore elements of Oxagon port. It will house utilities including water pipelines, fibre optic cables and electricity cables.

    Crown Prince Mohammed bin Salman launched Oxagon in late 2021. It will include onshore elements as well as floating structures offshore. Construction works on the 48 square-kilometre, eight-sided industrial city have already started.

    An expanded Duba port is a critical component of Oxagon and the broader Neom development, as it will allow greater volumes of materials to be imported for the project. With an expected investment value of $500bn, Neom is the largest programme of construction work in the world.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/10909320/main.jpeg
    Colin Foreman
  • Egypt makes steady progress on Assiut refinery

    2 June 2023

    Egypt is making steady progress on the $2bn hydrocracking complex package that forms part of the wider Assuit oil refinery upgrade project, according to industry sources.

    Assiut Oil Refining Company (ASORC), a subsidiary of state-owned Egyptian General Petroleum Corporation (EGPC), is the project operator.

    “Work on the main units is continuing with no significant issues,” said one source.

    During 2021, the project faced disruption due to issues related to the Covid-19 pandemic.

    In 2023, many projects in Egypt’s oil and gas sector have been disrupted by currency issues due to the declining value of the Egyptian pound.

    Most of the projects that the currency issues have significantly impacted have been in their early stages, with the problems related to the procurement of materials and equipment.

    France’s Technip Energies is the main contractor performing engineering, procurement and construction (EPC) works on the Assiut hydrocracking complex, as part of a $2bn contract it was awarded by ASORC in February 2020.

    In April 2021, Switzerland-based Burckhardt Compression announced being selected by Technip Energies as the gas compressor supplier for the hydrocracker package.

    ASORC held a kick-off meeting for the project in September 2020.

    Egyptian contractors Enppi and Petrojet are supporting Technip Energies on the project. Enppi has undertaken the engineering work, while Petrojet is carrying out construction work.

    In 2021, contractors completed the construction of a $450m high-octane gasoline complex in the Assiut governorate as part of the broader $3.8bn Assuit oil refinery upgrade project.

    Assiut refinery

    The Assiut hydrocracking complex will be one of Egypt’s major strategic refineries, and will help meet growing local demand for cleaner products.

    The project will also become the largest oil refining facility to be implemented in Upper Egypt so far.

    Once completed, the project will transform lower-value petroleum by-products, such as mazut, into cleaner, higher-value products.

    It is expected to have an output of about 2.8 million tonnes a year of Euro-5 diesel, in addition to other petroleum products.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/10908534/main3340.jpg
    Wil Crisp
  • Mawani implements $950m of Saudi port projects

    2 June 2023

    Saudi Ports Authority (Mawani) is implementing a series of projects over the coming 18 months as part of its efforts to improve and expand infrastructure at ports and increase their utilisation rates.

    The programme, worth about SR3.5bn ($950m), comprises just over 150 projects, of which 48 are strategic in nature, 90 infrastructure-focused and 14 targeting security enhancements.

    The most significant projects are:

    At Jeddah Islamic Port

    • A four-year contract to build a new road, interchanges and flyovers to link Gate 9 with the Al-Khumrah integrated logistics park.
    • Deepening over three years of the north basin approach channel to 14 metres and the construction of a bull nose dike

    At Ras al-Khair Port

    • Increasing the draft depth of berths 11 and 12 to 16 metres
    • A three-year job to widen and dredge the approach channel from 300 metres to 500 metres and deepen it by 3 metres to 19 metres

    Other key investments include installing integrated security systems at Jeddah Islamic Port and King Abdulaziz Port in Dammam and constructing a new 40MVA substation at King Fahd Port in Yanbu.

    The contracts are expected to be tendered and awarded by the end of 2024.

    Mawani’s planned investment comes on the back of several major contracts awarded over the past 12 months, including an agreement with DP World to set up the Al-Khumrah logistics park, the reconstruction and expansion of the first and second container terminals at King Abdulaziz Port, and the upgrade of berth infrastructure and draft depths at Jeddah Islamic Port and King Fahd Port.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/10909176/main.jpg
    Edward James
  • Dubai unveils new masterplan for Palm Jebel Ali

    1 June 2023

    Dubai has released details of the new masterplan for Palm Jebel Ali, an artificial island located south of Jebel Ali Freezone.

    Double the size of Palm Jumeirah, Palm Jebel Ali will have 110 kilometres of shoreline and extensive green spaces. The development will feature over 80 hotels and resorts, along with a diverse range of entertainment and leisure facilities.

    Strategic masterplan

    The unveiling of the masterplan aligns with Dubai's commitment to doubling the size of its economy by 2033, as outlined in the Dubai Economic Agenda.

    The project, approved by Sheikh Mohammed bin Rashid al-Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, includes seven connected islands, catering to approximately 35,000 families. The development also emphasises sustainability, with 30 per cent of public facilities powered by renewable energy.

     

    MEED reported in January that local developer Nakheel had approached contractors to complete the reclamation works for Palm Jebel Ali.

    As with Palm Jumeirah, it is estimated that it could take around 20 years for Palm Jebel Ali to reach its full development potential. Nakheel has previously secured AED17bn ($4.6bn) in funding to expedite the development of various projects, including the Dubai Islands and other waterfront schemes.

    The upcoming dredging contract for Palm Jebel Ali is anticipated to involve 5-6 million cubic metres of material, contributing to the completion of the man-made offshore island.

    While reclamation work for Palm Jebel Ali is mostly finished, the project was put on hold in 2009. Nakheel had made some progress with infrastructure development, including the construction of bridges on the island by Samsung C+T.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/10906519/main.jpg
    Colin Foreman
  • Swedish firm to deliver apartments for Neom

    1 June 2023

    Swedish modular home manufacturer SIBS has been awarded a contract to deliver 2,174 apartments for Neom.

    The engineered equipment supply contract involves SIBS constructing 35 buildings within Neom’s primary staff accommodation and office cluster.

    The apartments will cater to professionals involved in the planning, engineering and construction of Neom. The entire project is expected to be delivered and commissioned by the third quarter of 2024.

    The $500bn Neom development in northwestern Saudi Arabia is the region’s largest construction project and employs thousands of staff.

    Elements of the project that have been officially launched so far are The Line, Oxagon, Trojena and Sindalah. There are also plans for an international airport and a coastal strip of hotels known as the Gulf of Aqaba.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/10905700/main.gif
    Colin Foreman