Heady times for biggest construction markets
22 December 2023
It was a whirlwind couple of months at the end of 2023 with major global announcements that will positively impact the region’s largest construction market for years to come.
On 31 October, Saudi Arabia was effectively confirmed as the 2034 Fifa World Cup host after the only other potential bidder for the tournament withdrew from the race.
Then, on 28 November, Saudi Arabia was selected as the host country for the World Expo 2030 after securing 72 per cent of the votes cast by Bureau International des Expositions member states.
Recent experience from elsewhere in the GCC has shown that hosting these events comes with a plethora of construction projects.
Qatar invested billions of dollars in infrastructure ahead of the Fifa World Cup 2022; similarly, Dubai spent heavily on infrastructure for Expo 2020.
Crucially, these events, global pandemics withstanding, are immovable deadlines that must be met, which means construction projects have to be delivered on time.
Significant undertakings
While the investment required for the 2034 World Cup remains to be determined, the Saudi bid must include a minimum of 14 all-seater stadiums, of which at least four should be existing structures. The capacity needed is at least 80,000 seats for the opening and final matches, and at least 60,000 seats for the semi-finals. For all other matches, a minimum of 40,000 seats are necessary.
Meanwhile, the Royal Commission for Riyadh City, which led the Expo 2030 bid, has said the Expo site masterplan, which is located north of Riyadh close to King Khalid International airport, will cost $7.8bn to develop.
While both programmes of work are significant undertakings, they are not expected to be as transformative for the Saudi economy as they were for Qatar and Dubai, which were both smaller and dwindling construction markets when they secured the rights to host their events.
The same cannot be said for Saudi Arabia, where the construction market is already overheated as construction activity ramps up on a series of self-styled gigaprojects, including Neom, Diriyah Gate and Qiddiya, that aim to transform the economy as part of Vision 2030.
In a report on the Saudi economy released on 2 November, London-based Capital Economics said: “We don’t expect this to be the fillip to the Saudi economy as it was for Qatar, which hosted the World Cup in 2022.
“First, Saudi Arabia already has much of the infrastructure in place, including stadiums, meaning there is unlikely to be a World Cup-related construction boom like Qatar saw.
“Second, even with 104 games scheduled compared to 64 in Qatar, tournament-related tourism spending we estimate could be equal to just 2 per cent of non-hydrocarbon GDP (compared to 6 per cent in Qatar).”
Capital Economics made similar comments on the impact of the 2030 Expo.
In a report issued on 30 November, it said: “[While] hosting the event may support the kingdom’s longer-term goals of boosting tourism, it is highly unlikely that the Expo itself will provide a boost to the economy of the same magnitude as it did in Dubai.
“The Saudi economy is 10 times larger than that of Dubai, so even a similar sized nominal impact will be a much smaller boost as a share of GDP.”
In terms of construction and transport awards, 2023 has been the best year in recent times and could potentially be the best year on record.
By 1 December, there had been $36.3bn of construction and transport awards in Saudi Arabia, which already exceeds the 2022 total of $35.7bn. The record was achieved in 2013 when there were $41.7bn of contract awards, with a significant portion coming from the $23bn of contracts signed that year for the six lines of the Riyadh metro system.
UAE in 2023
It was also a good 2023 for the UAE, which recorded its best contract awards total in over a decade. There were $34.3bn of contract awards by 1 December 2023, higher than the 2014 high of $34.1bn, but still significantly short of 2008, when there were $40.2bn of construction and transport contract awards.
The UAE’s strongly performing property market has driven the country’s construction sector.
Next year, spending on projects by the government and its related entities will play a larger role as tendering starts for projects such as the $4.9bn extension to Dubai Metro’s Blue Line.
Runners up
For the other four GCC markets, the performance in 2023 and outlook for 2024 is more subdued. The hope is that as activity continues in the region’s two largest markets, the others will follow with ambitious projects. There are tentative signs that this is starting to happen as major projects restart or move into tendering.
The region’s other major construction market is Egypt. This year, its performance has stuttered as the total value of contract awards fell to $9.1bn from $29bn. As the economy continues to struggle with ongoing currency issues, the outlook for 2024 is subdued.
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Neom requests revised Gayal wind proposals
6 September 2024
Neom’s energy, water and hydrogen subsidiary Enowa has requested that the final bidders submit updated proposals for a contract to build a 1,200MW wind farm catering to the gigaproject in Saudi Arabia.
This development follows the introduction of an addendum to the tender after companies submitted their best and final offers (bafos) for the contract to build the 1,200MW Gayal wind farm project in June, a source close to the project tells MEED.
MEED reported on 9 July that Neom is progressing towards awarding the engineering, procurement and construction (EPC) contract to the selected bidder following receipt of the bafos.
Enowa received the initial bids for the contract on 4 March.
It is understood that PowerChina and Egyptian contractor Orascom are among the firms invited to bid for the Gayal wind farm EPC contract.
The wind farm project site is approximately 35 kilometres northwest of the former town of Gayal.
The project will have an estimated plot area of 164 square kilometres. The project duration is 31 months from the start of construction.
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Enowa received bids for another renewable energy project, the 800MW Shiqri solar farm, in March. The client is conducting commercial clarifications for the solar project, MEED reported in May.
Neom aims to be powered 100% by renewable energy by 2030.
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Wabag confirms $317m Saudi water deal
6 September 2024
India-headquartered VA Tech Wabag has confirmed winning a contract to build a 300 cubic-metres-a-day (cm/d) seawater reverse osmosis (SWRO) plant project in Yanbu, Saudi Arabia.
The value of the contract for the Yanbu 5 SWRO plant is $317m, the Bombay Stock Exchange-listed company said in a statement on 6 September.
The engineering, procurement, construction and commissioning contract covers the design, engineering, supply, construction and commissioning of the desalination plant.
According to Wabag, the plant will operate using dual media filters followed by a two-pass reverse osmosis process and re-mineralisation to produce clean potable water, which will be further distributed by Saudi Water Authority (SWA).
The plant is located on the west coast of Saudi Arabia, south of the Red Sea-facing Yanbu Al-Bahr, and is scheduled to be completed within 30 months of the contract award.
MEED reported in July that Wabag submitted a lower bid for the contract.
Saudi Arabia's main producer of desalinated water, SWA – formerly Saline Water Conversion Company (SWCC) – received two bids in May for the contract to build the Yanbu 5 SWRO project.
The other bidder is understood to comprise a local contractor team and an overseas-based partner.
The bid evaluation process is ongoing for a second project, the Shuaiba 6 SWRO plant, which has a capacity of 545,000 cm/d.
Two other projects, the Jubail and Ras Al-Khair SWRO projects, are in the bidding stage. They will each have the capacity to treat 600,000 cm/d of seawater.
The four contracts are being procured using an EPC model, in contrast to the SWRO facilities being procured on a public-private partnership basis by state offtaker Saudi Water Partnership Company.
SWA is the world's largest producer of desalinated water, with a capacity of at least 6.6 million cm/d. Plants utilising older and more energy-intensive techniques such as multi-stage flash technology account for the majority of the current capacity.
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Chinese companies win 95% of all Iraqi energy projects
6 September 2024
Commentary
Wil Crisp
Oil & gas reporterCompanies headquartered in China have won 95% of all major project contracts awarded in Iraq’s oil, gas, chemicals and power sectors so far this year, as they increase their dominance in the market.
A total of $12.1bn in energy project contracts were won by Chinese companies during the first eight months of 2024, according to data gathered by regional project tracker MEED Projects.
The only major award so far this year that was not won by a company or partnership that was 100% Chinese, was the contract to rehabilitate the Baiji 2 gas-fired power station, which is estimated to be worth $1.3bn by MEED Projects.
This contract was awarded to a consortium of Beijing-headquartered China State Construction Engineering Corporation (CSCEC) and German technology conglomerate Siemens.
Commenting on the figures, one industry source said: “China has been a dominant force in Iraq’s energy sector for a long time and this is only increasing as time passes.
“The huge presence that China has in the country’s energy sector is a source of concern for Iraq’s leadership, which doesn’t want to cede control of so many important infrastructure projects to companies from any single country.”
“The problem is, other countries are reluctant to take on the risks of doing business in Iraq and at the same offer the competitive prices that Chinese contractors can offer.”
The biggest energy project contract won by a Chinese contractor so far this year is the agreement for the development of the Al-Faw Investment Refinery project.
The client on the project, state-owned Southern Refineries Company, signed a contract with CSCEC in May this year.
The refinery will have a capacity of 300,000 barrels a day and will produce oil derivatives for both domestic and international markets.
The project will be carried out in two stages. The first phase will involve refining operations, while the second will involve constructing a petrochemicals complex with a capacity of 3 million tonnes a year.
The wider project also includes the construction of a 2,000MW power plant and the establishment of the Al-Faw Academy for Refinery Technology, to train 5,000 Iraqi workers that will eventually work at the facility.
Hualu, a subsidiary of China National Chemical Engineering Company (CNCEC), signed a preliminary principles agreement for the project in December 2021.
At the time, Iraq’s Oil Ministry said that the project would have an investment value of $7bn-$8bn.
MEED Projects has estimated that the contract value of the deal signed with CSCEC in May for the refinery project is about $4bn.
Other energy project contracts won by Chinese companies during the first eight months of this year included the contract for the Artawi 1,000MW photovoltaic solar power plant in Basra.
This contract, estimated to be worth $1bn, was awarded to China Energy Engineering International Group.
Chengdu-based DongFang Electric Corporation was awarded the main contract for a project to convert the Baghdad South power plant into a combined-cycle gas turbine power plant.
The project is estimated to be worth $85m and will increase the capacity of the power plant by 125MW-625MW.
Also this year, a subsidiary of PetroChina, the listed arm of state-owned China National Petroleum Corporation, signed an agreement to develop Iraq’s Nahr Bin Umar onshore gas field.
The subsidiary, PetroChina Halfaya, was awarded the build-own-operate-transfer contract, which is estimated to be worth about $400m.
Iraq’s Oil Ministry said that the field will have an initial output capacity of 150 million cubic feet a day.
The project is expected to be completed within 36 months and will include the construction of gas-gathering facilities, storage tanks and pipeline networks to supply gas to power stations.
Strong performance
Chinese contractors also performed well in Iraq’s energy sector in terms of the value of contract awards in 2023.
Last year, Chinese contractors won $2.3bn in Iraqi energy sector contracts, almost half of the $4.8bn that was awarded.
Looking at the data for 2023 and the first eight months of 2024 together, Chinese companies won $14.5bn in contracts, 82% of the $17.6bn in energy project contracts awarded over the period.
The second closest competitors were companies from Germany, which won just over $1bn in contracts, 6% of all awards.
Iraqi companies were third, winning $816m in contracts, according to the data compiled by MEED Projects.
Contracts were also won by companies from Italy, the Netherlands and Turkiye.
Iraq is currently in the midst of a push to try and increase the volume of work being carried out by US companies in the country’s energy sector.
Earlier this month, Iraq announced that it was planning to offer about 10 gas exploration blocks to international companies in a new licensing round that will be launched during a visit to the US by Iraqi Oil Minister Hayan Abdel-Ghani.
Abdel-Ghani said that he will be specifically targeting US companies in the upcoming round.
Earlier this year, the US international oil and gas company ExxonMobil completed its exit from Iraq’s West Qurna-1 oil field, handing over operatorship to PetroChina.
Exxon’s plan to exit the West Qurna-1 oil field was first announced in April 2021, when Iraq’s Oil Ministry said the US-based oil company was considering selling its 32.7% stake.
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Region plugs in to electric future
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Commentary
Colin Foreman
EditorRead the September 2024 issue of MEED Business Review
Saudi Arabia is well known as one of the world’s largest oil exporters. What is less known is that the kingdom is also one of the world’s most significant consumers of oil.
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Must-read sections in the September 2024 issue of MEED Business Review include:
> AGENDA:
> GCC ponders electric future
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> Outlook uncertain for Iraq gas expansion project
> Security concerns threaten outlook for Libyan oil sectorINDUSTRY REPORT:
Analysis of the outlook for the downstream sector
> Global LNG demand set for steady growth
> Region advances LNG projects with pace> SAUDI GIGAPROJECTS: Communication gaps hinder Saudi gigaprojects
> INTERVIEW: Legacy building at Diriyah
> SAUDI STADIUMS: Top 15 Saudi stadium projects
> LEADERSHIP: Navigating the impact of digital currencies on forex markets
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> COMMENT: Kuwait’s prospects take positive turn
> GOVERNMENT: Kuwait navigates unchartered political territory
> ECONOMY: Fiscal deficit pushes Kuwait towards reforms
> BANKING: Kuwaiti banks hunt for growth
> OIL & GAS: Kuwait oil project activity doubles
> POWER & WATER: Kuwait utilities battle uncertainty
> CONSTRUCTION: Kuwait construction sector turns corner> MEED COMMENTS:
> Saudi World Cup bid bucks global trend for sporting events
> Finance deals reflect China’s role in delivering Vision 2030
> Harris-Walz portents shift in US policy on Gaza
> Aramco increases spending despite drop in profits> GULF PROJECTS INDEX: UAE leads slight dip in market
> JULY 2024 CONTRACTS: Saudi Arabia boosts regional total again
> ECONOMIC DATA: Data drives regional projects
> OPINION: The beginning of the end
> BUSINESS OUTLOOK: Finance, oil and gas, construction, power and water contracts
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PIF and Hyundai award car plant construction deal
5 September 2024
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Saudi Arabia's sovereign wealth vehicle, the Public Investment Fund (PIF), and South Korea's Hyundai Motor Company have awarded the contract to build a vehicle manufacturing plant in Saudi Arabia.
According to media reports, the firms awarded an estimated $248m contract to Seoul-headquartered Hyundai Engineering & Contracting.
Construction of the plant is expected to start in 2024, and vehicle production in 2026.
The facility will have a production capacity of 50,000 vehicles a year, including both conventional vehicles and electric vehicles (EVs).
MEED reported in November last year that Hyundai Motor Company had appointed Seoul-headquartered Heerim Architects as the design consultant for its vehicle manufacturing plant in Saudi Arabia.
PIF and Hyundai Motor Company signed a joint venture agreement to set up a vehicle manufacturing plant in the country in October last year.
The PIF will hold a 70% share in the joint venture, with Hyundai holding the remaining 30% stake. The total investment for the project is estimated to be about $500m.
In December 2022, Saudi Arabia's Industry & Mineral Resources Ministry signed a memorandum of understanding with Hyundai Motor Company to establish a car production plant in the kingdom.
The PIF is keen to invest in the kingdom's automotive sector. Last year, it launched the National Automotive & Mobility Investment Company (Tasaru Mobility Investments) to develop the local supply chain capabilities for the automotive and mobility industry in Saudi Arabia.
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