Saudi demand-supply imbalance needs action
26 January 2024
Some $879bn-worth of giga projects are planned in Saudi Arabia, of which about $50bn has been awarded to date, according to regional projects tracker MEED Projects.
The data shows that 2023 was a record year for projects in Saudi Arabia.
However, the extensive scope of work associated with these projects has exposed the challenges of scaling up the local construction supply chain fast enough to meet the surge in demand.
With projects launching in quick succession, suppliers, contractors and subcontractors are struggling to keep up with the influx of new work into the market.
Riad Bsaibes, president and CEO of Amana Investments, says this shortage of resources is a critical issue, stating, “There is currently a bottleneck in the entire supply chain, from human capital and materials to subcontractors and general contractors.”
Moreover, the construction sector faces significant execution risks.
While some projects are subject to delays, efforts to accelerate others are exerting pressure on timelines and budgets.
Highlighting the disparity, Bsaibes notes, “This mismatch is leading to delays as schedules stretch out and costs rise above original tender amounts. This creates risks for contractors if they cannot deliver projects on schedule or within the costs estimated during the tendering process.”
Career investment
The launch of Saudi Arabia's Vision 2030 has spurred an era of growth and investment. The surge in construction projects aligns with the kingdom's goals, positively impacting employment opportunities.
Yet recruiting top local and expatriate talent across large-scale projects is becoming a challenge in Saudi Arabia, according to Bsaibes.
He acknowledges that attracting and retaining skilled workers is getting more difficult with time, stating: “This is particularly challenging due to the scale of expansion, coupled with the pressure of Saudi Arabia’s nationalisation policies that encourage contractors to recruit qualified Saudi nationals.”
As well as focusing on hiring practices, companies must also commit to nurturing and enhancing skills over time.
Continuous upskilling is crucial in the construction industry, where new technologies, techniques and regulations frequently emerge, requiring employees to adapt and stay relevant.
Bsaibes advocates a strategic approach to talent management that involves upskilling the existing workforce before hiring new talent.
He recommends a hands-on approach to learning and improving skills.
“A core part of skills development at Amana includes on-the-job training for all employees,” he adds.
“Skills development must extend to developing competency in cutting-edge technologies such as building information modelling (BIM), modular construction and other digital tools. This long-term effort should be a key priority for firms.
“Continuous learning and development are very important throughout an employee’s career, starting from their initial entry into the construction workforce.”
Bsaibes further highlights the significance of internships in providing candidates with practical experience before taking on permanent positions.
This approach aims to facilitate a smoother onboarding process for individuals entering the workforce, ensuring they are well-prepared for new roles.
“Companies should invest in the professional development of their employees,” he says. “This could include training programmes, workshops and educational initiatives aimed at enhancing the skills, knowledge and capabilities of the workforce.”
Credit challenge
Access to credit is another major issue in the construction sector. A strong financial profile enhances borrowing capacity and facilitates the smooth execution of projects by ensuring a steady flow of financial resources.
Addressing credit concerns is, therefore, essential for construction firms.
Bsaibes recommends adhering to a strategic financial approach, opting to retain significant cash reserves instead of incurring debt.
“This approach not only facilitates self-financing for projects when necessary, but also serves as collateral for the letters of guarantee frequently demanded in construction contracts.
“Moreover, it provides the company with the flexibility to navigate through any payment delays without succumbing to financial distress.
“Amana has a strong balance sheet and well-established banking relationships,” he adds. “Banks view Amana as low risk due to its solid cash reserves and strong track record of on-time payments across different regions/currencies.”
In contrast, Bsaibes points out that many other contractors struggle due to insufficient cash flow management and weaker balance sheets.
“Maintaining high cash levels on its balance sheet is a fundamental goal for Amana.”
Strong working capital allows the contractor to be selective in bidding for projects, avoiding low-margin work while still securing sizable contracts.
“Additionally, we have a positive history with lenders, which allows Amana to support its operations and capitalise on growth opportunities.”
Incentivising growth
Clearly, there is a need for industry-wide improvements.
Bsaibes says the most impactful change would be longer-term transparency across developers’ project pipelines.
“This approach contrasts with the unpredictable, stop-start demand cycles currently prevalent in the industry.
“It involves providing the supply chain with visibility into funding-backed plans over a three to five-year period. Such transparency is crucial for better resource planning and timely project delivery,” he adds.
Bsaibes also emphasises the importance of incentivising suppliers, subcontractors and contractors to scale up their capacity. “This will help them grow in a coordinated manner through financial/regulatory support from the government.”
Another area of improvement is the digitisation of government processes, although Bsaibes notes that progress is already being made.
Bsaibes also calls for changes in Saudi Arabia’s regulatory environment.
The continued maturation of Saudi Arabia’s evolving regulatory framework will reduce the complexities faced by international firms. Yet, greater alignment with global construction norms will stimulate competition and investment in the kingdom’s expanding market.
According to Bsaibes, transitioning contract law closer to international standards, such as those outlined by the standards organisation International Federation of Consulting Engineers (FIDIC), would significantly mitigate risks for new market entrants. Presently, the reliance on sharia law introduces an element of unpredictability into obligations, he says.
To achieve this, he recommends adopting contract laws aligned with common law systems, such as the UK’s, to provide foreign suppliers and partners with a clearer understanding of their obligations.
Bsaibes concludes that while the continued evolution of Saudi Arabia’s regulatory environment will take time, gradual alignment with international construction norms will ultimately ease risks and costs for both local and global industry players.
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The previous year’s net income is only 1.5% higher compared to the prior year, excluding one-off items worth AED10.8bn related to the acquisition of a 5% stake in Adnoc Gas and AED1.1bn deferred tax charge due to the introduction of the UAE corporate tax.
The company’s ebitda rose 5.9%, to AED21.4bn, in 2024. However, this declined by 31% compared to the prior year if the AED10.8bn acquisition of a 5% stake in Adnoc Gas is considered.
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Taqa’s free cash flow generation dipped from AED13.9bn in 2023 to AED2.6bn last year, reflecting “increased investments in Masdar, capital investment across generation, T&D and water solutions, and the acceleration of decommissioning activities within oil and gas”.
Gross debt rose from AED61.7bn at the end of 2023 to AED64.1bn due to the issuance of an aggregate AED6.4bn in seven-year and 12-year dual-tranche corporate bonds, consolidation of AED1.5bn in project debt from the acquisition of SWS Holding and AED1.4bn for the construction of the Mirffa 2 and Shuweihat 4 desalination projects.
This was offset by the repayment of AED3.5bn in matured corporate bonds, AED2.9bn in scheduled loan repayments and AED500m of other minor movements.
Some of the firm’s highlights in 2024 included merging Abu Dhabi Distribution Company (ADDC) and Al-Ain Distribution Company (AADC) into one brand, known as Taqa Distribution.
Taqa also continued to focus on Saudi Arabia, having reached financial close with its partners last year for the Juranah independent strategic water reservoir project and the Najim cogeneration plant project.
Along with partners Japan’s Jera and the Saudi firm Albawani, Taqa signed two 25-year power-purchase agreements with the Saudi principal buyer last year for the Rumah 2 and Nairiyah 2 combined-cycle gas turbine power plants, which have a combined generation capacity of 3.6GW.
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Last year, Taqa acquired a 50% stake in US-based Terra-Gen Power Holdings II, while in Europe and through Abu Dhabi Future Energy Company (Masdar), it completed the acquisition of Saeta Yield from Brookfield Renewable.
Masdar and Spain’s Endesa finalised a partnership agreement last year, with Masdar acquiring a 49.99% stake in EGPE Solar, an Endesa subsidiary. Masdar also acquired Greece’s Terna Energy, which had an operating capacity of 1.2GW at the time of acquisition and is targeting 6GW of operational renewable capacity by 2029.
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In terms of the firm’s oil and gas business, it concluded the sale of its stake in the Atrush oil field in the Kurdish Region of Iraq in 2024.
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Jafurah cogeneration plant expansion talks start
13 February 2025
Saudi Aramco and Korea Electric Power Corporation (Kepco) are understood to be undertaking talks to expand the capacity of the $500m Jafurah cogeneration independent steam and power plant (ISPP) in Saudi Arabia.
The construction of the facility is nearing completion and negotiations have started for phase 2 of the project, a source close to the project tells MEED.
At the time of its procurement, the plant's first phase was to have a power capacity of 270-320MW, and a low-pressure (LP) steam demand of 77-166 thousand pounds an hour (klb/hr) and high-pressure (HP) steam demand of 29-126 klb/hour by 2023.
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The oil giant issued the letter of award to Kepco for the contract to develop the Jafurah ISPP scheme in July 2022.
The South Korean utility developer and investor saw off competition from two Saudi-headquartered firms, Acwa Power and Al-Jomaih, to win the contract.
Kepco subsequently awarded South Korea’s Doosan Heavy Industries & Construction the project’s engineering, procurement and construction (EPC) contract.
US/India-based Synergy Consulting provided financial advisory services to Kepco on its bid.
Sumitomo Mitsui Banking Corporation (SMBC) served as the client's financial adviser for the project. Germany’s Fichtner Consulting Engineers is technical consultant, while the UK’s Wood Group is project management consultant.
Unconventional programme
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Ewec invites Al-Sila wind bids
13 February 2025
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Abu Dhabi state offtaker Emirates Water & Electricity Company (Ewec) has invited prequalified developers to submit their proposals for a contract to develop a 140MW wind power project in Abu Dhabi.
The Al-Sila wind independent power project is a greenfield renewable energy project with a generation capacity of up to 140MW. When fully operational, it will more than double the existing wind generation capacity in the UAE.
Ewec said it expects to receive bids by Q2 2025.
Companies understood to have expressed interest in bidding for the contract include Japan’s Marubeni Corporation and Jera, France’s Engie and EDF Renewables, Saudi Arabia’s Acwa Power and Alfanar, and Beijing-based PowerChina, among others.
Ewec has not disclosed the list of prequalified bidders, but industry sources say most of the companies that expressed interest also passed the prequalification phase.
The Al-Sila wind project will involve the development, financing, construction, operation, maintenance and ownership of the wind farm and associated infrastructure.
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Ewec expects the project to generate enough clean electricity to power 36,000 homes, displacing 190,000 tonnes of carbon dioxide annually.
It will also directly contribute to Abu Dhabi’s Clean Energy Strategic Target 2035, which calls for 60% of electricity production to be generated by renewable and clean sources.
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- Al-Halah (Fujairah): 4.5MW
Masdar developed the 103.5MW wind power projects, which use “the latest technology and innovation to capture low wind speeds at utility scale, adopting advances in material science and aerodynamics to make wind power possible in the country”.
The Al-Sila wind farm takes the total number of IPPs under various procurement stages in Abu Dhabi to six. The other schemes are:
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Contractors have submitted proposals to build a manufacturing facility in Riyadh for Chinese computer maker Lenovo.
MEED understands that the proposals for the project, known as the Oasis Project, were submitted on 10 February.
The tender notice was issued on 3 January.
The manufacturing facility will be constructed on a 200,000 square-metre site at the Special Integrated Logistics Zone at King Khalid International airport in Riyadh.
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The second phase covers the construction of the second plant building and other associated buildings. The second phase is expected to be completed by August 2026.
According to local media reports, Alat, a subsidiary of Saudi Arabia’s Public Investment Fund (PIF), and Lenovo broke ground on the manufacturing facility on 9 February.
Lenovo secured a $2bn investment deal with Alat to manufacture computer devices in the kingdom in January.
In May 2024, Lenovo signed a collaboration agreement with Alat to set up a manufacturing facility in Saudi Arabia.
The funding will also support Lenovo in establishing a regional headquarters for the Middle East and Africa market in Riyadh. The headquarters will include customer centres, research and development centres, and manufacturing facilities for personal computers and servers.
In February last year, the PIF unveiled its $100bn capital-backed company Alat, which aims to transform Saudi Arabia into a global hub for electronics and advanced industries.
The company aims to create 39,000 direct jobs and achieve a direct non-oil GDP contribution of $9.3bn in Saudi Arabia by 2030.
It was reported that Alat would have seven business units focusing on areas such as semiconductors, artificial intelligence, next-generation infrastructure, and smart appliances and smart buildings.
According to the PIF, Alat will manufacture more than 30 product categories, including robotic systems, communications systems, advanced computers and digital entertainment products, as well as advanced heavy machinery used in construction, building and mining.
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South Korea is reported to produce about 20% of the global supply of semiconductors, which are essential for laptop production, while Taiwan is recognised for its advanced semiconductor manufacturing capabilities. Additionally, India is working to enhance its domestic laptop production, although it currently imports over 80% of the laptops in use.
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Ninety express interest for Taif airport PPP
13 February 2025
Some 90 firms have expressed interest in bidding for a contract to develop and operate a new international airport in Taif in the kingdom’s Mecca province.
Saudi Arabia’s Matarat Holding, through the National Centre for Privatisation & PPP (NCP), invited firms to express interest in bidding for the contract in early December.
The international and local firms that expressed their interest are:
- Abdul Ali Al-Ajmi Company (local)
- Abrdn Investcorp Infrastructure Investments (UK)
- Aeroporti Di Roma (Italy)
- Algihaz Holding (local)
- Al-Jaber Contracting (local)
- Al-Modon Al-Arabia Company (local)
- Al-Rashid Trading & Contracting Company (local)
- Al-Sharif Contracting & Commercial Development (local)
- Al-Yamama Company for Trading & Contracting (local)
- Al-Ayuni Investment & Contracting Company (local)
- Alghanim International General Trading & Contracting (Kuwait)
- Almabani General Contractors (local)
- Almansouryah Company General Contracting (local)
- AlMozaini Real Estate (local)
- Almutlaq Real Estate Investment Company (local)
- Alternative Resources Investment
- Annasban Group (local)
- Asyad Holding Company (local)
- AVIC-KDN Airport Engineering (China)
- Bangalore International Airport (India)
- Binladin International (local)
- Bouygues Batiment (France)
- CACC International Engineering
- China Harbour Engineering Company (China)
- Surbana Consultants (Singapore)
- Buna Al-Khaleej Contracting (local)
- China National Aero-Technology International Engineering Corporation (China)
- China Railway Construction Corporation (China)
- Clavrix (US)
- Consolidated Contractors Company (Greece)
- Contrax International (UAE)
- Corporacion America Airports (Luxembourg)
- Currie & Brown (UK)
- DAA International (Dublin Airport Authority, Ireland)
- Dar Al-Handasah Consultants (Shair & Partners, Lebanon)
- DG Jones & Partners (UAE)
- EB Cornerstone (UK)
- Edgenta Arabia (Malaysia)
- Egis Project (France)
- Enzar Company for Operation & Maintenance (local)
- Erada Advanced Projects (local)
- EXP Arabia (Canada)
- FAS Energy (local)
- Ghesa Ingeniera Technologia (Spain)
- GMR Airports (India)
- Gulf Investment Corporation (Kuwait)
- Haji Abdullah AliReza & Company (local)
- IC Ictas (Turkiye)
- Indiza Airport Management (South Africa)
- Innovative Contractors for Advanced Dimensions (ICAD, local)
- International Energy (local)
- Kalyon Insaat (Turkiye)
- Kolin Insaat (Turkiye)
- Korea Airports Corporation (South Korea)
- Koushan Real Estate Development Company (local)
- Lamar Holding (local)
- Limak Insaat (Turkiye)
- Lynx Contracting Company (local)
- Mada International Holding Company (local)
- Makyol Insaat (local)
- Manchester Airport Group (UK)
- Middle East Tasks (local)
- Modern Airports (local)
- Mota-Engil (Portugal)
- Mowah Company (local)
- Munich Airport International (Germany)
- Namaya Investment Company (local)
- Nasser Abdullah Abu Sarhad (local)
- National Transportation Solution Company (local)
- Nesma & Partners (local)
- Nesma Company (local)
- Pini Group (Switzerland)
- Ports Projects Management & Development Company (local)
- Salso & Associates (Greece)
- Samsung C&T Corporation (South Korea)
- Sarh Developments (local)
- Saudi Arabian Trading & Construction Company (local)
- Saudi Binladin Group (local)
- Saudi Building Technic Maintenance Company (local)
- Skilled Engineers Contracting (local)
- Sumou Real Estate Company (local)
- Tamasuk Holding Company (local)
- Tatweer Buildings Company (local)
- Tav Airports Holding (Turkiye)
- Technical Development Company for Contracting (local)
- Terminal Yapi Ve Ticaret (Turkiye)
- Vantage Group (Australia)
- Vision International Investment Company (local)
- WCT International (Malaysia)
- Zamil Group (local)
The new Taif International airport will be located 21 kilometres southeast of the existing Taif airport, with a capacity to accommodate 2.5 million passengers by 2030.
The clients opted for a 30-year build-transfer-operate (BTO) contract model, including the construction period.
In addition to a new airport terminal, the proposed design features a runway with a full-length parallel taxiway connecting to a single commercial apron.
The scope includes facility buildings, utility networks, car parks and access roads, as well as provisions for additional expansions to meet future subsystem requirements.
The new Taif International airport is expected to meet the projected increase in demand by 2055 and contribute to the economic development of Taif city and its surrounding areas, in line with the kingdom’s National Aviation Strategy.
It is also expected to meet the needs of Umrah pilgrims as a viable alternative within the region’s multi-airport system, which includes King Abdulaziz Airport in Jeddah, Prince Mohammed Bin Abdulaziz Airport in Medina and Prince Abdulmohsen Bin Abdulaziz Airport in Yanbu.
Other airport PPPs
In addition to the Taif International project, three other airports comprise the first stage of Saudi Arabia’s latest plan to modernise and privatise its international and domestic airports.
The other planned airport public-private partnership (PPP) schemes are in Abha, Hail and Qassim.
Matarat and NCP recently tendered the contract to develop and operate a new passenger terminal building and related facilities at Abha International airport. They expect to receive bids by April.
Located in Asir province, the first phase of the Abha International airport PPP project is set for completion in 2028. It will increase the airport terminal area from 10,500 square metres (sq m) to 65,000 sq m.
The contract scope includes a new rapid-exit taxiway on the current runway, a new apron to serve the new terminal, access roads to the new terminal building and a new car park area. The scope also includes support facilities such as an electrical substation expansion and a new sewage treatment plant.
The transaction advisory team for the client on the Abha airport PPP scheme comprises UK-headquartered Deloitte and Ashurst as financial and legal advisers, respectively, and ALG as technical adviser.
Previous tenders
The Taif, Hail and Qassim airport schemes were previously tendered and awarded as PPP projects using a BTO model.
Saudi Arabia’s General Authority of Civil Aviation (Gaca) awarded the contracts to develop four airport PPP projects to two separate consortiums in 2017.
A team of Tukey’s TAV Airports and the local Al-Rajhi Holding Group won the 30-year concession agreement to build, transfer and operate airport passenger terminals in Yanbu, Qassim and Hail.
A second team, comprising Lebanon’s Consolidated Contractors Company, Germany’s Munich Airport International and local firm Asyad Group, won the BTO contract to develop Taif International airport.
However, these projects stalled following the restructuring of the kingdom’s aviation sector.
Saudi Arabia has already privatised airports, including the $1.2bn Prince Mohammed Bin Abdulaziz International airport in Medina, which was developed as a PPP and opened in 2015.
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