In the crosshairs
Could the construction sector be facing a slowdown, lead by Sharq Crossing's shelving?
Last month, the Sharq Crossing Programme was put on hold, making it the first major infrastructure project due for completion in time for the World Cup 2022, to be shelved.
This has created a wave of speculation within the construction industry as to the reasoning behind the decision, with sources speculating that the delay could extend to after the World Cup event, around which so many of the infrastructure projects within Qatar revolve. Is this is possibly setting a trend for other projects to be put on hold?
Qatar construction and infrastructure projects continue to influence the region’s economic outlook with projects standing at $37 billion and $40 billion, respectively.
However, according to Jean-Michel Saliba, MENA economist at Bank of America Merrill Lynch, a prolonged oil price slide is likely to result in downsizing of capital expenditure and consolidation of some of the planned expenditure within the Gulf region. “A prolonged oil price downturn would likely precipitate material GCC capex downsizing and consolidation, in our view. In the near-term, we expect softening in the cycle as government spending slows and priority is given to ongoing and strategic projects,” he said.
While he added that Qatar’s infrastructure pipeline “appears most robust, we think”, billions of dollars of
spending on oil and petrochemicals projects has been scrapped or put on hold, with Royal Dutch Shell and UK-based Premier Oil announcing the first big cost-cutting moves of 2015 after a brutal slide in crude prices, that saw the commodity dropping 50% in value over the past six months. The Anglo-Dutch oil major abandoned plans for one of the world’s biggest petrochemical plants, a $6.5bn project with Qatar Petroleum, blaming “the current economic climate prevailing in the energy industry”.
At the time of its unveiling, in December 2013, Nasser Bin Ali Al Mawlawi, president of Ashghal, said that the Sharq Crossing would be considered as the most technologically advanced building and complex programmes to be undertaken by Ashghal: “While providing an important new artery to Doha’s existing road network, the Sharq Crossing will be instantly recognisable across the world and is certain to be an epic landmark for Qatar,” he effused.
In April 2014, Ashghal hosted an industry engagement day to inform engineering and contracting firms of the opportunities to participate in the project and by September firms entered the prequalification stage. Now it’s not even on Ashghals strategy going forward.
While Saliba, cautions that low oil prices present “headwinds” adding: “Although not fully representative, the 2009 bust episode suggests likely government re-prioritisation of projects … while cancellation or putting on hold of uneconomical projects is to pick up with a delay,” there are sectors of the industry, however, who are a little more confident and dismiss the rumours.
Dimitris Papendreou, Peri sales engineer says, “The authorities are committed to meet the construction targets; there are projects of the highest priority with specific focus on the likes of NOH and the metro projects. There
will always be difficulties at the start, but the situation will improve within the next two years,” he adds optimistically.
So too, Nigel Eckersall, RIBA Gulf committee member points out that what many see as a ‘rumour of a slow-down’ should realise that Qatar is constantly re-assessing its delivery as the country continues to grow in strength.
“This is a sign of excellent governance; the government recognises that as one project completes it has a positive impact on the economy. As such, this is not a slowdown but a mature natural response of a ‘stand back and analyse’ action of making sure that we are continually looking at the wider master plan. This shows immense maturity and as many can see, is starting to produce quality that many of the great world cities will find hard to match.”
On the other hand, Majed Bseiso, business development manager for Mace-PTM notes that while there is a lot of potential for the post-tensioning market, “for the time being, things are really slow.” He said that the roll-out of contracts has dropped significantly with fewer than expected being awarded, which he attributes to the drop in the oil price – and his sentiment is that this will only improve late 2016.
According to industry data sources, the region has a potential pipeline of $690 billion in projects to be awarded over the period 2015 to 2018 in the UAE, Qatar, Egypt and Saudi Arabia (equivalent to 47% of regional GDP). Qatar’s pipeline is the largest with respect to the size of its economy, accounting for 9.5% of its GDP, while Saudi Arabia has the largest projects market, with 45% of awards totalling about $310 billion or 7.3% of GDP.
Saliba mitigated his earlier caution, saying: “Qatar’s infrastructure pipeline appears most robust, we think. A third of total investment is carried directly by the central government, and there is also a sizeable public sector involvement,” adding: “The emphasis in the budget statement on funding of already ongoing projects
suggests new, or non-essential ones could instead be delayed.”
Maye the Sharq Crossing was simply crossed off the list as it was no longer deemed ‘essential’ or ‘strategic’?
At the time of going to print Ashghal was not available for comment so only time will tell if the murmurings are correct.