Report: Low oil prices impacting infra projects

Respondents to the PwC Middle East’s survey titled ‘Delivering during change’ say that the introduction of new finance sources could improve the efficiency of the delivery of projects,saying they think more projects would run on time and to budget.

Deferred government spending on the back of dropping oil prices is impacting on infrastructure projects.
Deferred government spending on the back of dropping oil prices is impacting on infrastructure projects.

Deferrals of government spending as a result of ‘lower for longer’ oil prices is impacting heavily on capital projects and the infrastructure sector.

According to a new survey released by PwC Middle East, more than 60% of respondents think spending will fall this year, while 75% have already been impacted by funding constraints, The Peninsula reports.

Responses from over 130 owners and developers across the region form part of the PwC Middle East’s survey titled ‘Delivering during change’.

Participation comes from a range of sectors including transport, cities and urban development, social infrastructure, mega events, and energy utilities and mining.

“The capital projects and infrastructure sector finds itself bearing the full impact of ‘lower for longer’ oil prices, and we think this will continue for another 12 months,” said Chris Scudamore, PwC capital projects services leader Middle East Region.

“This is a significant contrast from our last survey – two years ago the industry grappled with capacity constraints driven by high volumes of spending and projects, now, it is the opposite.”

In the lower for longer oil environment, PwC’s report suggests that new methods of financing and delivery, such as PPPs, will be required in order to deal with these changes, which are generating a squeeze on government financing.

Survey respondents say that the introduction of new finance sources could improve the efficiency of the delivery of projects, with 44% and 38% saying they think more projects would run on time and to budget respectively.

“After the frantic pace of spending in the past few years, a slowdown in activity will give organisations the opportunity to prioritise projects and address internal issues,” adds Scudamore.

“But given the increase in cancellations and delays, we also believe it creates an environment where we will see disagreements and disputes continue to rise.”

The PwC survey indicates an increasing number of disputes owing to shrinking budgets and payment delays as 62% of respondents had been involved in a dispute recently or expect to be involved in one in the next year.

With lower government revenue making budgets tighter, nine out of ten respondents said private sector funding for capital projects would become critical or grow in importance over the next year, with around 58% of respondents expecting to see cooperation between the private sector and the government to fund infrastructure projects over the next year.

Private sector appetite for investing in the region however may cool, dependent on the weakening fiscal positions of the Middle East governments.

Survey respondents are optimistic that spending associated with mega events, like the Dubai Expo 2020 and the Qatar 2022 World Cup, will go ahead, and one-third of entities involved in delivering these projects expect spending to be the same or greater in coming year.
 

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