Project awards buoy Gulf contractor order books in Q1 2018
How did the Gulf's construction sector perform during the first quarter of this year?
Low oil prices and other market forces meant construction companies – and many others in ‘black gold’ economies – were cautiously optimistic about what 2018 had in store when they spoke to Construction Week at the end of last year.
While this circumspection has not been allayed, the end of Q1 2018 has brought with it a moment to pause, reflect, and assess the foundations of growth for the year ahead.
While the year began slowly, news emerged that GCC nations boasted a pipeline of construction, transport, and energy projects worth $2.4tn (AED8.8tn), according to a report by Deloitte. The construction sector’s contribution was the largest, boasting more than $1tn (AED3.6tn) in projects. Transport, at $447bn (AED1.6tn), was second. Power and energy ranked third, with $224bn (AED882bn).
At the time of the report’s publication in mid-February, Cynthia Corby, partner and construction leader at Deloitte Middle East, told Construction Week that sensible financing of future projects would make or break the year, with numerous billion-dollar projects getting off the ground in Saudi Arabia, the UAE, and others countries.
“The key to these projects coming to fruition is that the funding for each should be clearly earmarked and the projects should be assessed for their feasibility and whole life cost, to ensure these investments can produce the desired return on investment and will be built at a sensible capital cost,” she said.
While parts of the Middle East may not be synonymous with overly prudent project costing, contract awards issued so far suggest a measured-spending mindset.
In Dubai, construction contracts awarded in January 2018 focused on Expo 2020. More than half a billion dollars’ worth of contracts for building projects connected to the show were issued in the first month of the year. Dubai’s Roads and Transport Authority (RTA) signed two contracts to implement Phases 1 and 2 of the Expo Roads Improvement Project, one of RTA’s ongoing developments in the emirate.
Separately, UK-based building contractor, Laing O’Rourke, was awarded two contracts by Expo 2020 Dubai in January. Both contracts, valued collectively at $182.4m (AED669m), covered delivery of the Leadership and Media Pavilions, as well as the Hammerhead road project, and landscaping work.
In the same month, in Saudi Arabia, a $165m (AED605m) contract for Jeddah Tower – touted to become the world’s tallest building – and Economic City was handed to Al Fouzan Trading and General Construction Company. Talal Almaiman, chief executive officer of Kingdom Holding Company, called the contract “one of the largest private [sector] infrastructure contracts” in the kingdom.
February picked up the pace, with three individual contracts valued at more than half a billion dollars issued in just 28 days. The Abu Dhabi National Oil Company (ADNOC) awarded an engineering, procurement, and construction (EPC) contract to a joint venture of South Korea’s Samsung Engineering and the Netherlands’ CB&I. This contract was for ADNOC’s $3.1bn (AED11.4bn) Crude Flexibility Project, which aims to introduce crude processing flexibility at its Ruwais oil refinery.
The second major contract award went to Italian heavyweight Salini Impregilo, which secured a $1.3bn (SAR4.87bn) contract from the Saudi Arabia National Guard. This covered delivery of housing and urban planning services, as well construction of 6,000 villas. Another Italian company, oil and gas contractor Saipem, signed an onshore EPC contract worth $750m (AED2.7bn) for the Duqm Refinery project in Oman. Once completed, the refinery will be produce around 230,000 barrels of oil per day.
March continued the strong form of February, with a number of eye-catching contracts awarded. These included Omniyat handing over a construction contract for its Dorchester Collection, Dubai, to a joint venture of Roberts Constructions, and Italian company Impresa Pizzarotti. The joint venture will deliver the Private Residences by Dorchester Collection, a five-star hotel and luxury residential building, based alongside the Dubai Canal.
In the final month of Q1 2018, Azizi Developments awarded three contracts, collectively worth $667m (AED2.4bn). Two of the three contracts were for construction Phase 1 of its Azizi Victoria residential development. Green Modelling Contracting and Modern Civil International Contracting Company secured the contracts for Phase 1, valued at $408m (AED1.5bn). Additionally, a contract worth $259m (AED951.3m) for Azizi Riviera Phase 3 was awarded to Prestige Constructions.
A flurry of Q1 contract awards has certainly set a good pace for the next nine months of 2018. And with strong demand for housing, transport, and social infrastructure, a solid pipeline of projects worth trillions of dollars overall suggests that, even if Q1 expectations fell short for some contractors and developers, there is plenty of time to get back on track.