John Pagano on creating a tourist destination the size of Belgium from scratch, while keeping things sustainable
At the start of the year, it was announced that Saudi Arabia’s ambitious Red Sea project had received approval from its board of directors for its masterplan, with the development aiming to be completed by 2030. According to The Red Sea Development Company (TRSDC), the approved masterplan would see 22 islands developed between the cities of Umluj and Al-Wajh, offering 10,000 hotel rooms across island resorts, mountain retreats and desert hideaways. In addition, it would also offer luxury residential properties and commercial, retail and recreational facilities.
Planned as a key component of Saudi Arabia’s Vision 2030 strategy, it is estimated that the tourism project will grow the Kingdom’s GDP by $5.86bn when ready. Comprising a 28,000sqkm stretch of islands, beaches and other attractions on the Red Sea coast, the project – launched in the summer of 2017 – is expected to create up to 70,000 new jobs and attract one million tourists per year.
In order to fully understand the scope and size of the project, one of the most ambitious ever undertaken anywhere in the world, MECN‘s sister publication Big Project ME spoke to John Pagano, CEO of The Red Sea Development Company, about the current status of the project and the long-lasting impact it is expected to have on the Kingdom’s economy and on the region’s tourism and travel sectors.
“The Red Sea Project is one of three giga-projects announced by HRH The Crown Prince, and part of what it represents is that it’s a vehicle towards delivering part of Vision 2030. Vision 2030 has got to do with a number of different things, one of which is helping to diversify the economy. And to that end, The Red Sea Project is set to establish a tourism destination to really take advantage of the tourism sector as an economic sector, given its importance in the global economy,” says Pagano during an exclusive telephone interview from his offices in Riyadh.
“If you look at it in a global context, the tourism industry generates 10.4% of global GDP and employs one in 10 people. In the Kingdom, tourism represents 3.4% of GDP and most of that tourism is religious-based. So that’s what The Red Sea Project has been conceived to [change].”
Starting with a piece of land that’s a little smaller than Belgium is a good start for a tourism project, given that it provides the developer with a variety of topography to attract visitors, including mountains, deserts, volcanos, an archipelago of 90 islands and a shallow lagoon with a thriving coral reef system.
The masterplan for the project was approved at the end of 2018 by TRSDC’s board, and by the Crown Prince and the King of Saudi Arabia, and it called for more than 8,000 hotel rooms – or just under 50 hotels – and 1,300-1,500 residents, as well as everything else that makes a project like this work, including a new airport.
“We are building a new town for 50,000 people that will be ultimately be home to the staff that will work in the destination, and all the social infrastructure that then brings as well – mosques, hospitals and schools, as well as a lot of infrastructure,” says Pagano.
“We had very little infrastructure to begin with, which is both a blessing and a curse. The curse being that we have to spend a lot of money to build it, but the blessing is we get to do it right, the way we want to do it, as one of the key pillars of the development is setting new standards in sustainability.
“Phase One of the project has also been approved and funded. The commitment to build Phase One has been put into place and it’s to build 14 hotels across five islands, as well as two inland resorts, to build the start of the town I’ve just described, and to build the airport and all the enabling infrastructure and utilities to get the project underway. We will open the first phase of the development by the end of 2022.”
What has been built and opened on the project is what Pagano refers to as a base camp, which the project team uses to migrate onto the site. Consisting of accommodation for 50 to 60 people, as well as office space, welfare, catering, leisure and medical facilities, along with health and safety support services, it provides the team with a centre point for operations.
He adds that a contract was recently awarded to a landscape nursery of a million square metres that will grow the 60 million plants that are going to be needed across the development, while the contract award for the construction of a worker village housing about 10,000 workers is due imminently.
“That’s to start building the accommodation for the construction workforce that’s going to help us deliver the project. We are not delegating that responsibility to the contractors that might work on the project, but rather we are taking the initiative and doing it ourselves. We will hire someone to do it for us, but we are going to control the delivery and we are seeking new standards in the level of accommodation that we provide.
“We want to provide an environment that is healthy and conducive to the well-being of the workers that are going to help deliver this project. A healthy, happy workforce is going to help deliver a project of the highest quality, so we are focusing a lot on the quality of the accommodation – simple things like access to shower and washroom facilities and the amount of open space that is provided. We are building cricket and football pitches, and we will have a couple of cinemas, as well as a well-equipped gymnasium. There’s also the catering and medical facilities side of things to support that level of workforce. That is how we’re looking to set new standards for the industry and the market,” he asserts.
In addition, Pagano says work on the design of the individual hotel assets is also moving along rapidly, while design teams have been appointed for a number of other projects, including the airport. A contract for a major marine enabling works package is also in the pipeline, which will see the construction of temporary jetties and a bridge and provide further evidence that The Red Sea Project is moving forward.
There has also been extensive market funding done on the utilities side – specifically power, water and wastewater treatment, he says. An RFQ process has recently been completed and an RFP is in the process of being issued at the time of the interview. This is for a PPP contract that will deliver all the principal utilities for the project, Pagano says, explaining that the rationale behind that decision is to bring different sources of capital into the project, making it an investment opportunity for the private sector.
Despite the work already undertaken, Pagano is quick to point out that there remains a tremendous amount still to be done. However, he asserts that this is a long-term project that will be continued for many years to come, and as such, the developer is keen to build something that will last along with it.
“The Red Sea Development Company has been conceived to be a major real estate developer – not just for the creation of The Red Sea Project, but as an organisation that will stand the test of time. We are investing heavily and building it with all the core competencies to do things in-house. We are effectively going to run and manage the construction and operations [of the project] ourselves.
“Based on the experiences that I’ve had in this region, typically, on a project like this, you would bring a bunch of consultants, bring in everyone together, do the project and then disband. [But] this is a project that’s going to run for the next 10 to 15 years, so it pays to make that initial investment so that we continue to learn from the early phases, so that the second phase gets better, and then the third phase,” he says.
“You always seek to improve on your project, but you must capture and retain that learning. Ultimately, this is a vehicle that, with the backing of the Public Investment Fund (which is our sole shareholder today), has the firepower to go and do much more than The Red Sea Project. It is truly establishing a vehicle for the future, for Saudi Arabia.”
Given the vast size of the overall project, Pagano is quick to agree that it would be impossible to develop all of it. He explains that the developer intends to break the project down into manageable pieces which will be easier to develop and build upon, while also ensuring that the organisation has time to grow and develop, in line with the demands of the project and others down the line.
“It’s very much about looking at this project and breaking it down into bite-sized pieces that we can then get our heads around. The organisation today is around 300 people, having started at 15 a little over a year ago. We’re building the capabilities and creating our organisational structure to look at this project as three distinct pieces of work that we’re going to tackle, obviously with a high level of coordination, because we’re all going to be co-located and the communication and culture within the organisation is important.
“That’s how we’re going to tackle this thing – we’re investing in people, we’re working with some of the best consultants in the world, and we’re moving forwards. We are going to leverage that technical knowledge. I’m very pleased that we now have six to seven very solid consortia that have the financial and technical expertise, with a proven track record of having delivered similar installations globally and in the region. I’m very much looking forward to that and we’ll look to achieve a commercial close by the end of the year, and a financial close by the early part of next year. That’s also a major piece of work that’s taking place.”
One of the key pledges for The Red Sea Project is that it will set a new standard in sustainable development while also looking to protect, preserve and enhance the local environment, and offer access to some of Saudi Arabia’s most important cultural treasures. According to the developer, the project will mitigate carbon dioxide emissions, waste production, and light and noise pollution, and maintain the destination at a level equivalent to a Marine Protected Area.
However, Pagano is keen for the project to go even beyond those lofty goals, explaining that the developer has teamed up with the King Abdullah University of Science and Technology as its environmental partner. As the foremost expert on the Red Sea, he says the university was retained before design efforts began, to do baseline surveys of the marine environment and the terrestrial environment which would allow the developer to really understand the challenges they would be dealing with.
“Then we brought on board our master planners and started thinking about that. We also created this large-scale simulation program to ultimately test and challenge the evolving design. We looked at it not only from a design point of view, but from an operational phase, to try to understand how our operations will impact the local environment. Over the course of that, we adapted and changed our masterplan over time. That underscores the importance we’re placing on protecting and enhancing our environment,” he asserts.
He proudly adds that the outcome is that over the next couple of decades the conservation value of the destination will be increased by 20-30%, compared to leaving the site as it currently is.
“Out of the 90 islands, we are only going to develop 22 islands, while the rest of them will be untouched. Nine of those islands have been singled out as special conservation areas and they’re going to be no-go areas. We’re not looking to over-develop; I think that’s an important part here. We are not looking to be a mass market destination, it’s very much focused on limiting the number of visitors on an annual basis, so that we don’t have an adverse footprint on the destination.
“We are obviously being very thoughtful about building a sustainable environment in everything we do, and have a corresponding environmental management plan to deal with the actual physical execution of the work,” he adds, saying that part of this will include looking at modular and pre-fabricated construction, particularly on the island destinations, so that there is less disruption to the natural landscapes and minimal impact on the local ecosystems during construction.
“We want to set new standards in sustainable development, and with a clean sheet, we’re able to do this. We are going to be 100% renewable energy, 24/7. As far as I’m aware, nowhere else in the world has this been done on this scale. That’s a pretty ambitious goal, but we’re going to achieve that, it’s within the technical capabilities, it’s just a matter of capital, which we’re not concerned about.
“Obviously, we have to create our own desalination plants and deal with all the wastewater treatment, but all of that is being done with sustainability in mind. We’re going to be 100% carbon neutral in our operation and we’re aspiring to 0% brine discharge; that’s not going to be achieved on day one, but over time, our goal is to achieve that. We’re going to challenge the engineering community and seek to find solutions where they don’t exist today. Once we find it, we’re hoping that we’ll be able to roll it out to the rest of the world,” Pagano says, adding that the developer will support research conducted on the coral reefs in the Red Sea, as part of the commitment to the environment.
Given the scale of the project, the CEO of The Red Sea Development Company is keen to stress just how important it will be for the future of Saudi Arabia. It is set to be a major economic driver for the Kingdom, coming at a time when there is an increased emphasis on diversifying the economy.
“We’re creating a tourism destination that is going to generate in the region of $5.86bn per year to the wider economy, once we’re up and running. It’s going to create around 35,000 direct jobs and probably another 35,000 induced or indirect jobs. That’s the impact that a project of this nature is going to create.
“We are starting to build a tourism sector that only exists to a limited extent today, but the ambition is to start to approach the levels that tourism represents in the wider global economy. There are lots of opportunities to do that, and it’s not just The Red Sea Project, it’s a countrywide initiative,” he concludes.