The Construction Machinery Show comes to Jeddah in April with Saudi Arabia once again the dominant construction market in the Middle East for 2012
With North Africa in turmoil, Gulf states such as the UAE and Oman slowly recovering from the effects of the global downturn, Qatar’s World Cup boom still two years away and Iraq volatile; the focus for the Middle East construction industry in 2012 is Saudi Arabia.
The Kingdom is experiencing its biggest boom since the 1970s and 1980s as the country pumps billions back into its economy. With oil prices still at historical highs a window of opportunity has opened and the country is acutely aware that it has to build fast while the rest of the region takes a pause for breath.
However, even a rich country like The Kingdom will struggle to fund its programme should oil prices fall and other countries begin to tap into the region’s resources. Qatar, in particular, will soon be fighting for capacities at cement plants. Machinery too could be in short demand if inventories aren’t properly stocked by the time the World Cup building begins in earnest.
Despite pledging $130 billion to build the new roads, houses and cities it is already facing difficulties in managing the scale of construction under-way.
There was a surge in the value of awarded contracts surged during the last quarter of 2011, which reached $25 billion, and led to a record-setting year in 2011 on the back of heavy capital spending by the government. The total value of awarded contracts catapulted to $72 billion in 2011, surpassing the previous high of $55 billion that was reached in 2009. In the second half of 2011 alone, the value of awarded contracts reached an impressive $50 billion, which was higher than the total value of awarded contracts during all of 2010. The transportation sector garnered the largest share of awarded contracts during the fourth quarter, accounting for 32 percent of the total value.
While the power and industrial sectors accounted for 20 percent and 12 percent, respectively, according to the National Commercial Bank (NCB) Construction Contracts Index Fourth Quarter 2011 report.
The unprecedented $72 billion in awarded contracts during 2011 was propelled by the amount of mega-projects that were awarded during H2. Nearly 69 percent of the value of the contracts awarded during the year came during H2. Moreover, the value of awarded contracts in 2011 grew by 155 percent over 2010 and by 32 percent over 2009. The government took an active role to increase the private sector’s participation in strengthening the economy. According to the Ministry of Finance’s end of year press release, approximately 2,600 government projects were signed with the private sector that were valued at an estimated SR148.3 billion.
The Construction Contract Index (CCI) ended the year by achieving its highest level in December, which was 453.6 points. The CCI reached 406.5 and 419.8 points during October and November, respectively. The CCI grew by 273.6 points from the end of 2010. The transportation, power and industrial sectors were the main growth drivers in 2011, contributing approximately 48% of the total value of awarded contracts.
However the rising price of building materials could increase the cost of new homes and hit a slew of major infrastructure projects central to the public spending plan.
Al Jouf Cement, a Saudi maker of the building materials, told Arab News last month that it had raised domestic prices by 30%.
The main problem is a dispute between one of the Kingdom’s biggest developer’s Saudi Aramco and its cement suppliers and controls on domestic production and supply.
In an effort to control domestic cement supplies, the Saudi government has banned the export of cement as many regions such as the Western region that surrounds Jeddah and the holy cities of Mecca and Medina are suffering a shortage in building materials.
With prices escalating, Saudi Aramco reacted by limiting the fuel it supplied to producers of cement in December. In combination with the new export controls, Aramco’s pressure could be debilitating.
“In the last two to three months, prices have gone up about 20 per cent year-on-year,” said Farouk Miah, an analyst at NCB Capital told Arab News. “Aramco is refusing to give extra fuel for cement plants, and the cement companies are concerned that a lot of supply is supposed to be coming up. If and when Aramco gives this fuel, it will ease the bottleneck.”
“In the last two to three months, prices have gone up about 20 per cent year-on-year,” said Farouk Miah, an analyst at NCB Capital told Arab News. “Aramco is refusing to give extra fuel for cement plants, and the cement companies are concerned that a lot of supply is supposed to be coming up. If and when Aramco gives this fuel, it will ease the bottleneck.”
Within the Kingdom, it is expected that the matter will soon be resolved. It needs to be. The list of projects awarded in the last quarter of 2011 alone shows what’s at stake for the construction machinery industry.
While the Eastern Province has provided the largest share of the value of awarded contracts by region in 2011, the Western region that orbits Makkah made a significant contribution in Q4 with approximately 37 percent or $8.8 billion worth of contracts being awarded.
The Madinah region had significant contracts awarded in the transportation and water sectors, which contributed to its 12 percent share of awarded contracts, the NCB report said.
Approximately $14.2 billion worth of contracts were awarded in October, making it the second highest value of awarded contracts by month after July’s $18.6 billion. The transportation and power sectors represented the highest value of awarded contracts during October.
Within the transportation sector, a contract was awarded by the Saudi Railways Organization (SRO) to a consortium led by Al-Shoula Group for the second phase of the Haramain High Speed Rail Project in the amount of $8.7 billion. Phase two of the project includes building 25 rail bridges, 157 crossings, including wadi bridges and culverts and 70 animal crossings.
In the power sector, the Saudi Electricity Company (SEC) signed several contracts, of which two where valued around $2.6 billion. The first contract was awarded to Arabian Bemco in the amount of $1.4 billion. The contract calls for Arabian Bemco to convert the PP10 simple cycle power plant in Riyadh to combined cycle technology. The PP10 will add 1,300MW capacity to the existing 3,400MW facility. When completed in 2015, PP10 is expected to be the largest combined cycle plant in the world.
The second contract by SEC was awarded to South Korea’s Daelim to build a second power plant at Shoaiba. The combined cycle power plant will have a capacity of 1,238MW and will be powered by natural gas. Construction is expected to be completed by the third quarter of 2014.
The Sadara Chemical Company (50 percent-Dow Chemical Company; 50 percent-Saudi Aramco) awarded several contracts within the petrochemical sector worth approximately $2.3 billion. Four contracts worth approximately $1.7 billion were awarded to Daelim. The site of construction work will be at the Jubail New Petrochemical complex in Jubail Industrial City.
The Ministry of Transportation awarded numerous contracts to local contractors worth approximately $613 million. This brings the total value of contracts in the roads sector that were awarded by the government to approximately $3.19 billion during 2011. Many of the contracts in October focused on the construction and completion of new highways, implementation of secondary roads and the maintenance of existing roads across the Kingdom.
The Ministry of Higher Education was actively involved in the development of the education sector where it awarded about $533 million worth of contracts during Q3. The total value of contracts awarded in the education sector during 2011 reached approximately $3 billion.
The value of awarded contracts declined to $4 billion in November with the power and industrial sectors providing the highest value of awarded contracts. SEC awarded two contracts to Al-Fanar Construction Company in the power sector in the amount of $506 million.
The SEC also awarded two additional contracts worth $319 million related to the construction of two electricity substations in the cities of Dammam and Taif. Both substations are expected to be completed within 30 months.
According to the NCB report, about $800 million worth of contracts were awarded in the industrial sector during November alone. The largest contract was awarded by the National Mining Company to STX Heavy Industries for the construction of an iron ore pelletizing plant at Wadi Sawawin in the city of Tabuk. The contract is worth approximately SR1.7 billion and is estimated to have more than 125 million tons of commercial reserves.
A second contract in the industrial sector was awarded by GASAN Investment & Industrial Development Limited to Shenyang Aluminum & Magnesium Engineering & Research Institute (SAMI) in the amount of $293 million. Another contract was awarded in the transportation sector pertaining to the Haramain railway project. The SRO awarded a $266 million contract to the UK’s Invensys Rail Dimetronic to provide the full turnkey signalling and train control systems. The contract includes a 12-year maintenance period.
A significant contract was signed in the hospitality sector that was awarded by the General Organization for Social Insurance (GOSI) to Al-Latifa Trading & Contracting to construct the Hilton
The $453 million contract for the Riyadh Hotel & Resort will involve the construction of a 20-story hotel tower covering an area of 49,000 square meters with 650 rooms.
The value of awarded contracts rebounded in December with a total of $6 billion. A mega-project was awarded in the industrial sector by the South Steel Company (SOLB) to the SMS Group and STX Construction Company in the amount of $2 billion. The contract calls for the construction of a greenfield steel plant in Jazan Economic City.
The education sector had numerous contracts being awarded by the Ministry of Higher Education during December totalling approximately $773 million.
Within the water sector, the Saline Water Conversion Corporation (SWCC) awarded a contract to Sinopec International Petroleum Service Corporation (SIPSC) in the amount of $426 million.
The Kingdom’s focus to increase its capital expenditures coupled with a growing participation from the private sector to help implement these projects, played a crucial role in making 2011 a record year in terms of construction contract awards, the NCB report said.
City by the Red Sea
Arguably the most spectacular development in the Kingdom is the ambitious plans to not only regenerate Jeddah but transform it into a dynamic and world class city.
Located on the Red Sea, several projects are either currently underway or in advanced stages of planning to achieve an optimal balance among the infrastructure components Saudi’s Gateway City.
Local government is implementing a comprehensive 20-year re-development programme involving initiatives such as the enhancement of the Khozama and Ruwais areas and the rehabilitation of the city’s central and historic districts. Many of the new developments are mega projects such as the SR99.75 billion King Abdullah Economic City and the SR42 billion Jeddah Hills. Jeddah Islamic Port, which recently expanded to 5 million TeUs is also to benefit from the country’s $2.3 billion port development fund.
Saudi Arabia’s state-owned Public Investment Fund and its unit Saudi Railway Co. have also begun inviting local and international consultants to design the Landbridge rail project, which will unite Jeddah with Riyadh and Damman on the Gulf.
The centrepiece to Jeddah will undoubtedly be the Kingdom Tower, the 1km high building that is destined to become a symbol of a country that is looking boldly to a new future.
According to Rany at Putzmeister and Terex dealer Medco, the Western Region is at the hub of what Saudi Arabia is looking to achieve.
“Saudi Arabia plans to invest billions in infrastructure, health & education projects; Western region currently remains the main hub of major projects such as: Makkah & Madinah high speed rail link, Rabigh power plants, King Abdullah economic city and Kingdom Tower,”says Rany.
“Saudi Arabia plans to invest billions in infrastructure, health & education projects; Western region currently remains the main hub of major projects such as: Makkah & Madinah high speed rail link, Rabigh power plants, King Abdullah economic city and Kingdom Tower,”says Rany.
“With all the upcoming/existing major projects in KSA and with the full backed up support by our principal Medco intend to capitalise major supplies of all types of earth moving /construction equipments, etc.”
Ahmed Alkooheji of the dominant distributor player, Saudi Diesel, agrees the Western Region is the area to focus on in terms of machinery.
“The western Region has fast growing demands, and especially with the construction rebuilds that is going on for the last two years,” explains Alkooheji. “Generally speaking higher oil prices means more construction products this year for all regions, which means the market demand will keep increasing and we want a piece of the cake, and we hope for a bigger piece every year.”
At the Construction Machinery Show the company will be displaying its range of excavators, wheel loaders, rock drill attachments, articulated dump trucks, fork lifts, concrete pumps, concrete batching plants, and hydraulic rock drills. The company is well established in the market and while it is has long standing relationships with Korean companies like Doosan (the company was present at the Norwegian launch of the new ADT, the DA40) and Everdigm it is riding the boom in the market and adding to its ranges.
“We will continue to focus on our strategic alliances with our Korean Partners, in addition to adding few more Construction related accessory/products, like the newly acquired distributorship agreements with Montabert Rock Drills, Meka Concrete Batching Plants, etc,” says Alkooheji.
They will be in Jeddah in April, will you?