Saudi contracts make leap in value for first quarter
The value of awarded contracts in Saudi Arabia during the first quarter of 2012 continued unperturbed, signaling a strong start in awarded contracts for the year. This reflects a significant shift away from the typical lull that occurs during the first half of the year.
The sectors that were highlighted in the Kingdom's 2012 budget as areas of focus, such as education, roads, healthcare and urban development, contributed to the fast start as a result of considerable injections by the government to deploy its capital expenditures. Those sectors alone accounted for more than SR15 billion or 30 percent of the total value of awarded contracts. Anchor sectors, such as the petrochemical, power and industrial sectors accounted for more than SR23 billion or 44 percent of the total value of awarded contracts, according to a report by the National Commercial Bank (NCB) released yesterday.
The SR52.2 billion in awarded contracts during Q1 reflects a slight increase compared to Q1, 2011 where approximately SR49.7 billion in construction contracts were awarded.
"While we expect the construction sector to continue its significant contribution to the Kingdom's economy, the performance of the sector during Q1, 2012 illustrates that 2012 will continue to sustain the construction boom," the NCB said in its report.
The Construction Contracts Index (CCI) rebounded from January's 312.45 points by gradually increasing to 329.07 and 349.03 during February and March, respectively. The CCI was sustained by the first quarter's strong performance coupled with an impressive run of numerous mega projects that were awarded at the conclusion of 2011. Furthermore, the CCI recorded a 86 percent boost during Q1, 2012 compared to Q1, 2011. This is noteworthy given 2011's extraordinary output of awarded construction contracts.
The geographic breakdown of awarded contracts revealed that the Eastern Province commanded the largest share with an overwhelming 36 percent of the total value of awards. Mega projects in the petrochemical and industrial sectors contributed to Eastern Province's commanding share. The Makkah region's 22 percent share was mainly attributed to the government's emphasis on urban development in Jeddah as well as the continued focus on developing affordable housing options for its citizens. The Riyadh region benefited from increased infrastructure related improvements lending to numerous awarded contracts in the power and road sectors. Those contracts allowed the Riyadh region to capture an 15 percent share, the report added.
Approximately SR11.9 billion worth of contracts were awarded during January. The power sector garnered nearly SR4.6 billion or 39 percent worth of contracts during the month as the Saudi Electricity Company (SEC) signed numerous contracts with many contractors across the Kingdom. The majority of these contracts involved setting up power transmission lines, gas powered generating units and transformers. A contract was awarded by SEC to Al-Toukhi Company for Industry & Trading in the amount of SR680 million in the Riyadh region. The contract call for the construction of an oil/gas power plant and supporting power generation to the areas of Wadi Al-Dawasir, Sharura and Najran. The contract is expected to be completed within 24 months.
Another contract in the power sector was awarded by SEC to National Contracting Company for the construction of two power plants in the Tabuk region. The SR480 million contract award calls for the first plant to be constructed with 120MW worth of capacity. The second plant is expected to generate a capacity of 180MW. Both plants are expected to be completed by the third quarter of 2013.
The transportation sector witnessed sizable contracts that were awarded by Saudi Arabian Railways (SRO) to develop the North-South Railway project. The first contract was awarded to Al-Rashid Trading & Contracting in the amount of SR1.57 billion to establish five passenger stations in Majmaa, Qassim, Hail, Aljouf and Qurayat. The project is expected to be completed within 24 months. The second con- tract was awarded to Yabi Markazi Company for the operation and maintenance to locomotives, carriages and the railway track. This SR496 million contract is expected to be completed within 18 months. The third and final contract was awarded to Sulaiman Al-Qudaibi & Sons in the amount of SR272 million to establish 36 maintenance workshops along the railways line including 15 for the maintenance of railway tracks and communication systems. Moreover, 11 housing units will be constructed in addition to the 8 administrative buildings that are planned.
As part of the development of the newly created King Abdullah Financial District in Riyadh, the Rayadah Investment Company awarded a contract to Nesma & Partners to develop three packages that cover the establishment of a monorail and its stations, site preparation for utilities and the construction of tunnels and overpasses. The SR250 million project is expected to be completed by the fourth quarter of 2015.
The NCB report said value of awarded contracts increased to SR17.2 billion in February. The residential real estate sector was the main driver accounting for 26 percent or SR4.5 billion of the total value of awarded contracts. As part of the government's plans to spend SR250 billion on 500,000 homes across the Kingdom, Saudi Arabia has stepped up the construction of housing projects to meet pent up demand during the first quarter.
The Ministry of Housing awarded a SR638 million contract to Mohammed Ali Al-Swailem Group (MASCO) for the development of 1,236 residential units in the Al-Dawadmi area in Riyadh. The development is expected to also have schools and mosques along with associated facilities. The project is expected to be completed by the first quarter of 2015.
The most significant contract was awarded to Al-Khayalah Al-Arabia Group by Wahat Makkah to construct a housing project in Umm Al-Joud in Makkah. The plan is to construct over 7,000 residential units along with the necessary construction of schools, malls and hospitals. The SR1.5 billion project is expected to be completed by the first quarter of 2016.
The power sector had several contract awards worth SR3.5 billion that were awarded by the Saudi Industrial Property Authority (MODON) and SEC. MODON awarded SR1 billion worth of contracts across the Kingdom to several local contractors. The majority of the work focused on the construction of transmission plants and increasing distribution networks.
SEC awarded SR2.5 billion worth of contract in February. ABB was awarded a contract in the amount of SAR940 million for the construction of substations in various regions across the Kingdom. ABB will design, supply, install and commission the new substations including the supply of key equipment such as gas-insulated switchgear (GIS), transformers, shunt reactors and capacitor banks.
Another contract award in the petrochemicals sector was awarded by Sadara Chemical Company to Foster Wheeler for the approximate value of SR1.9 billion. The engineering, procurement and construction management (EPCM) contract calls for Foster Wheeler to develop a propylene oxide unit. The project is expected to be completed by the first quarter of 2015.
The education sector contributed SR1.5 billion in contract awards as the Ministry of Higher Education signed several contracts for the enhancement of existing universities and the continuation of construction work on newly built schools. One of these contracts was awarded to Al-Ayuni Investment & Contracting Company for the implementation of infrastructure works for Jazan University. The contract is worth SR731 million and is expected to be completed by the third quarter of 2014.
Another contract involved the implementation of the third phase of the King Khalid University campus in Abha. The SR655 million contract covers buildings for the College of Applied Studies, Prince Sultan Center for Research and Environmental and Tourism Studies, the Center for Research and Social Studies, a computer center, administration offices, a mosque, a museum and a festival hall.
The value of awarded contracts dipped in March, reaching SR23.3 billion. The industrial sector had a single contract in the amount of approximately SR5.6 billion that was awarded by Maaden & Alcoa to Hyundai E&C. The contract entails the construction of an alumina refinery in Ras Al-Khair. This is part of phase two of the overall aluminum project that is headed by Maaden and Alcoa along with Hatch as their technology partner.
Nearly SR4.1 billion worth of contracts were awarded within the urban development sector. The majority of the contracts were spread across the Kingdom and were mainly directed at improving the water networks in rural areas along with improving rain water flood paths. The most significant contract was awarded by the Jeddah Municipality to Snamprogetti as part of the Jeddah flood prevention scheme to develop an enhanced drainage system for the new Jeddah Airport. The SR1.3 billion project is expected to be completed by the first quarter of 2015, the NCB report said.
A significant contract in the petrochemicals sector was awarded by Sadara Chemical Company to Dow Chemical Company in the amount of SR3.4 billion. The contract entails that Dow Chemical Company will construct a polyethylene package at the Jubail New Petrochemical Complex. Within the hospitality sector, a major contract was awarded by the Jabal Omar Development Company to Baytur Construction Company and Azmeel Contracting & Construction Corporation for the construction of four hotel towers as part of the second phase of the Jabal Omar project. The SR1.5 billion project is expected to be completed within 24 months.
The value of awarded contracts during Q1, 2012 signals that 2012 is off to a rapid start as heavy spending across most of the sectors has led to an impressive beginning to the year. The Kingdom's strategic goals to develop its nonoil sector will likely encourage heavy investments into the hospitality, healthcare and education sectors for years to come, the report said.
In addition to the significant spending in the areas highlighted in the 2012 budget, the petrochemical and power sectors to continue to carry the heavy load of awarded contracts throughout the year. Moreover, the recent approval of six mega industrial expansion projects by the Royal Commission for Jubail and Yanbu in the amount of SR21.6 billion will initiate numerous contract awards in the short-term, the NCB report said.