Saudi Arabia’s construction market is in for a “challenging year” as lower oil prices continue to place restrictions on capital spending, according to a new report by National Commercial Bank (NCB).NCB’s quarterly construction contracts index reports that just 27.9 billion Saudi riyals (Dh27.3bn) of new contract awards were made in the first three months of this year, a 51 per cent year-on-year decline, and a 39 per cent drop on the preceding quarter.The bulk of contracts awarded were in the private sector, with 49 per cent in oil and gas, 21 per cent in hospitality and 16 per cent in residential property.Many of the biggest contracts awarded during the three-month period were from Saudi Aramco. These included a 3bn riyal award to SNC Lavalin for a shale gas development project in the Northern Province, two packages worth 4.3bn riyals to Saudi KAD Construction – a 2.6bn riyal package for pipelines in the Western Region and a 1.7bn riyal project at the Fadhill gas plant – and a 1.6bn riyal project to build housing near its headquarters in Dhahran to a joint venture between Azmeel Contracting and Chinese builder Sinohydro.Two major contracts were also awarded in the hospitality sector: a 3.2bn riyal contract to the Saudi arm of South Korean firm Posco E&C to build four-star hotels at Pilgrim City; and a 2.25bn riyal contract to Riyadh’s Al Bawani to build a new Four Seasons hotel in Jeddah. The Indian contractor Shapoorji Pallonji’s Saudi arm also picked up a 1.8bn riyal deal to build a new headquarters in Riyadh for Saudi Electricity Company.Major contract awards from government bodies were lacking, however, and NCB said that with lower oil prices regarded as “a new norm rather than a transitory setback”, government spending will continue to be reined in.”The 14 per cent reduction in the 2016 budget is likely to have a disproportionate effect on contract awards for new infrastructure projects. As a result, scaling down and further cancellation of planned projects may be unavoidable,” according to NCB.”Contractors are already facing increased competition as a result of the slowdown in spending, delays to project timelines and slow contract payments”.NCB said that most new work was likely to come from the private sector, with oil and gas, hospitality, residential property and power projects leading the way.A study published this month by the consultants PwC argued that the capital projects and infrastructure sector across the GCC had been “greatly affected” as a result of long-term low oil prices.”We think this will continue for another 12 months,” said Chris Scudamore, the Middle East leader of PwC’s capital projects arm.”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’s the opposite.”About 60 per cent of project owners and developers polled by PwC said government spending would fall this year, and 75 per cent said that they had already been affected by funding constraints. Ninety per cent of respondents said private funding for projects would grow in importance and 58 per cent expected more public-private partnerships.Despite the slowdown, PwC said mega-projects linked to events such as Dubai’s Expo 2020 and the 2022 Fifa World Cup in Qatar were likely to continue unhindered.mfahy@thenational.aeFollow The National’s Business section on Twitter
Source : thenational.ae
Read more…Saudi Arabia construction contract awards drop by 51 per cent in first three months
