Gulf Construction Online

Saudi Review

Forging ahead

The impetus this year is on infrastructural growth, with particular emphasis on railways and metros, as Saudi Arabia presses on with its development plans, reports DHUSHYANTHI RAVI.

01 May 2014

THERE is much buzz in Saudi Arabia’s construction sector, where a volley of mega infrastructure projects has been unleashed over the past year.

Among the most significant of these is the launch of the Riyadh Metro scheme last year, under a series of contracts worth a whopping $22.5 billion to set in place a 176-km metro track in the capital, which will be a prelude to other networks to be laid out in Jeddah and Makkah as part of the kingdom’s ambitious railways and metros programme. The plan, which is already well in progress, will link not only the country’s western and eastern provinces but also the northern and southwestern regions with railways and introduce metros in its major cities.

Saudi Arabia is poised for unprecedented growth in infrastructure development and this year announced a $228-billion budget which supports this expansionary phase with substantial additional outlays for education, health and infrastructure, despite the decline in oil revenue.

The budget has made allocations worth SR3 billion ($799 million) for 465 new school buildings in addition to the 1,544 school buildings currently under construction. For higher education, the budget includes rehabilitation of girls’ colleges in universities, opening of eight new colleges, and completing the construction of campuses for the new universities.

Late last year, the country allocated more than $17 billion for transportation projects, an increase of 16 per cent over the previous year. Kuwait Financial Centre (Markaz) said about $8 billion of this budget would be used in the development of 3,700 km of roads, upgrade of existing ones and construction of new ports and airports.

On the social housing front which has been given high priority over the past three years, the government has this year launched a new scheme known as Eskan (the Arabic word for housing) to spearhead its programme to build some half a million homes at a cost of SR250 billion ($67 billion). The scheme is expected to speed up the plan launched in 2011.

Kapsarc ... stunning development taking shape in Riyadh.

The Council of Saudi Chambers estimates Saudi Arabia’s booming construction and contracting market to be worth SR1.12 trillion ($300 billion) by 2015. According to Fahd bin Mohammed Al Hammadi, chairman of the national contractors committee at the Council of Saudi Chambers, the value of government contracts awarded in 2013 amounted to nearly SR157 billion ($42 billion), and accounted for 65 per cent of the construction sector’s activities.

Some world-class developments such as the $7.19-billion King Abdulaziz International Airport (KAIA) in Jeddah and the iconic King Abdullah Financial District (KAFD) in Riyadh have seen significant progress – the former is gearing up for a first phase opening next year and the latter for a soft opening later this year. These and other developments under way such as the King Abdullah Petroleum Studies and Research Centre (Kapsarc) – designed by leading London-based Zaha Hadid Architects – in Riyadh and King Abdulaziz Centre for World Culture – designed by the Norwegian architectural firm Snøhetta in Dhahran – will see the creation of the iconic developments that Saudi Arabia could well boast of for years to come.

Another iconic development in the making is the kilometre-high Kingdom Tower in Jeddah, which will steal the distinction of being the world’s tallest tower from the Burj Khalifa in Dubai, UAE, when it is completed in five years’ time.

Saudi Arabia awarded a record SR293.4 billion ($78.21 billion) worth of contracts in 2013, according to a National Commercial Bank (NCB) report.

The value of awarded construction contracts moderated in the fourth quarter of last year to SR41.7 billion ($11.11 billion) following an exceptional third quarter, the NCB Construction Contracts Index showed.

The value of contracts awarded during the first quarter of this year, however, has dropped 19 per cent to SR39.7 billion ($10.58 billion) compared to SR49.1 billion ($13.1 billion) during the same period last year, said the NCB in its Construction Contracts Index for the first quarter, when the index reached 198.67 points. It also indicated that while there were no major contracts awarded in this period, there are several projects now in the tendering stage (see Saudi Focus).

The anchor sectors this year will be the infrastructure-related segments, which the government has earmarked for heavy investment. In the first quarter, the power sector secured the largest number of contracts (25 per cent), although it was the roads and the urban development sectors that significantly contributed to the overall value by capturing 16 per cent and 12 per cent of the total, respectively. The healthcare and mixed-use real estate sectors accounted for nine per cent and eight per cent, respectively.

According to a report by the Business Monitor International (BMI), the construction sector is set to grow at 7.2 per cent this year. In its Saudi Arabia Infrastructure Report Q1 2014, the global provider of expert analysis and forecasts expects issues such as labour and material shortages to continue to weigh on growth into the first half of 2014. However, once resolved, the clearing of the backlog of projects, combined with more recently awarded contracts such as the Riyadh Metro, should see growth return strongly from 2015, at an estimated rate of 10 per cent, it said.

Another dynamic sub-sector continues to be power plants and transmission and distribution (T and D). The $80-billion (excluding nuclear), 10-year investment plan for electricity infrastructure (2008-2018) has led to significant activity in the energy sector.

KINGDOM TOWER

The world’s first kilometre-high tower is now rising above ground following the completion of foundation works by Saudi Bauer at the end of the last year.

The $1.2-billion Kingdom Tower will be the centrepiece of the new $20-billion Kingdom City, a mixed-use district to the north of Jeddah. Work on the project, which is expected to take 63 months, is being carried out by Saudi Binladin Group (SBG) and overseen by joint UK project managers EC Harris and Mace. The developer, Jeddah Economic Company, has not yet confirmed the exact height of the tower although it is expected to exceed 1,000 m (see Page 104).

KAFD

Riyadh’s iconic King Abdullah Financial District (KAFD) is gearing up for a soft opening later this year, marking the completion of the first phase of this ambitious project that aims to transform the wadi Hanifa area into a financial hub and an integrated city.

Some 110 parcels of land are currently on site at the KAFD which, in its current phase, will create some 3 million sq m of prime property of the total 5 million sq m envisaged in the masterplan. Some 1.5 million to 2 million sq m of premium developments are expected to be completed in time for the soft opening (see Page 87).

AIRPORTS

Saudi Arabia’s aviation sector is in the midst of a major expansion, with considerable progress having been made on the key developments such as the King Abdulaziz International Airport (KAIA) in Jeddah.

The SR27-billion ($7.19 billion) KAIA expansion will make it one of the largest aviation hubs in the world. Spanning an area of 670,000 sq m, the complex will have two new crescent-shaped terminals for domestic and international passengers.

KAIA will be ready by the end of this year, according to Prince Fahd bin Abdullah, the president of the General Authority of Civil Aviation (Gaca). Following completion of the construction, a commissioning phase will ensure that all the systems and facilities and systems function smoothly prior to the launch of commercial operation at the end of the first half of 2015, he indicated (see Page 82).

Expansion work is also under way at the 30-year-old King Khalid International Airport in Riyadh.

The expansion is being carried out in two phases, with the first phase expected to raise the airport’s capacity to 35.5 million passengers a year.

The design, construction and installation contract of the new terminal – Terminal Five – with a capacity of up to 12 million passengers a year, has been signed with Turkish company TAV in alliance with Al Arrab Contracting Company of Saudi Arabia. The new terminal will be constructed on an area of around 100,000 sq m and will be allocated for domestic flights.

Phase Two of the project is aimed at raising the airport’s capacity to 47.5 million passengers a year.

In addition to these two major developments, Saudi Arabia is also planning to expand five of its existing domestic airports in Jazan, Abha, Al Qassim, Arar and Al Jouf. Work on the Jazan Airport is due to start soon, to be followed by work on Arar and Al Jouf airports and then Qassim and Abha airports by the end of the year.

TRANSPORTATION

Saudi Arabia is expected to spend $79 billion in the next 10 years on a nationwide transportation infrastructure expansion programme featuring one of the world’s most sophisticated rail and metro network.

In line with this plan, a groundbreaking ceremony flagged off construction work on its first metro rail system in the capital, which involves six rail lines carrying electric, driverless trains, in what Saudi officials project to be the world’s largest public transport system.

Lamar Towers ... twin-tower complex in Jeddah.

Last year, the kingdom awarded contracts worth $22.5 billion to three foreign-led consortia for the design and construction of the metro which is hoped will ease traffic congestion in the capital once completed.

Meanwhile, the final shortlist of bidders for the Makkah Metro project is complete, with 10 national and international consortia reported to be in the running for the contracts. Bids from the shortlisted consortia will be invited in early July, the city’s mayor Osama Al Bar was quoted as saying by the UK-based Arabic language daily Al Hayat.

The first phase of the project involves the construction of two 45 km rail lines and 22 train stations.

In other developments, the Haramain high-speed link connecting Makkah with Madinah is now expected to open by the end of next year, according to Wasmi Al Ferraj, director general of expansion projects at Saudi Railways Organisation. Work on the Makkah terminal and a station in Jeddah is nearing completion while the stations at Madinah and King Abdullah Economic City are reported to be 52 per cent and 40 per cent complete, respectively. A fifth station will serve Jeddah International Airport.

The $12-billion Haramain link will be 450 km long and allow trains to reach a speed of 300 kmph, linking the two cities. Initially, the railway is expected to carry more than three million passengers annually.

Meanwhile, the $7-billion landbridge took a major step forward last September when Italferr engineering consultancy, a subsidiary of Italian national railway group FS, was appointed to undertake the design work for the project. The design phase is expected to last two years.

Additionally, the first phase of the $16.8-billion Makkah Public Transport Programme is expected to enter the construction phase this year, and be completed in 2017. Tenders for the first phase of a major bus network project in Makkah are due to be issued shortly. The project forms part of a major plan to modernise the transport system in Makkah, including the creation of a bus network and a metro system.

In the roads sector, Saudi Arabia’s Transport Ministry has recently signed 32 contracts worth more than SR2 billion ($533 million) for the construction of new roads and repair of existing ones. This follows the award of road contracts worth more than SR10 billion ($2.66 billion) at the end of last year.

PORTS

Saudi Arabia is planning to build a massive port on its western coast on an area of 43 million sq m to attract investment as well as ease pressure on the Red Sea port of Jeddah.

Authorities have already allotted land for the project and are awaiting funding from the Ministry of Finance, following which tenders will be issued for the design work, according to the Saudi daily Okaz.

The port, to be located on the Red Sea town of Al Lith some 230 km south of Jeddah, will be able to receive giant cargo ships and other vessels. This move will ease pressure on Jeddah, which is already one of the world’s busiest harbours.

POWER & WATER

Saudi Arabia has commissioned the first phase of the world’s largest desalination plant at Ras Al Khair in the Eastern Province. The $7.2-billion plant has a capacity to produce 1.025 million cu m of desalinated water and 2,600 MW of electricity per day (see Saudi Focus).

Meanwhile, Saudi Aramco is building a 2,400 MW power plant in Jazan near a 400,000 barrel-per-day oil refinery. The plant will use integrated gasification combined cycle (IGCC) technology to convert vacuum residue fuel from the refinery into a synthetic gas, the state-run oil company said.

The project is due to come on line in 2016.

The country is also planning to build sixteen 17-gigawatt nuclear reactors at a total cost of around $100 billion. The plants will take nine to 11 years to complete and the first will start operations as early as 2022.

RESIDENTIAL & COMMERCIAL

Riyadh is now the focus of considerable investment, with an estimated 3,700 projects currently under way at a price tag of SR430 billion ($114 billion). These projects are being monitored by the Riyadh Regional Projects Follow-up Programme, a body of the High Commission for the Development of Riyadh City (see Saudi Focus).

The kingdom’s western region also has billions of riyals earmarked for mega projects, among which are the Kingdom City with its centrepiece Kingdom Tower, the SR15 billion ($4 billion) mixed-use Prince Sultan Cultural Centre (PSCC), north of Jeddah, and Bawabat Makkah, west of Makkah.

The PSCC, to be built over an area of 22,049 sq m, will be developed in phases over the next five years on an area of 2 million sq m adjacent to King Abdullah Sports City. The centre will have a state-of-the-art 920-bed medical complex as well as an open-air theatre (Prince Sultan Cultural Oasis), a conference and an exhibition centre, residences and a wide variety of residential support facilities.

The Prince Sultan Cultural Centre Company is expected to invite bids shortly for the construction of the project, following the completion of site preparatory works and design in March. The project is slated for completion in five years.

Meanwhile, the Bawabat Makkah aims to create a sustainable city over an area of about 86 sq km to house an estimated population of 690,000. It is expected to comprise eight subprojects.

A number of housing developments are also under way at King Abdullah Economic City (KAEC), 100 km north of Jeddah. These include the first phase of Al Waha residential community, comprising 650 units offering both single and multi-family housing solutions and covering an area of 180,000 sq m. The KAEC had last year initiated work on 270 villas and a multifaceted community centre in the Al Murooj district.

HOTELS

Saudi Arabia’s hospitality sector is also reaping the rewards of the upsurge in projects and the buoyancy in the construction market. The kingdom has more than SR20 billion ($5.33 billion) worth of hotel projects in the pipeline and under execution and is ranked as 62nd most competitive out of 140 countries and seventh in the region in the World Economic Forum’s (WEF) latest travel and tourism competitiveness report, the NCB’s Semi-Annual Sector Review stated.

The kingdom is also seeing an increase in the number of hotels being opened up by international brands with Hilton Worldwide, Marriott International, and Starwood owning the highest number of projects in the pipeline.

According to a survey conducted by the Dubai-based Viability Management Consultants. Makkah has some 15,981 keys in just 25 larger-than-average properties in the pipeline. With 3.1 million Hajj visitors in 2012 and a leap to 17 million projected by 2025, Makkah continues to increase in importance as one of the world’s top religious tourism destinations. The Jabal Omar development, located on 2.2 sq km of prime land overlooking the Holy Mosque, for instance, will see the opening of no less than 38 hotels containing 13,500 rooms and 34,000 beds, with a peak season capacity for 100,000 pilgrims.

According to the Jabal Omar Development Company, some 28 operators have been signed up to manage the hotels, with four top global chains already having reported almost 8,000 keys between them: Hilton (3,862), Hyatt (1,028), Marriott (1,611) and Starwood (1,496). This represents half the entire future pipeline in Makkah.

Riyadh, meanwhile, will see 39 chain properties adding 8,207 keys, substantially increasing the Central Province’s tally, which currently includes 60 hotels with 9,105 rooms and 276 furnished apartments with 7,226 rooms. The high-profile King Abdullah Financial District will host the city’s second InterContinental and the region’s first Hotel Indigo, as well as a Grand Wyndham, a Doubletree and a Hilton Garden Inn.

CONCLUSION

Given the priority being accorded to infrastructural development in Saudi Arabia, the kingdom’s construction industry can expect ample opportunities in the medium term. There will be challenges, no doubt, particularly with regard to material, manpower and skill shortages. However, the key to success lies in anticipating market demand and getting there before the competition; and acquiring the skill sets to tackle the challenges posed by an increasingly discerning market and the complex and technically demanding projects.

Link for the NCB Construction Contracts Index:

Link for the Value of Awarded Contracts by Year (SR millions):

Link for the Value of contracts: