Gulf Construction Online - Contract awards slow down in third quarter

Saudi Focus

Contract awards slow down in third quarter

01 December 2014

THE Saudi construction sector witnessed a significant drop in value of contracts awarded during the third quarter of this year, after showing signs of recovery during the previous quarter, mainly due to a lack of mega projects, said a National Commercial Bank (NCB) report.

According to the Saudi bank’s latest Construction Contracts Index (CCI) contracts worth SR34.3 billion ($9.14 billion) were awarded during Q3, a 77 per cent decline compared to the same period in 2013, when the value reached SR148.9 billion ($39.68 billion). The value of awarded contracts in August slumped to SR4.3 billion ($1.15 billion), which was the lowest since April 2010.

Furthermore, the first three quarters of 2013 yielded SR251.6 billion ($67.04 billion) as against SR158.9 billion ($42.34 billion) during the same period in 2014, indicating a 37 per cent decrease.

“The value of contracts awarded in 2014 is not expected to come close to 2013’s record of SR293 billion ($78.08 billion), where the total value was significantly enhanced by the SR85 billion ($22.65 billion) worth of contracts awarded for the Riyadh Metro project,” said the report.

Contracts during Q3 of 2014 were led by the transportation sector which accounted for 36 per cent of the value. A significant contract in this sector, worth SR10.9 billion ($2.90 billion), went to a consortium of Shapoorji, Hochtief, Nahdat, and Al Emaar joint venture for upgrading terminals One through Four at King Khalid International Airport in Riyadh.

The water sector accounted for 13 per cent of the total value of contracts in Q3. The largest of these deals, worth SR1.3 billion ($346.5 million), was awarded by the Saline Water Conversion Corporation (SWCC) for the installation of three pipelines as part of Riyadh’s water transmission project. Another major contract, valued at SR881 million ($234.7 million), was awarded by the National Water Company to Al Harbi Trading and Contracting as part of the Wasea water project in Riyadh.

The power sector contributed just 11 per cent. Four contracts worth SR1.6 billion ($426.4 million) were awarded by the Saudi Electricity Company (SEC), which included the construction of Al Jallah electric power transformer station in the Riyadh region. Another SEC deal valued at SR881 million ($234.7 million) went to Hyundai E&C for the construction of a 380 kV substation at Jubail.

Within the social sector, a SR1.1-billion ($293.1 million) contract was awarded by Raidah Investment Company to Al Bawani for the construction of a science museum at King Abdullah Financial District in Riyadh.

NCB’s Construction Contracts Index (CCI) has maintained a relatively healthy level on the back of strong performances during the second quarter of 2014, the report said. Using 2008 as a base year with an index score of 100 points, the report stated that the CCI levelled from 302.39 points in July followed by 286.60 points in August and settling at 290.70 points in September. While the CCI is currently hovering within the 200-300 point range, a strong fourth quarter is needed to prevent a sub-200 point showing, given the weak pipeline of awarded contracts during Q3, the NCB said.

While the value of awarded contracts may end far below that of 2013, the fourth quarter still remains and may re-energise the contracting market heading into 2015, the report concluded.

Link to Q3 contracts by sector (percentage):

Link to Value of Contracts by Year (SR million):