JEDDAH — The calculated optimism about the Saudi construction sector in the fourth quarter of this year augurs well for the value of construction contracts in the year to come. Awarded contracts during the third quarter halted the momentum that was witnessed during the first half of 2014. As a result, the value of awarded contracts is expected to fall short of 2013's record performance of SR293 billion.
The National Commercial Bank (NCB) in its November “Construction Contracts Index” report said “while the value of awarded contracts may end far below that of 2013, the fourth quarter still remains and may reenergize the contracting market heading into 2015.”
The value of awarded contracts retreated during the third quarter of 2014 after showing signs of recovery during the previous quarter. Approximately SR34.3 billion worth of contracts were awarded during Q3'14. The value of awarded contracts in August slumped to SR4.3 billion, which was the lowest output since April of 2010. Anchor sectors suffered from a lack of megaprojects which was a major reason for the slowdown.
Meanwhile, the transportation sector alone accounted for 36 percent of Q3'14 value of awards. The water sector witnessed a jump in the value of awards compared to the previous two quarters as it accounted for 13 percent. The power sector, which usually holds a significant share of awarded contracts, contributed an unusual 11 percent.
Through the first three quarters of 2014, the value of award-ed contracts reached SR158.9 billion. The decline in the value of awarded contracts during Q3'14 put a halt in the strong momentum that was witnessed during H1'14. The value of awarded contracts during Q3'14 yielded a significant shortfall compared to Q3'13, which reached SR148.9 billion alone, a 77 percent decline.
Furthermore, the first three quarters of 2013 yielded SR251.6 billion, marking a 37 percent decrease for 2014 thus far. Undoubtedly, the value of awarded contracts in 2014 is not expected to come close to 2013's record of SR293 billion, although it must be noted that 2013's performance was significantly enhanced by the Riyadh Metro project whereby SR85 billion worth of con-tracts were awarded.
The Construction Contracts Index (CCI) has maintained a relatively healthy level on the back of strong performances during Q2'14. The CCI leveled 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 Q3'14.
The Riyadh region garnered a significant share of the value of awarded contracts. This was mainly due to the King Khalid Airport terminal upgrade project, in addition to a number of water contracts. The Makkah and Eastern Province regions captured the other bulk of awarded contracts.
The contracts were spread across numerous sectors aimed at improving infrastructure capabilities as well as a few oil & gas projects in the Eastern Province. There were numerous contracts in the education sector across the rest of the Kingdom, which were aimed at building and improving new and existing universities,
Approximately SR20.9 billion worth of contracts were awarded in July. The transportation sector garnered a significant portion of the value of awarded contracts as it reached SR11.3 billion. A significant contract was awarded by the General Authority of Civil Aviation (GACA) to a consortium consisting of Shapoorji/ Hochtief/ Nahdat Al Emaar JV in the amount of SR10.9 billion. The contracts call for the consortium to upgrade, in two parts, terminals 1 through 4 at King Khalid International airport in Riyadh. Part A involves the upgrade of terminals 3 and 4, which consists of 284,000 sqm on six levels including one basement. Part B involves the upgrade of terminals 1 and 2, which consists of 290,000 sqm on six levels including one basement. The contract is expected to be completed by the third quarter of 2017.
The power sector witnessed approximately SR2.8 billion worth of contracts. Four contracts worth SR1.6 billion were awarded by the Saudi Electricity Company (SEC), which included the construction of Al Jallah electric power transform-er station in the Riyadh region. Additional scope of the con-tracts include the purchase of main transformers to raise the capacity of generators, feeding transformers to assist generating units in the 13 and 14th generating station in Riyadh, in addition to the provisioning of compensatory facilities for fixed and dynamic power activation in the transformer stations in Hail and Al Jouf.
Another contract in the power sectors was awarded by SEC to Hyundai E&C in the amount of SR881 million. The con-tract calls for the construction of a 380kV substation at the Jubail Industrial complex. The project is expected to be completed by the fourth quarter of 2016.
Within the social sector a sizeable contract was awarded by Raidah Investment Company to Al Bawani for the construction of a science museum at King Abdullah Financial District in Riyadh. The contract was valued at SR1.1 billion and calls for constructing a four story museum, a five story geo-climate center, a six story national aquarium and a two story monorail station. The project is expected to be completed by the third quarter of 2017. — SG
