BUSINESS

Value of awarded contracts rises to SR48.9 billion in Q1 2019

May 24, 2019

RIYADH — The value of awarded contracts witnessed a strong uptick during the 1st quarter of 2019 as it reached SR48.9 billion, according to a report by the US-Saudi Arabian Business Council (USSABC).

This impressive performance highlights the focus by both the government and private sector in reclaiming the positive trend prior to the precipitous decline in oil revenues.

Declining oil revenues served as a major inflection point and was a contributing factor in the reduction of mega-project awards in the Kingdom. However, improved oil prices coupled with a focus by the government to spend heavily on its capital expenditures aided in the turnaround.

The SR48.9 billion in awarded contracts contained significant mega-projects across numerous sectors. Most notably was the oil & gas, water, and transportation sectors, which accounted for approximately 67 percent of all awarded contracts during Q1 2019.

The USSABC Contract Awards Index (CAI) reached 168.69 points at the end of the first quarter. This highlights a rebound in the index after an extended lull during 2017 and 2018.

The CAI’s 168.69 points marks a 29 percent increase versus Q1 2018, which ended at 130.63 points. Furthermore, the impressive turnaround during Q1 2019 has not been witnessed since July 2016 when the CAI reached 176.53 points.

As for the CAI’s performance during the first quarter there was a gradual increase with each passing month. January’s CAI reached 143.29 points, February increased to 155.34 points, and March ended higher at 168.69 points.

The SR48.9 billion in awarded contracts during Q1 2019 marks an overwhelming 113 percent increase compared to Q1 2018, when the value was approximately SR23 billion. Q1 2019 had the highest value of awarded contracts dating back to Q1 2015 when the value reached SR88.6 billion.

Furthermore, the value of awarded contracts in Q1 2019 alone accounts for approximately 48 percent of the total value witnessed in 2018.

“Consequently, the pace of awarded contracts thus far indicates that construction activities across all sectors will re-emerge as a strategic focal point in the Kingdom,” the US-Saudi Arabian Business Council said in its report.

The power sector, which usually garners a significant share of awarded contracts, contributed only 5 percent of awarded contracts. However, is it expected to be a larger contributor as the year progresses.

From a geographical context, the location of contract awards was heavily concentrated in the Eastern Province, which accounted for a 40 percent share. This comes as no surprise given the heavy industries in that region. A significant portion of the awarded contracts in the Eastern Province were in the oil & gas and water sectors bringing the total value of contracts to SR19.3 billion. Several mega projects in the Eastern Province pertained to Saudi Aramco’s investments in its offshore Marjan and Berri oil fields.

The Makkah region captured SR8.2 billion or 17 percent of the value of contract awards, led by the water and hospitality sectors. Water projects included desalination plants in Rabigh as well as the construction of a Four Seasons hotel in Jeddah.

The Riyadh region came in third with SR6.4 billion or 13 percent of the value of awarded contracts. Two significant projects were awarded in the transportation and real estate sectors. The transportation contract pertained to the construction of the Riyadh second ring road, while the real estate sector witnessed a large residential project awarded by the Ministry of Housing.

The oil & gas sector led all other sectors with approximately SR11.8 billion worth of awarded contracts. The strong start in the oil & gas sector during Q1 2019 reflects a significant 329 percent increase compared to Q1 2018, which netted SR2.7 billion in awarded contracts.

Even more impressive is that the oil and gas sector in Q1 2019 reached 83 percent of 2018’s as a whole, which ended with SR14.2 billion in contract awards. Unsurprisingly, all of the contracts in the oil & gas sector were awarded by Saudi Aramco and were concentrated in the Eastern Province.

The largest awarded contract by value occurred in January by Saudi Aramco to a consortium of Subsea 7 and Larsen & Toubro. The SR2.4 billion contract calls for the expansion and construction of new facilities at the Zuluf offshore oilfield.

Specifically, Subsea 7 and Larsen & Toubro will construct water injections, wellhead platforms, tie-in platforms, trunk-lines and flowlines, two central processing plants, a gas/oil separation plant, gas compression facilities, and the installation of electrical submersible pumps. The project is expected to be completed by the fourth quarter of 2021.

The water sector also had SR11.8 billion worth of awarded contracts during Q1 2019. The water sector’s awarded contracts surged by 383 percent compared to Q1 2018 and reached 84 percent of 2018’s SR14 billion.

Moreover, this mark’s the highest value of awarded contracts for a first quarter of any year dating back to 2008. The contracts were awarded across multiple provinces with the Water & Electricity Company and Saline Water Conversion Corporation (SWCC) being the majority awarders.

The largest contract was awarded in January by SWCC to a joint venture between Al Rashid Trading & Contracting and ACCIONA Group in the amount of SR2.3 billion. The project involves the construction of a seawater reverse osmosis (SWRO) plant with a capacity of 600,000 cubic meters per day as part of Phase II of Al Khobar SWRO desalination plant in Al Khobar.

Additional work includes the construction of potable water storage tanks and the installation of seawater intake and outfall systems, a potabilization system, potable water pipes, and pump stations. The project is expected to be completed by the fourth quarter of 2021.

The transportation sector registered the third highest contract awards by value with approximately SR9.2 billion. Compared to Q1 2018 the transportation sector’s awarded contracts grew by 406 percent and reached 85 percent of all of 2018’s performance.

Q1 2019’s performance had the highest value of awarded contracts in a quarter since the fourth quarter of 2014 whereby approximately SR11 billion worth of contracts were awarded. The largest contracts in the transportation sector were awarded by the Ministry of Transport and focused on the development of roads and highways.

The Ministry of Transport signed 88 road contracts in February worth SR5.1 billion to various contractors. 15 contracts were designated for road work in Riyadh worth SR604 million. Another 15 contracts were awarded in Makkah worth SR984 million. 13 contracts were awarded in Asir worth SR822 million. The remaining contracts were awarded in the remaining provinces of the Kingdom.

The value of awarded contracts rebounded strongly during the first quarter after a relative dip over the last couple of years. This positive momentum is expected to continue as one of the largest drivers is the government’s allocation of SR246 billion in capital expenditures for 2019.

A focus of this year’s capital expenditures is education, health and general infrastructure. The awarded contracts in Q1 2019 did not contain significant projects in those sectors but will certainly play a prominent role as the year progresses. With non-oil growth being a priority, continued heavy investments in capital projects will significantly aid in the proliferation of local employment opportunities, financing mechanisms, and localization & privatization schemes.

Looking ahead there are numerous mega-projects that are currently in the bidding phase that will likely be awarded during 2019. Projects such as Saudi Aramco’s Marjan and Berri field development project and the Jeddah Public Transportation Program (JPTP) are such examples of upcoming mega-projects. Over the medium to long-term, mega-projects pertaining to NEOM, KACARE, and Ma’aden’s Ras Al-Khair are a few of the projects in the pipeline that will continue to spur construction activities in the Kingdom. — SG


May 24, 2019
465 views
HIGHLIGHTS
BUSINESS
2 hours ago

Xiaomi: Chinese smartphone giant taking on Tesla

BUSINESS
15 hours ago

Saudi National Bank appoints Tareq Al Sadhan as new CEO

BUSINESS
8 days ago

Chauffeur Services zoom ahead as tourism in Riyadh & Jeddah hits new peaks