New construction contract awards in Saudi Arabia drop 25% in final quarter of 2015

The value of new construction contracts awarded in Saudi Arabia during the fourth quarter of 2015 slumped by 25 per cent on the previous quarter to 45.6 billion Saudi riyals (Dh44.6bn), according to new research by National Commercial Bank (NCB).

Its Construction Contracts Award Index showed that 62 per cent of the contracts worth more than 1 million riyals that were awarded during the quarter were in the oil & gas sector. About 54 per cent of the total (23.6bn riyals) was as a result of three contract packages awarded for the Fadhili gas plant – a new plant in the Eastern Province which will have a capacity to process 2.5 billion standard cubic feet of gas per day once work completes on the project in the third quarter of 2019.

Two packages worth more than 16bn riyals were awarded to Spanish contractor Tecnicas Reunidas, and the third, worth over 7bn riyals, was awarded to UK contractor Petrofac.

Only two major government contracts, worth a combined 285 million riyals, were awarded during the quarter. These were for a new Ministry of Interior headquarters building, with the 187.5m riyal contract going to China Railway Construction Corporation, and a 97.5m riyal building for a new equestrian club at King Abdulaziz University in Jeddah.

Overall, contract awards for the whole of 2015 were marginally (1.2 per cent) higher than in 2014 at 223.4m riyals, but NCB said that this figure risked “masking the challenges ahead”, with government capital expenditure likely to drop 14 per cent to 840bn riyals this year, down from 975bn in 2015.

Contractors’ revenues are also predicted to decline by 15 per cent to 514bn riyals, NCB said.

Looking ahead, it said that contractors have faced “significant changes” over the past six months as the government has sought to get to grips with lower oil prices by cutting infrastructure spending and reducing advances paid to contractors on projects from 20 per cent to just 5 per cent of a contract’s value.

“While government will continue to spend on social and physical infrastructure projects, this level of spending will inevitably be reduced over the medium term,” NCB said. “Many of the projects already awarded are likely to proceed, but some will be scaled back or rescheduled over an extended period, with future projects expected to be trimmed. These increasingly tough economic conditions along with rising geopolitical concerns will adversely impact the construction industry outlook.”

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