Saudi H1 contracts cross SR84bn

Saudi Arabia awarded contracts worth more than SR84 billion in the first half of this year and their total value through 2011 will likely surpass that in 2010, the Gulf kingdom’s largest bank said on Sunday.

Around SR34.5 billion worth of government contracts were awarded in the second quarter of 2011, bringing the total value to SR84.2 billion ($22.5 billion) in the first half, National Commercial Bank (NCB) said.

In a study sent to Emirates 24/7, NCB said the high value of contracts awarded in the first half was a result of increasing spending on infrastructure within the country’s latest five-year development plan.

“The value of awarded contracts reached SAR84.2 billion by the end of the first half of the year, indicating that 2010’s total value of awarded contracts is likely to be surpassed this year,” the study said.

“The government’s focus to fulfill its citizen’s demands for improved infrastructure capabilities played a significant role as more than 31 per cent of the value of

awarded contracts during the second quarter were directed towards infrastructure related sectors. However, the residential real estate and power sectors garnered the highest percentage of the value of awarded contracts, accounting for 26 and 23 per cent respectively.”

The report said that though the total value of awarded contracts fell compared to last quarter, the value at which the contracts are being awarded is “staggering.”

The figures showed that the SR34.5 billion in awarded contracts during the second quarter represents a 43 per cent increase compared to the second quarter of 2010 when the value was SR24.2 billion.

Furthermore, the SAR84.2 billion in awarded contracts during the first half represents a whopping156 per cent increase over the first half of 2010 when the value was around SR33 billion, the report added.

NCB said the surge boosted its Construction Contracts Index (CCI) to a staggering 205.3 points at the end of the first half of this year from 90.36 points at the end of the first half of 2010.

“This reflects the robustness of the country’s construction industry over the past six months in particular as the initiatives from the annual budget and King Abdullah’s royal decrees are currently being implemented.”

In terms of geographical break-up, Riyadh accounted for the highest portion of awarded contracts by value with a 26 per cent share, the report showed.

It attributed this to a significant residential real estate contract which will cover an area of four million square kilometers.

The Eastern Province had 25 per cent of the value of contracts as a considerable portion of industrial, water and urban development contracts were awarded.

The Makkah and Madinah regions accounted for 16 and 15 per cent, respectively. The main contract awards in those regions were residential real estate projects in Jeddah and a power contract in Yanbu.

 “The rate at which contracts have been awarded during the first half of this year has brought numerous opportunities for both, large and SMEs players. The demand for improved services in infrastructure, power, and real estate sectors were the main drivers of high value contract awards,” NCB said.

“This frenzied pace is expected to continue through the second half as there are numerous high value projects that are in the bidding phases and are expected to be awarded in the third quarter.”

NCB said one such bid that is expected to be awarded is phase two of the Haramain high-speed railway project at an estimated value of SR30 billion. Additionally, King Abdullah’s royal decree regarding the 500,000 housing units to be constructed is expected to commence during the second half.

“With oil prices projected to average at $95 in 2011, the surplus in state revenues will increase capital expenditures in construction in the medium-term.”

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