Saudi construction deals down in nine months

Construction deals awarded by the Saudi government reversed an upward trend over the past few years and declined in the first nine months of 2012 mainly because of a drop in mega projects, the Gulf Kingdom’s largest bank said on Wednesday.

The decline was mainly in the value of contracts awarded in the third quarter as it slumped by about 59 per cent to nearly SR39.2 billion due to the reduction of mega projects being awarded by the world’s dominant oil exporter to the domestic private sector, National Commercial Bank (NCB) said in a study sent to Emirates 24/7.

Conversely, there was a significant increase in the number of smaller contracts that focused on strengthening the Kingdom’s infrastructure capabilities, it said.

Within the roads sector alone, approximately SRnine billion was awarded while an anchor sector such as petrochemicals had SR6.6 billion in awarded contracts. 

“The momentum of the value of awarded contracts appeared to have tapered off during the third quarter of 2012,” NCB said. 

The report showed nearly SR166 billion worth of contracts were awarded through the first three quarters of 2012, down from SR179 billion in the same period of 2011. 

“The seven per cent drop in 2012 was largely due to substantially lower value of awarded contracts during Q3’12 compared to Q3’11. The SR39.2 billion in awarded contracts during Q3’12 paled in comparison to the SR95.1 billion that was awarded during Q3’11, representing a 59 per cent reduction.” 

NCB said its “Construction Contracts Index (CCI)” dropped in three consecutive months from 317.16 points in July to 306.52 and 277.29 points during August and September, respectively. The noticeable drop in awarded mega project contracts during the third quarter was the main factor in the reduction of the CCI as it was unable to sustain the growth that was exhibited during Q2’12, it added. 

It showed the CCI recorded a 12 per cent drop at the end of the third quarter of 2012 compared to the same period in 2011, when it reached 316.44 points.

A breakdown showed the majority of the value of awarded contracts took place in the Eastern Province, which accounted for 36 per cent of the total awarded contracts. Several significant deals in the petrochemical and oil & gas sectors boosted the Eastern Province's share, according to NCB.

The Riyadh region’s 15 per cent share was largely the result of large contracts in the healthcare and roads sectors, it said.

The Makkah region accounted for 12 per cent of the total value of awarded contracts, with particular focus on the roads, power and education sectors.

“Although the value of awarded contracts receded during the third quarter, those sectors that were targeted by the Saudi government as an integral focus for its capital expenditures thrived,” the study said.

It said the roads, education, healthcare and urban development sectors represented a significant portion of the awarded contracts, while anchor sectors deferred.

“However, anchor sectors will still be expected to produce the bulk of the value of awarded contracts to finish the year,” it said.

“Significant contracts are expected to be awarded during the fourth quarter. Saudi Aramco is expected to award several contracts at the SR26 billion Jizan refinery project…. additionally, the Saudi Electricity Company is expected to award big deals in the power sector including the Jeddah South thermal power plant.”

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