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Booming real estate market is ensuring that the construction industry is kept buoyant despite a paucity of major public sector projects. Using the performance of the cement manufacturing sector over the past year or so and that of real estate companies especially over the first quarter of this year as a barometer, construction activity in the kingdom has been on the upswing.
The upturn in business seen early last year given the resurgent oil prices at the time was dashed momentarily by shock waves felt in the global economy following the events of September 11.
In the aftermath, however, billions of dollars that had been or would have been invested abroad by Saudis is now being utilised in investment opportunities at and nearer home. The real estate sector appears to be a key recipient of these funds as evidenced by the large number of commercial and residential projects which are coming off the drawing boards and out to tender.
All cement manufacturers have been reporting higher operating profits, some as high as 50 per cent on last year's figures. Saudi cement and clinker production rose steeply in 2001. Cement output was 20.6 million tonnes, a rise of 14 per cent on the previous year while local consumption grew by 15 per cent to reach 17.7 million tonnes.
The Saudi budget announced in December last year slashed expenditure by six per cent. However, the health and education sectors are the key beneficiaries with increased allocations and already several contracts for hospitals, health centres and schools have been awarded. The budget has allocated SR28 billion ($7.47 billion) for new projects this year.
The kingdom also recently awarded several projects for the construction of roads and drainage and sewerage projects. Areas which will require urgent action over the next few years to meet the demands of a rapidly growing population are housing, power and water. Saudi Arabia will have to turn to foreign investors to help it meet these demands.
"The housing sector in Riyadh alone will need a financial investment of SR55 billion every year over the next 20 years," said Arriyadh Development Authority's head of projects and planning centre, Abdullatif Al Sheikh.
He said the estimate was based on a study conducted by the Authority which also said that Riyadh's population was increasing rapidly, largely due to the growing migration of Saudis from rural areas.
According to one estimate, Riyadh's population will hit eight million by 2010 and the city will require 1.5 million extra housing units during the next 20 years.
Furthermore, Saudi Arabia needs investments of more than $116 billion in its electricity sector over the next 23 years to cope with increased demands, according to Said Al Shaikh, chief economist of the National Commercial Bank.
He said current electricity production capacity of 23,438 MW was projected to more than double by 2023 to over 50,000 MW. The annual increase in electricity demand was estimated at 4.5 per cent, Al Shaikh said. His projections were based on estimates by the Ministry of Industry and Electricity. More than half of the required investments will be needed for generation (54 per cent), 29 per cent for transmission and 17 per cent for distribution, he said.
Only Saudi nationals can invest in the transmission and distribution sectors, but generation, which will require an annual investment of $2.74 billion for the next 23 years, is open to foreigner investors.
Another key sector is water desalination and according to Agriculture and Water Minister Dr Abdullah Abdul Aziz, Saudi Arabia needs to invest around $88 billion to set up new water desalination plants to meet growing consumption over the next 20 years.
He said the government had already received applications from local and foreign companies to participate in such projects.
In a bid to attract more foreign capital, Saudi Arabia's General Investment Authority (Sagia) is planning to introduce changes to the foreign investment law which was passed some two years ago.
The law, passed at the initiative of the Supreme Economic Council, is likely to undergo a total review in order to remove obstacles in the way of the flow of foreign funds. The kingdom has attracted foreign investments worth SR34 billion ($9.06 billion) since the new law came into effect.
A major project which is likely to be awarded on a build-own-operate (BOO) basis is the expansion and renovation of the King Abdul Aziz International Airport in Jeddah. Tenders for the project, which is estimated to cost $530 million, are expected shortly. The contract, which is said to cover construction of two new terminals, bridges and car-parks, and installation of escalators, will be completed within five years.
An ambitious project that is awaiting government incentives which could then attract private sector investment is a $2 billion rail link which will connect the eastern and western shores of the Kingdom. The project, which was given the go-ahead last year by the Supreme Economic Council, is likely to be carried out entirely by the private sector on a build-operate-transfer basis (see page 126).
In the oil and gas sector, Saudi Aramco is reported to have cut back on spending until it sees a clear recovery in oil prices. Negotiations are still ongoing on the gas initiative which will open up the sector to foreign investors. When it moves ahead, it will provide a source of considerable work for local and international contractors.
Real estate
According to AlHayat newspaper, economic sources estimate the total capital invested in the Saudi real estate sector at SR900 billion ($240 billion) in 2001 with the value of the total capital invested in the real estate sector in Riyadh city alone at SR24 billion ($6.4 billion) over the past two years.
Another factor which is giving further impetus to the sector is the decision to allow foreigners to own real estate. Saudi Arabia in fact has opened the Middle East's first real estate stock exchange in Riyadh.
An indication of the level of interest in real estate is the fact that the Riyadh Real Estate Investment Fund, launched by Saudi Al Baraka Investment & Development, was fully subscribed and closed prior to its deadline of April 30.
Al Baraka, a part of Dallah Al Baraka Investment, joined hands with Shaikh Hamad bin Mohammed Zaidan Group of Companies, a real estate developer, to launch the fund which will invest in a huge development over a 855,235 sq m plot near Riyadh. The first stage of the project is expected to be completed within three years' time.
Riyadh has seen the completion of two massive towers - the Al Faisaliah Tower and the Kingdom Centre - in as many years, which were a considerable source of business for the construction sector. Although there have been reports of other 30-storey towers been given the go-ahead, none seem to have broken ground. A prestigious multi-storey headquarters for the petrochemicals giant Saudi Basic Industries Corporation (Sabic) is now nearing completion.
A SR550 million ($148 million) commercial centre is being built in downtown Batha, one of the oldest districts of Riyadh. The centre will have three integrated towers: an 11-storey family tower offering a built-up area of 12,800 sq m, an 11-floor executive suite tower (13,900 sq m) and a seven-floor office tower (27,000 sq m). An underground parking area can accommodate some 750 cars at a time.
Among the largest projects that are set for first tenders is Dallah Al Baraka's luxurious residential development Durrat Al Riyadh, which is estimated to cost SR1.3 billion ($346.7 million) and cover a total area of 9 million sq m (see page 121).
Some of the major commercial developments in Riyadh which are in the early stages of development are:
Central Makkah, which commands the highest land price in Saudi Arabia, is seeing billions of dollars being invested in real estate development. Madinah too is a similar attractive position with considerable property having been auctioned recently around the Prophet's Mosque. Saudi investors have recently built nine deluxe hotels and 32 hotel apartments in the city with some 35 projects currently under construction.
The real estate business in these holy sites has been given further impetus by the new Umrah regulations which are reported to be attracting increasing numbers of pilgrims throughout the year. A move towards allowing GCC nationals to rent residential units in Makkah on a long-term lease system is also expected pump more national capital in the market and also attract investments from abroad.
The Makkah Construction and Development Company is targeting investors for its estimated $1.6 billion Jebel Omar complex, which will be one of the largest construction projects ever undertaken in the kingdom. Overlooking the central haram of the Grand Mosque in Makkah, the 20,000-sq m commercial and residential property will include a 1,468-room hotel, four 35-storey residential towers containing some 4,235 housing units and 50,000 sq m of shops. A network of roads, subways and pedestrian tunnels will connect the complex to the mosque and to the ring road around Makkah. Parking space will be provided for up to 1,470 vehicles.
Tenders for demolition of existing housing on the site are expected to be issued in shortly.
The project is part of an ongoing multi-billion dollar modernisation programme which will enable central area of Makkah to accommodate more than 1.2 million people, compared with about 500,000 at present.
Among the largest projects that have been launched this year is a $533 million construction project on a hill close to the Grand Mosque in Makkah. The project includes 11 high-rise residential towers consisting of 942 apartments, and a twin-tower five-star hotel with 1,200 rooms. The project is due to be completed in 2005 and the contractor is the Saudi Binladin Group.
To spearhead the development of Jeddah, the Commerce Ministry has approved the setting up of a new Jeddah Holding Company with a capital of SR400 million ($106.67 million) which will have interests in such areas as sewerage projects, water desalination units, roads, telephone networks, tourist resorts, residential and commercial complexes.
Among the major projects being implemented in Jeddah is the Amana Tower which will accommodate the headquarters of the Jeddah Municipality. Foundation work on this iconic tower has just begun (see page 131).
In the Eastern Province, there has been a significant increase in the number of commercial and tourism projects being launched.
A sum of SR2.5 billion is expected to be spent on development of a sea front property in Al Khobar. The project, which has attracted a number of investors from Riyadh, is to be completed in two years and includes the construction of a residential complex, shopping centres, and a resort hotel.
The Saudi Al-Athim Trading Group is planning to set up a SR100 million trade centre in Hasa. The trade centre will be built over a 90,000 sq m area and will consist of a foodstuff market, an electrical equipment market, a two-floor trade centre for garments and shoes, a jewelry store, children's amusement facilities, restaurants and parking lots.
Educational facilities
Last year, Saudi Arabia embarked on its ambitious plans to ensure that all its schools were housed in purpose-built premises rather than rented premises. In April last year, Sagia awarded a SR13 billion ($3.46 billion) contract for the construction of 3,000 schools on a build, operate and transfer (BOT) basis to the American consortium, American International Group (AIG).
This move drew some opposition for locals. However, over the past year, Saudi school building investors have reported financing difficulties with banks requiring certain guarantees for financing school projects.
As recently as last month, a Swiss company was granted a licence by Sagia to finance the construction of a further 200 government school buildings at a cost of SR1.3 billion. The repayment will be done by Saudi Ministry of Finance in the form of bonds payable over a period of 10 years beginning a year after the completion of the project.
Among other developments in the sector, the King Faisal Foundation plans to set up a SR700 million ($187 million) private university in partnership with a US technology institute. The project will involve the construction of administrative and residential buildings, lecture halls and laboratories on a 130,000-sq m plot of land in the grounds of the King Faisal palace in Riyadh.
Saudi Arabia has allocated SR580 million ($154.66 million) for new technical colleges. Work on technical college in Najran has just begun, while designs for auxiliary medical science and nursing college and staff residential complex in Riyadh, are being finalised, with the project up for public tender soon.
Medical facilities
Several hospitals are to be launched both by the public and the private sectors. Among them is a 400-bed maternity and paediatric hospital in Dammam, tenders for which are to be issued later this year (see page 139).
The Health Ministry is preparing tenders for an estimated SR820 million ($220 million) scheme to build four new hospitals and an emergency medical centre in the kingdom.
A new hospital is being in Mina at a cost of SR60 million ($15.99 million) to treat emergency cases during the Haj season. In addition, a number of smaller 50-bed hospitals in various parts of Saudi Arabia have been tendered and awarded in recently months.
The first phase of King Abdul Aziz Specialist Hospital was opened late last year at the resort city of Taif. The 500-bed hospital, the largest and most advanced in the city, was established at a cost of SR650 million ($173.31 million).
The Prince Sultan bin Abdulaziz City for Humanitarian Services (PSCHS), a massive medical city built at a cost of around SR800 million at Benban near Riyadh, has begun operations recently.
Meanwhile in the private sector, the Saudi German Hospital is building a 300-bed hospital in Madinah following the completion of similar hospitals in Riyadh and Abha.
Dr Abdulrahman Taha Bakhsh Group of Hospitals intends to invest SR600 million in hospital expansions and the construction of new health centres and hospitals throughout the kingdom over the coming years.
Power & Water
Saudi Arabia signed a SR1.5 billion ($400 million) contract with France's Alstom Power during mid-2001 for the second phase of the $1.7 billion Shuaiba power plant. Work involves building the fourth and fifth units, with a combined capacity of 750 MW, to supply electricity to the Western areas.
Saudi Electricity Company (SEC)-Eastern Province inaugurated the sixth unit of Ghazlan II power plant last March. The unit has a generating capacity of 600 MW. The first unit of Ghazlan II power plant was put in operation in the summer of 2001. Ghazlan II cost approximately SR6.5 billion to build.
The Royal Commission for Jubail and Yanbu is building a new desalination plant in Jubail. The plant which will have a capacity of 50,000 cu m of desalinated water daily, will cost about SR750 million ($200 million). It will also generate 80 MW of electricity daily.
The Saline Water Conversion Corporation (SWCC) is set to implement three water desalination projects with a total output capacity of 709,891 cu m of water and 551 MW of electricity per day. These include: Phase III of Al Khobar water desalination and power generating station, Phase II of Shuaiba station to provide 390,909 cu m of water and 240 MW of electricity per day and the Jubail desalination station to produce 78,182 cu m of water per day for Sidair, Washm and Qasim. SWCC is also studying plans for 20 new desalination projects; 15 of which will be located along the Red Sea coast and five along the Arabian Gulf coast.
Industry
Industrial expansion has maintained its momentum, with Jubail and Yanbu continuing to attract strong investor demand. A total of 34 industrial facilities are reported to be under construction while 57 others are in the planning stage.
Sabic continues its expansion albeit at a slower pace in the light of the current market conditions. Its subsidiary Jubail United Petrochemical Company awarded a contract for an ethylene plant last November to three international firms: Halliburton, Mitsubishi and Chiyoda Corporation.
Expansion work is under way at a number of Sabic's other affiliates including Saudi Arabian Fertiliser Company (Safco) for the debottlenecking of Safco II for the production of 85,000 tonnes per year (tpy) of ammonia and 125,000 tpy of urea. The project is due for completion in the first quarter of next year. Safco IV, which will produce 500,000 tpy of ammonia and 600,000 tpy of urea is earmarked for completion in 2005. The expansion of Petrokemya's 800,000 tpy of polyethylene and 60,000 tpy of PVC is scheduled for completion during late 2003. Sadaf's cogeneration project, which will generate 242 MW of power as well as steam, is expected to be completed in early 2004.
Saudi Arabia recently issued three licences worth a total of $1 billion to a US-Saudi petrochemical plant to be built by Jubail Chevron Phillips, and the expansion of the company's current plant. The project in the Eastern Province, is the second joint venture between Chevron Phillips Chemical Company and the Saudi Industrial Investment Group. The plant, expected to be commissioned in 2006, will produce benzene, styrene, ethyl benzene and propylene.
A $250-million grassroots petrochemicals plant is being built in Jubail by Gulf Farabi Petrochemicals Company, oo be operational by the fourth quarter of 2004 (see page 168).
Roads
Saudi Arabia is planning a major international expressway project linking the country with Jordan in the north and Yemen in the south.
Plans were finalised last year for several new road projects with a total cost of SR20.2 billion ($5.4 billion). The roads, totalling 3,950 km, will link major cities with remote provinces. Top priority will be accorded to a 990-km road linking the province of Qassim, northwest of Riyadh, to the city of Haditha on the border with Jordan.
