Saudi Arabia’s construction sector is reaping the benefits of a windfall in revenues brought about by the soaring oil prices, as a multitude of public and private projects flood the market.

With an estimated $200 billion active projects in the kingdom, the sector is moving vigorously to satisfy the growing demand for residential, commercial, housing and institutional construction as well as build the rapidly-expanding industrial infrastructure.
While bold initiatives such as the King Abdullah Economic City have unleashed unprecedented private investments, the hydrocarbon sector is poised to spend almost a $100 billion on expansions in the next few years.
Buoyed by oil revenues that have grown by 37.5 per cent, Saudi Arabia announced a record SR335 billion ($89.3 billion) budget for this year, with the education sector getting a lion’s share of 26 per cent of the allocation. A whopping SR126 billion ($33.6 billion) is to be pumped into new development projects in the 2006 budget.
The country recorded a budget surplus for 2005 of SR214 billion ($57 billion).
“In this budget, we have taken into account the importance of acceleration of development programmes and projects, notably the ones that extend the essential services to the citizens,” said Custodian of the Two Holy Mosques King Abdullah bin Abdul Aziz Al Saud.
A considerable amount of the SR87 billion budget allocation for the education sector will go towards the construction of around 2,700 new schools, three new universities in Jizan, Hail and Al Jouf, 85 new colleges, three university hospitals, and 35 technical and vocational institutes. Improved education and vocational training is a key part of the government’s strategy to reduce the high rates of unemployment (around 13 per cent of Saudi nationals) and cut reliance on its 7.5 million foreign workers.
Another SR31 billion has been allocated for health and social affairs and SR22.5 billion for water, agriculture and infrastructure.
Hence the construction sector can look forward with optimism to a boom in activities, both from a public sector that has urgent projects to push forward and a buoyant private sector that is investing heavily in real estate development.

Investment opportunities
In its efforts to press ahead with ambitious developments, the kingdom is discovering that a winning formula for growth is to encourage and involve the private sector. A case in point is the massive $26.6 billion King Abdullah Economic City (KAEC) near Jeddah, where Saudi Arabian General Investment Authority (Sagia) – the government apex body charged with attracting investment into the country – has evinced interest from the world’s largest real estate company Emaar Properties (see Page 134). Sagia, which anticipates a massive response to this project, has already launched a $500 million energy fund for setting up power generation plants in the economic city.
Apart from this mega project, Sagia is also targeting investors for a number of other massive developments – notably the Landbridge railway project – and is presently conducting a comprehensive survey of some 400 new investment opportunities across the kingdom.  According to Sagia Governor Amr Al Dabbagh, foreign investments in the kingdom totalled SR200 billion last year, registering a 30-fold increase as compared to the previous year.
The government is already seeking investments worth SR2.34 trillion ($624 billion) in key sectors such as petrochemicals, natural gas, tourism, desalination, power generation and railways.
According to Omar Bahlaiwa, secretary general of the foreign trade development committee at the Council of Saudi Chambers of Commerce and Industry, infrastructure projects offer the largest investment opportunity of $140 billion.
The petrochemicals sector comes second with $92 billion projects followed by electricity and water $88.9 billion, telecommunications $60 billion, tourism $53.3 billion, natural gas $50 billion, agriculture $ 28.3 billion and information technology $10.7 billion.
Saudi Arabia’s industrial conglomerates Saudi Aramco and Saudi Basic Industries Corporation (Sabic), will continue to propel activity in the construction sector with projects worth around $95 billion to be implemented over the next three years.
Saudi Aramco, which aims to raise current capacity from 10.8 million barrels per day to 12 million by 2010, has projects worth a total of $41.7 billion in progress, including the $10 billion Petro-Rabigh venture.
Sabic’s investment in its ongoing projects – which are expected to see completion by 2008 – amounts to $11.9 billion. These include expansion work at Sharq, Ar-Razi, Hadeed as well as Yanbu National Petrochemicals Company (Yansab) and gas projects. In addition, the group has projects worth a total of $12.4 billion in the pipeline.
The upsurge in construction activity is boosting the building materials sector, particularly cement and steel, where prices have been soaring over the past couple of years due to the heavy Gulf-wide demand. All the kingdom’s eight cement companies are undergoing huge capacity expansion programmes at an estimated investment of SR10 billion (see Page 113). In addition, a ninth plant – El  Khayyat Cement –to be built close to the King Abdullah Economic City is expected to come on stream in late 2008. The proposed cement plant would add one million tonnes to the cement sector in the kingdom.
Saudi Arabia is the largest producer of construction materials in the Middle East, and construction is the kingdom’s largest non-oil industry. According to the National Commercial Bank (NCB), the construction and building materials sector currently contributes an annual $12 billion to the nation’s economy. Saudi Arabia’s construction products, including cement, tiles, marble, glass, granite, cable, air-conditioning equipment and fabricated iron and steel, are all exported throughout the region.
However, the Saudi Arabia’s manufacturing sector needs to recondition itself to the new competitive market scenario in the wake of the kingdom’s recent accession to the World Trade Organisation (WTO).

Real estate
Real estate continues to draw massive investments and a number of developers including Al Oula Real Estate Development, Makkah Construction and Development Company, Dar Al Arkan are driving the industry forward.  The centre of activity, undoubtedly is the holy cities of Makkah and Madinah, which continue to expand at a frenetic pace.
The pace is such that a senior government official has recently warned authorities against constructing more high-rise buildings around the Grand Mosque in Makkah without providing adequate infrastructure facilities. Habib Zain Al-Abidine, undersecretary at the Ministry of Municipal and Rural Affairs, said 70 per cent of residential buildings in Makkah lacked essential services.
Al-Abidine referred to plans to implement some 25 new real estate projects in central Makkah, including Jabal Omar, Shamiya and Khandama projects. He urged the government to intervene to ensure that the new projects are implemented with sound planning
The SR12 billion Jabal Omar Residential Towers, spread over 230,000 sq m, includes five-star hotels, commercial centres and prayer facilities for 200,000 worshippers. The Jabal Omar Development Company (JODC) has recently awarded a Malaysian team of Professional Services Development Corporation (PSDC) and Kuala Lumpur City Centre Property Berhand (KLCCPB) the project management contract to oversee the construction of the project which is expected to take about eight years  to complete (see Regional News).
The Jabal Khandama project includes construction of hotels, shopping centres, restaurants and furnished apartments. The first phase of this project, to be launched shortly, will see the construction of 7,458 rooms
to accommodate pilgrims. Economists say new real estate projects around the Grand Mosque will draw investments in excess of SR100 billion.
Meanwhile, King Abdullah has allocated $1.25 billion for the expansion work at the Prophet’s Mosque in Madinah. The work includes the construction of courtyards, roads, car-parks and tunnels.
Besides the holy cities, real estate is a buzzword particularly in Jeddah, Riyadh and Al Khobar, with projects ranging from the 20 million sq m Al Bundoquiya Island project and a new city to be built at a cost of $16 billion to provide 750,000 homes in Riyadh, to a project on the Gulf coast which is expected to attract around SR60 billion ($16 billion) in investments over the next 10 years. The developer of the latter, the Khalid S Shobily Group, is reported to have spent SR7 billion to develop the 6 million sq m strip of coastline in Al Khobar. The aim is to create a commercial, housing and leisure hub with around 1.5 million new homes, to address the kingdom’s rapidly growing population. Work began four years ago on developing Al Shobily Port, which covers a prime spot next to the causeway connecting Saudi Arabia to Bahrain. It has been split into sections and sold off in phases.
Another major project that has made significant headway is the SR1.5 billion ($400 million) Durrat Al Khobar, which is itself part of the mega residential development known as Al Harbash Al Tatweer project. Here, as much as 70 per cent of the infrastructure has been completed (see Page 145).
Other development were announced last year by Rikaz for Development & Planning, include Royal Amwaj Resort on Half Moon Bay and Fanar City, which do not seem to have made much headway.
One leading consultant, however, lamented the lack of maturity of the real estate market, where a number of projects are conceptualised and get even as far as breaking ground, only to be shelved when the plot is resold to another developer. Thus, given the boom in property prices, land is just changing hands without actually deriving the benefits of development.

Major projects
Among the major public sector projects that are expected to go ahead shortly are the expansion of SR4 billion ($1.06 billion) King Abdul Aziz International Airport in Jeddah (see Regional News), the upgrade and expansion of a number of domestic airports (see Page 157) and the Landbridge railway project, linking the east and the west of the country.
A selection of major projects unfolding in the kingdom include:
Jeddah Airport: The General Authority for Civil Aviation has already launched a $1.5 billion expansion plan for King Abdul Aziz International Airport (KAIA), the main gateway for pilgrims, to increase its capacity to 30 million passengers.
The expansion involves the construction of two new terminals and renovation of the South Terminal, a new concourse with 25 gates, three connector buildings and an extensive upgrade of landside and airside infrastructure facilities of the airport. The airport is also expected to have two railway stations to help facilitate the flow of pilgrims to Makkah and Madinah, according to Abdullah Rahaimy, head of the General Authority of Civil Aviation.
“The construction of the two stations is planned with the Saudi Railway Organisation to coincide with the establishment of the new airport, which is to be constructed soon,” he said.
The CAC, meanwhile, has announced plans to build four new passenger lounges at the existing Haj Terminal of KAIA at a cost of SR200 million.
Power and water: Among the largest projects to get the go-ahead in this sector is the Shuaiba 3, located on the Red Sea coast 110 km south of Jeddah.  The Saudi Water and Electricity Company (SWEC) has signed a SR9.129 billion agreement with a consortium of Saudi, German and Korean companies for the independent water and power project (IWPP). The project will produce 880,000 cu m of water and 900 MW of electricity to supply Makkah, Jeddah, Taif and Al Baha, once it is commissioned in 2009.
Another major power and desalination project,  the SR4.5 billion ($1.2 billion) Rabigh power, water and steam and water desalination plant, has achieved financial closure.
A consortium led by Japan’s Marubeni Corporation is developing the 25-year build, own and operate (BOO) scheme to produce desalinated water, electrical power and steam for Rabigh Refining & Petrochemical Company (Petro-Rabigh). Partners with Marubeni Corporation, which has a 30 per cent stake in the newly inked Rabigh Independent Water, Steam and Power (IWSP) project, include JGC Corporation (25 per cent), and Itochu Corporation (20.1 per cent), both of Japan; Arabian Company for Water and Power Development (23.9 per cent) of Saudi Arabia; and Petro-Rabigh (one per cent).
The contract for the engineering, procurement and construction (EPC) of the new cogeneration and desalination plant will serve the world-class integrated petrochemical refinery complex and is on a full lump-sum-turnkey (LSTK) contract. The newly constructed plant is scheduled to enter into commercial operation in June 2008.
Aluminium smelter: The Saudi government has approved the construction of a SR14.086 billion ($3.76 billion) aluminium smelter with an annual capacity of 623,000 tonnes.The plant, which will belong to state mining firm Maaden, will be located in the Ras Al Zour industrial zone in eastern Saudi Arabia and is expected to produce 200,000 tonnes of alumina. Output from the plant will be exported after 2008.
Railways:  Saudi Railway Organisation (SRO) is expected to shortlist consortiums that have bid for the construction of a 950 km link between Jeddah and Riyadh on a build, operate and transfer (BOT) basis. The project forms part of the SR15 billion ($4 billion) Landbridge project, which will link King Fahd Port in Jubail, King Abdul Aziz Port in Dammam, the dry port in Riyadh and the Jeddah Islamic Port with a state-of-the-art railway network.
Meanwhile on the North-South railway project, the Saudi Ministry of Finance and National Economy has signed a supervision with Louis Berger Group of the US, Systra of France, Canarail of Canada and Saudi Consolidated Engineering Company (SCEC) and Khatib and Alami of Saudi Arabia for the execution of the project. The railway will connect the northern region (Hizam Al-Jalamid), Hail region (Azzabira) to transport phosphates and bauxite to Ras Azzur in the northern-eastern part of the kingdom, then to Jubail with a total length of 2,400 km.

Saudi Projects at a Glance and Continue the list page 108-109