08 August 2017
(Correction: To clarify that the listed name of the company is Abdullah Abdul Mohsin Al Khodari Sons Co)
The head of Saudi Arabia's only publicly-traded contracting company has said that he does not "expect much spending to take place in the infrastructure programme" by the kingdom's government this year.
Fawwaz Al Khodari, the chief executive of Abdullah Abdul Mohsin Al Khodari Sons Co, said in an investors' conference call late on Monday that although plans for new mega-projects, including entirely new cities, were taking shape, the likelihood is that there will not be much new activity taking place this year.
Within the past few weeks, the kingdom has announced plans for a major resort in the Red Sea covering 50 islands and 34,000 square metres of land, as well as the Al Faisaliyah project in Makkah. This is set to extend the city to the Red Sea coast, with the addition of a new port, airport, a government district, Islamic research centre, and a conferences and exhibitions district.
However, Al Khodari said that such projects will only start to produce work for contractors once initial tenders are floated.
"Hopefully, when they start being tendered, they will bring some activity probably in the second half of 2018," he said. "But for now, for 2017, as has been the first half, the second half has started also fairly slow," he said.
On June 30, his company revealed a 50 percent decline in second quarter revenue to 124.7 million Saudi riyals ($33.25 million), but a 55 percent reduction in net loss to 25 million riyals.
Al Khodari said losses had been reduced because it had "slowed down dramatically the activity" taking place on some of the government-backed projects it is working on where payments are delayed.
"Not only because the projects are not there, but it's also because some of the backlog we have, the allocations of funds in our view do not justify a speedy execution programme."
He said that his firm was continuing to focus on recurring revenue through operation and maintenance (O&M) and street cleaning contracts, and was speeding up diversification efforts in a bid to win more oil and gas and large-scale industrial projects.
He said that delays in payments to contractors, as the government re-prioritised it's spending, has resulted in "significant liquidity problems facing the contracting industry and a decline in new project awards".
"However, the government has announced in its 2017 state budget that it will settle private sector payments with improved billing. This... may be put into practice once the expected electronic billing system, which we believe is in the making, will be activated. From what we have heard, that could possibly be at [2017] year end."
Backlogs shrinking
A new Construction Intelligence Report on the Saudi Arabian market issued this week by Faithful + Gould stated that in the 12 months to the end of March, construction activity as a percentage of the kingdom's GDP shrank to 6.2 percent - down from 7 percent - as backlogs continued to fall as new awards dried up. It added that contract awards also shrank further in the three months to June - down 55 percent quarter-on-quarter to $5 billion.
It blamed a decline in real estate prices - down 10 percent year-on-year - on a lack of private sector activity and said that many of the awards that have been made were those with alternative financing models, such as airport privatisations and Independent Water and Power Projects (IWPPs). The General Authority for Civil Aviation, for instance, has been responsible for almost 30 percent of awards by value in the first half of 2017, through privatisation deals at Saudi airports including Qassim, Taif, Hail and Yanbu.
David Clifton, regional development director of Faithful + Gould told Zawya in a phone interview on Sunday that alternatively-financed schemes "are going to be the story of the year" for Saudi Arabia.
"I expect GACA to still come to the table with a bit more in the aviation sector. If you look historically, the biggest amount of awards are in the fourth quarter of the year," he said.
"I can see more IWPP stuff because it's a model that is not too difficult to implement."
He also said that he expected the delayed Makkah Metro contracts to be awarded, stating that the economics of funding the scheme based on passenger use "will work out".
"More people want to do Hajj aand Unrah every year. It's not getting smaller," he said.
© Zawya 2017
(Correction: To clarify that the listed name of the company is Abdullah Abdul Mohsin Al Khodari Sons Co)
The head of Saudi Arabia's only publicly-traded contracting company has said that he does not "expect much spending to take place in the infrastructure programme" by the kingdom's government this year.
Fawwaz Al Khodari, the chief executive of Abdullah Abdul Mohsin Al Khodari Sons Co, said in an investors' conference call late on Monday that although plans for new mega-projects, including entirely new cities, were taking shape, the likelihood is that there will not be much new activity taking place this year.
Within the past few weeks, the kingdom has announced plans for a major resort in the Red Sea covering 50 islands and 34,000 square metres of land, as well as the Al Faisaliyah project in Makkah. This is set to extend the city to the Red Sea coast, with the addition of a new port, airport, a government district, Islamic research centre, and a conferences and exhibitions district.
However, Al Khodari said that such projects will only start to produce work for contractors once initial tenders are floated.
"Hopefully, when they start being tendered, they will bring some activity probably in the second half of 2018," he said. "But for now, for 2017, as has been the first half, the second half has started also fairly slow," he said.
On June 30, his company revealed a 50 percent decline in second quarter revenue to 124.7 million Saudi riyals ($33.25 million), but a 55 percent reduction in net loss to 25 million riyals.
Al Khodari said losses had been reduced because it had "slowed down dramatically the activity" taking place on some of the government-backed projects it is working on where payments are delayed.
"Not only because the projects are not there, but it's also because some of the backlog we have, the allocations of funds in our view do not justify a speedy execution programme."
He said that his firm was continuing to focus on recurring revenue through operation and maintenance (O&M) and street cleaning contracts, and was speeding up diversification efforts in a bid to win more oil and gas and large-scale industrial projects.
He said that delays in payments to contractors, as the government re-prioritised it's spending, has resulted in "significant liquidity problems facing the contracting industry and a decline in new project awards".
"However, the government has announced in its 2017 state budget that it will settle private sector payments with improved billing. This... may be put into practice once the expected electronic billing system, which we believe is in the making, will be activated. From what we have heard, that could possibly be at [2017] year end."
Backlogs shrinking
A new Construction Intelligence Report on the Saudi Arabian market issued this week by Faithful + Gould stated that in the 12 months to the end of March, construction activity as a percentage of the kingdom's GDP shrank to 6.2 percent - down from 7 percent - as backlogs continued to fall as new awards dried up. It added that contract awards also shrank further in the three months to June - down 55 percent quarter-on-quarter to $5 billion.
It blamed a decline in real estate prices - down 10 percent year-on-year - on a lack of private sector activity and said that many of the awards that have been made were those with alternative financing models, such as airport privatisations and Independent Water and Power Projects (IWPPs). The General Authority for Civil Aviation, for instance, has been responsible for almost 30 percent of awards by value in the first half of 2017, through privatisation deals at Saudi airports including Qassim, Taif, Hail and Yanbu.
David Clifton, regional development director of Faithful + Gould told Zawya in a phone interview on Sunday that alternatively-financed schemes "are going to be the story of the year" for Saudi Arabia.
"I expect GACA to still come to the table with a bit more in the aviation sector. If you look historically, the biggest amount of awards are in the fourth quarter of the year," he said.
"I can see more IWPP stuff because it's a model that is not too difficult to implement."
He also said that he expected the delayed Makkah Metro contracts to be awarded, stating that the economics of funding the scheme based on passenger use "will work out".
"More people want to do Hajj aand Unrah every year. It's not getting smaller," he said.
© Zawya 2017
