The Qatar Projects Market

MEED Insight, Doha, 18 October 2011

Colin Foreman, News Editor, MEED

The GCC projects market

Key drivers of demand for projects MENA population growth



Fast-growing economies – average real annual GDP growth rates in GCC are 5 per cent, and 4-6 per cent in wider MENA region. By 2016 MENA GDP will be $3.6trillion compared with $2.4trillion in 2010



Rapid population growth – region’s population is expected to grow to more than 600 million by 2030 from 340 million today



Undeveloped infrastructure – especially in transportation sector, and roads



A new generation of leadership committed to diversification and modernisation of the economy



The relative failure of previous oil booms and the oil crash of 1998



Growing need for greater utility and housing capacity



Increasingly consumer-orientated society

GCC real GDP growth

But the oil price is the key driver 180000

Comparison of oil price vs. GCC contract awards

100

90

160000

80

Cumulative spend between 2005-10 was $820bn

140000

70

120000

100000 50 80000 40

$ a barrel

$ millions

60

Average annual oil price

60000 30 40000

20

20000

10

0

0 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: MEED Projects

There is a clear correlation between the rise in the oil price and project activity

The GCC projects market GCC contract awards by country 2004-10 90000 80000 70000

60000 $ millions

2004 2005

50000

2006 2007

40000

2008 2009

30000

2010 20000 10000

0 Bahrain

Kuwait

Oman

Qatar

Saudi Arabia

UAE

Source: MEED Projects

The Qatar projects market has historically been smaller than the UAE and Saudi, having been on a stable trend since the completion of its LNG programme. However, with the impetus provided the World Cup, capital spending is expected to increase substantially over the coming decade. Qatar could become the second largest regional market after KSA as the UAE market continues to contract

Qatar has been relatively immune to global crisis Budget value of on hold/cancelled GCC projects based on award or planned award date 250000

200000

2008 150000 $ millions

2009 2010 2011

2012

100000

2013 2014 50000

0

Bahrain

Kuwait

Oman

Qatar

Saudi Arabia

UAE

Source: MEED Projects

Compared with other the other major markets in the region, Qatar’s projects market has not been hit so severely. This is primarily due to a lack of exposure to speculative real estate schemes and strong economic fundamentals

The Qatar Projects Market

Qatar’s future projects market Breakdown of un-awarded projects in Qatar by sector 50000 45000

40000

$ millions

35000 30000 25000 20000 15000 10000 5000 0

Source: MEED Projects

Infrastructure (transport) and construction (buildings) form the main component of planned and un-awarded projects in the state

Breakdown of planned civils projects in Qatar Breakdown of planned civils projects in Qatar ($m) Theme Park, Leisure Construction, $275

University, School, Education Construction, $924 Airport, Transport Terminal, $275

Apartments, Residential Construction, $5,182

Bridge, Causeway, Transport Infrastructure, $1,200

Sport Facility, Stadium, Leisure Construction, $7,714

District Cooling Plant, Water Cooling, $350 Car Park, Transport Terminal, $445 Berth, Pier, Quay Wall, Marine Construction, $7,000

Road, Interchange, Transport Infrastructure, $5,299

Drain, Sewer, Water Transmission, $100 Dredging, Reclamation, Marine Construction, $100 Factory, Warehouse, Industrial Construction, $69 Hospital, Clinic, Healthcare Construction, $50 Hotel, Resort, Hospitality Construction, $1,040

Reservoir, Water Storage, $2,000

Houses, Villas, Residential Construction, $350 Internal Roads, Utilities Network, Infrastructure Construction, $1,792

Mall, Market, Retail Construction, $1,908

Railway work forms the largest portion of future projects in Qatar

Mixed-Use, Mixed-Use Construction, $7,909

Railway, Transport Infrastructure, $28,233

Offices, Commercial Construction, $4,384

Source: MEED Projects

Rail is the largest future sector so far planned

Four Metro Lines and Long-distance Services 1 Metro  Red Coast Line  Golden Historic Line  Green Education Line  Blue City Line 2

Long distance  Passenger Train Service  Freight Railway System

3 General Infrastructure  Passenger Stations  Freight Terminals  Maintenance Facilities  Central Control Room

Source: QRC

Al Shamal To Bahrain

Dukhan

Ras Laffan

Lusail Camel West Bay Central Doha Race EducationDOHA NDIA West City Rail Terminal

Port Mesaieed To Saudi Arabia

Metro scheme to be implemented in stages

Long distance railway equally important

Roads is another area of major activity

Education City

Education City will continue to provide considerable opportunities for contractors. As of mid-2011, a further $1.2bn-worth of contract work was either at the contractor prequalification or tendering stage. In addition, there were a handful of other planned projects at the design stage that are scheduled to be completed by 2014/15. These include a national data centre, an extension to the convention centre and a people mover

Real Estate There are several major real estate schemes planned in Qatar: Lusail City Located on the east coast 15km north of Doha, Lusail City will play a central role in the 2022 World Cup, hosting both the opening ceremony and the final at its planned iconic stadium. Occupying a site of 38 sq km, it is the most ambitious non-energy project in Qatar, with the infrastructure alone estimated to cost $5bn. The city has been masterplanned into 19 integrated mixed-use districts, expected to house a resident population of about 200,000. A further 170,000 people are forecast to work in the city, while visitors to its tourism, recreational and cultural facilities are set to number 80,000. Barwa Barwa is the largest real estate company listed on the Qatar Exchange with a total asset capitalisation of QR38bn ($10.4bn). Its projects include: Barwa Village, Barwa City, Barwa Commercial Avenue, Barwa Financial District, and Barwa al-Khor

Dohaland Dohaland is a subsidiary of the Qatar Foundation. It was launched on 3 March 2009 to lead real estate development in Qatar and is headed by Sheikha Mozha bint Nasser al-Misanad, wife of the emir. The company aims to align its projects with the Qatar National Vision 2030 and ‘to lead innovation in urban living through sustainability and heritage’. Dohaland’s first project is Musheireb, which aims to transform an area representing much of the city’s original builtup area in the heart of Doha. Launched in January 2010, Musheireb’s masterplan calls for the development of a 31hectare site. Its northern perimeter is defined by the Al-Rayyan road, which corresponds to the Doha coast before reclamation work took place in the 1970s for the new Doha corniche, while its western perimeter is defined by AlDiwan road, adjacent to the Emiri Diwan. The southern boundary is formed by Musheireb street.

The Fifa World Cup 2022 Qatar’s bid was based on a novel approach to hosting the event and dealing with its legacy. It calls for almost all key event facilities and venues to be located in a relatively compact area within a radius of 60km. Previous World Cup finals have involved venues in far more distant locations; the 2010 World Cup finals in South Africa were held in widely dispersed sites. Doha is also committed to having a carbonneutral World Cup. This is a major challenge in a country where summer temperatures can reach 50 degrees centigrade and air-conditioning is necessary in June and July. The third novel element is the commitment to transporting the modular sections from stadiums to be used in the finals to developing countries, where they will be reassembled. The World Cup finals plan calls for seven host cities and 12 stadiums. Three of the stadiums already exist and will be renovated, while nine will be constructed from scratch. The stadium construction and renovation budget has been set at about $3bn.

The Stadiums

The Stadiums

Hotels Qatar plans to develop a total of 240 hotels and properties. All will be located within 20km of stadiums and most will be four star. The government has agreed to provide over 84,000 hotel rooms, which is more than the 60,000 that Fifa required. Details of the plan call for 100 existing hotels, accommodation villages and compounds, with a total of 44,000 rooms, to be made available. Some of the compounds have more than 2,000 rooms each. A further 140 new properties will be built. In addition, a cruise ship with 6,000 rooms will be docked in Al-Wakra for the duration of the event. Two-thirds of the 55,000 rooms, classified as existing or planned, will be built in 17 projects. Of these, 13 will be completed after 2016. The responsibility for constructing, managing and financing the hotels has been accepted by the government. According to the bid evaluation report, the government is planning to contribute ‘substantial investment’ in new hotel infrastructure, which is estimated at in excess of $17bn over the next five years.

Substantial spending increases from next year 12

Actual and forecast contract awards in the construction, infrastructure, oil, gas, petrochemical and utilities sectors in Qatar

10

Capital spending is expected to increase by 48 per cent between 2011 and 2014

$ billions

8

6

4

2

0 2009

2010

Power and water

2011

Petrochemicals

Oil & Gas production

2012

Construction

2013

2014

Infrastructure

Source: MEED Insight

The impetus from winning the World Cup hosting rights means that Qatar has to start increasing its capital spending quickly in order to meet tight deadlines. Work on the railway sector especially is expected to commence soon. It is worth noting that non-civils sector work will remain relatively muted at least until 2015 when the moratorium on further development of the North Field may be lifted

The main challenges •

Increased contractor competition – in late April, 42 companies bid for a simple road tender!

•

Slow decision-making remains in both public and private sector projects;

•

International contractors have found it very hard to be successful – many reported problems due to contractual issues. Contracts in Qatar are not generally very contractor friendly and tend to favour the client;

•

Logistics issues – supply chain bottlenecks at the ports (still being built), a lack of certain materials such as sand and a protectionist local building materials market;

•

However, experienced contractors already active in Qatar which can provide quality projects and technical expertise can potentially thrive in the market by distinguishing themselves from lower cost and less regionally-experienced competition;

•

The Qatar authorities have also stressed that they will be focusing on technical quality of bids rather than price alone, although the regional market in general remains relatively price-sensitive.

Conclusion •

Although many projects in the pipeline existed prior to the World Cup announcement and would have been built anyway, the likely impact of the event is that there will be added impetus to bring them forward and complete them faster. This is in addition to the directly associated infrastructure opportunities that the World Cup will bring such as stadiums and hotels;

•

As such, there is expected to be a noticeable increase in capital spending in Qatar from next year, especially in the railway sector;

•

Qatar will become a regional hub of project activity over the next decade and could overtake the UAE as the second largest projects market in the region after KSA;

•

The large number of contractors now entering the market could potentially dilute the number of opportunities and potentially have an impact on margins. However, experienced contractors with local knowledge and technical expertise will be in a good position to counter the increased competition;

•

Qatar has bet its reputation and prestige on delivering a successful World Cup. It has the perfect combination of a pressing need for projects and the financial firepower with which to fund them;