Projects boom will pose challenges


Dubai will become the first Middle Eastern city to host the World Expo, when it stages the event in 2020. These international showcases of technology, architecture and culture, which are held every five years, are large public exhibitions that attract millions of visitors.

The event is expected to attract billions of dollars in investment to the UAE. It is projected that the six-month-long exhibition will attract approximately 25 million visitors. The government has budgeted for at least $8 billion worth of new projects for the event, in addition to existing plans for mega projects in the emirate.

In respect of the Expo 2020 itself, there are grand plans. The expo site is 438 hectares, close to Al Maktoum International Airport and Jebel Ali Port, and will encompass the facilities needed to host the event, such as the three main pavilions that are planned. At the end of Expo 2020, these three pavilions will be combined to create a national museum.

In addition to the physical site for Expo 2020, there is a need for supporting infrastructure, including new roads and a possible extension to the metro. In respect of transport and logistics, there are already planned expansions to Dubai International Airport and Jebel Ali Port. The Al Sufouh tram project is due to be completed this year and the Union Square metro project has already been announced.

In addition to developments to cater for the movement of people and goods, there will also be a requirement for accommodation schemes, including office, retail and leisure and housing. Projects that are already in the pipeline are the Mohammed Bin Rashid City, which will include the world’s largest mall and over 100 hotels; Bluewaters Island, near Jumeirah Beach Residence, where the ‘Dubai Eye’ ferris wheel will be located; and the Dubai Water Canal, which will connect Business Bay with the Arabian Gulf. An increase in people and accommodation will also require an increased amount of power and water. Dubai is already in the process of developing the Hassyan clean coal IPP (independent power project) and Phase Two of the Mohammed bin Rashid Al Maktoum Solar Park.

In addition to projects in the UAE, there is a large number of construction projects already in procurement and in the pipeline across the region, for example, for the Fifa World Cup in Qatar in 2022 and other large-scale programmes such as the KA Care renewable energy programme in Saudi Arabia.

The number of projects coming to market over a relatively short period poses challenges to the industry. Developers will need to ensure that they both have the resources and capabilities internally to undertake their projects but also that these projects are released to the market at the correct time. Both public and private sector procurers will have to get the timing of projects just right as construction companies only have finite resources and will only be able to bid for a certain number of projects. Contractors will be selective when bidding and will look for the most attractive and robust projects. Also, the costs for contractors involved in a competitive bid process can be substantial, so they will only bid for projects that they believe are likely to go ahead and where they as a bidder have a reasonable chance of success.

Bidders will also face challenges. In terms of the labour market, it may be difficult for companies to obtain both skilled and unskilled labour due to the sheer volume of projects, particularly if there are a number of similar projects requiring the same specialist skill set. There may also be an increase in the price of materials as importers and distributors respond to the increased demand. A perceived hike in prices in the near future could lead to a rush of projects coming to market in order to “lock-down” prices.

Most government projects in Dubai are funded in a traditional manner, through governmental funds. It will be interesting to see how many such projects use project financing. Project finance has been used sparingly in the Gulf, although power and water projects are ones where there is a successful track record in the region. One thing to bear in mind that comes with project financing is the increased time it takes for projects to be procured.

The expectation is that most public and private sector projects in the UAE will continue to be procured in the traditional manner, on an EPC (engineering, procurement and construction) basis, most likely on Fidic terms and conditions although there are signs that design, build and finance structures may be more commonly used in order to reduce the burden on the public sector resources. It is likely, however, that after the previous boom and subsequent downturn both developers and contractors will scrutinise more closely the terms and conditions upon which they are contracting in order protect their positions and to avoid costly disputes at a later stage.

Dubai’s successful bid for Expo 2020 is yet another boost to the returning confidence in the region and will provide developers and contractors alike with many opportunities. Some are comparing today’s confidence with market sentiment pre-2008 but it seems likely that developers will be more cautious with the projects that they bring to market and all parties will be more robust in their contractual arrangements.


Gulf Construction

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