The country confidently deals with the latest challenge of falling global crude oil prices with a robust pipeline of infrastructure projects.
Business is booming in Qatar. Latest figures suggest that the country´s construction industry accounted for 10 per cent of the GCC project pie as of 2014 - Saudi Arabia and the UAE clocked in at 45 per cent and 31 per cent, respectively. Despite its share of controversy, including corruption charges, projects have managed to meet timelines and costs.
The big picture
The following pie chart represents the budget totals for the Qatar construction industry by sector.
Indeed, Qatar has unveiled ambitious plans to upgrade infrastructure, including a well-integrated road and rail network comprising metro rail, roadways, highways and flyovers; upgrades to airports to accommodate the anticipated spurt in tourists and passengers; and connecting venues to the games for World Cup 2022 and IAAF World Athletics Championship 2019. A $62-billion amount has been allocated in the 2014-15 budget towards infrastructure, hotels, transport and stadia. ´We anticipate phenomenal growth, mainly in infrastructure-related projects such as metro rail, stadiums, New Doha Sea Port development, roads, tunnels, substations, control centres, pumping stations, district cooling plant and energy centres,´ states M Vasanth Kumar, CEO, Arabian MEP Contracting.
Some of these mega infrastructure projects include a $7 billion international airport, the $5.5 billion deep-water seaport, allocation of $20 billion towards construction of roadways and highways, and nine eco-friendly stadia at an estimated cost of over $32 billion, some of which are being built afresh, while others are to be refurbished. Out of these, work has already begun on seven of the eight stadiums at Lusail, Al Wakrah, Al Khor, Al Rayyan, New Airport, the Khalifa Stadium and the Qatar Foundation Stadium. Transportation is also a cornerstone of the infrastructure upgrade budgeted in 2014, including allocations for completion of Hamad International Airport, New Doha Port, rail, metro and road projects that have been already planned.
Qatar has also actively invested its international oil assets in anticipation of its appreciation in the long term. A greater role for the private sector has been envisioned as the scale and number of projects increase. Utilities such as electricity, water, and sewerage will also be expanded to keep pace with urban development. Additionally, new hotels and recreation complexes are being built to house players and tourists alike.
Power and water
Although demand for power is likely to reach 7,800 mw by 2014, Qatar has remained a power-surplus country with an electricity capacity of 8,756 mw, a 30 per cent consistent power surplus, from a number of world-class power projects. According to a recent report by Ventures Middle East (Qatar Construction Industry-The World Cup 2022 and Beyond), new projects and expansion of some existing projects, such as the completion of the Ras Girtas plant in April 2011 and an additional 2,000 mw likely to come online by the end of 2012 and other power and water projects completing phases in 2013 and 2014, have enabled Qatar to export power to the rest of the region through the GCC power grid.
Qatar is also the leader in renewable energy sources such as solar and wind; nine such projects worth nearly $4.8 billion are in the pipeline. Other independent water and power projects (IWPPs), such as Ras Laffan among others, are also likely to augment capacity in both the power and water sectors by 2020, as demand climbs steadily alongside the heavy influx of population in preparation for World Cup 2022, the report states.
Water demand in Qatar is also among the highest in the world and set to rise from the present 308 million imperial gallons per day (migd) to 482 migd in 2022. The latter figure would include an additional 32 migd required three months prior to FIFA World Cup 2022 as on January 2015. February 2015 is expected to witness the construction of at least eight power and water facilities worth $4.8 billion between 2012 and 2014, including the $3 billion Qatar Facility D power project, for which construction began in 2012.
As part of the plan to ensure adequate availability of power and water to feed the rising needs of the expanding urban development of Qatar, the country is conducting detailed assessment of capacity expansion plans. One project in focus is the mega project for the establishment of new desalination plants connecting North and South Qatar through a continuous line of water supply by inter-linkage of five giant reservoirs that will ensure uninterrupted water supply for at least seven days. It will also help establish new communities outside the metropolitan area of Doha. As compared to other sectors, the power and water sector currently enjoys a surplus and has already laid down the necessary investment outlay; now, projects are underway to meet the anticipated rise in demand for the future.
Oil and gas
As per the Ventures Middle East report, the oil and natural gas sector of the Qatar economy accounted for nearly 52.1 per cent of the country´s GDP in 2014 and up to 57 per cent of government revenues. Hydrocarbons for its revenues as it holds the world´s third largest reserves of natural gas after Iran and Russia, of 885 billion cu m or 33.6 trillion cu m, most of it is its North Field. Given its 2013 extraction rates, analysts estimate the economy can last another 156 years. According to the Qatar Statistics Authority and the BP Statistical Review of World Energy August 2014, Qatar produced 158.5 billion cu m of gas in 2013, ranking it among the world´s five largest producers and the largest supplier of LNG in the world. Qatar is also one of the three countries in the world including Malaysia, and South Africa, to have a fully operational gas-to-liquids (GTL) facility. GTL technology uses a refining process to turn natural gas into liquid fuels such as naphtha and low sulphur diesel, among other products. Pearl GTL plant is one of the largest GTL plants in the world and also one of the first fully integrated plants that not only produce upstream natural gas but integrate with an onshore conversion plant.
Recent positive and productive domestic developments in 2013 and 2014 in Qatar´s downstream segment include laying the foundations for the QR 5.5 billion Laffan Refinery 2 (LR2) by The Emir, HH Sheikh Tamim bin Hamad Al Thani, and the QR 2.9 billion Jetty Boil - Off Gas (J-BOG) Recovery Project. The LR2 project is expected to double the country´s condensate refining capacity from the existing LR1 to 300,000 bpd, pushing it up to the position of the largest condensate producer with the largest refining capacity in the world. The J-BOG project is an energy-saving environmental project that plans to make optimal use of the gas recovered from the LNG ship loading at Ras Laffan Port that is currently being flared. This project too has the distinction of being the largest such environment-friendly investment for LNG boil-off recovery in the world. Qatar has also gone ahead with its investments in the oil and gas sector abroad with the latest plans for the construction of a second LNG receiving terminal in Italy to reach out to the European markets to augment its supply chain.
Qatar has built strong environmental foundations, adopting green codes of construction and environment-friendly technology in the construction of stadia and other infrastructure to host World Cup 2022. According to the Gulf Organization for Research and Development (GORD) responsible for introducing standards called the Global Sustainability Assessment System (GSAS), for sustainability and environmental compliance on a par with international standards in construction across the Gulf region and the first such system to be developed in the MENA region, GSAS implementation has been planned across a 10 year timeline.
On the completion of three years in 2013, it was decided to bring compulsory integration into the system at least for government projects and, later, encompass other projects as well. To Qatar´s credit, the bodies responsible for nearly 80 per cent of the country´s construction works, namely, Qrail, Ashgh al, Qatar Museum Authorities and several major developers, are already compliant.
Many factors influence the outcome in the highly complex construction industry, posing myriad challenges before builders and contractors. ´The pressure for speedy delivery, cost-efficiency and high quality is immense, which takes both challenges and risks to a very high level,´ reveals Kumar. ´With only a single digit thin margin, contractor these days are exposed to much greater risk than before. The prominent risks are the design liability risk and finance risk as the binding conditions of contract agreement are so onerous this can make even an experienced contractor to lose heavily.´
Another major challenge, according to Sachin Kerur, Partner, Head of Middle-East Region, Pinsent Masons LLP, is the availability of labour and skilled resources. ´Therefore, government agencies and procuring agencies will need to plan the delivery of projects with the availability of resources in mind,´ he explains. ´The visa application process will also need to keep pace with project demand for resources. Also, many construction materials cannot be sourced locally and, therefore, most construction items need to be imported. This leads to inflationary pressures and the real prospect of major delays in the delivery of material. Again, there needs to be coordination between all the organs of the government to ensure they are providing the most optimum conditions to mitigate such issues. Finally, delays in obtaining approvals affect timely delivery and lead to increased costs, so it is important that authorities have the most streamlined and efficient approval processes in place.´ Although challenges abound, the abundance of government resources to harness the resources and meet shortfalls are likely to help tide over the obstacles and help Qatar achieve its goals, while making the country an attractive market for investors worldwide in the long run.
The pressure for speedy delivery, cost-efficiency and high quality is immense, which takes both challenges and risks to a very high level.´