Gulf of expectation

The man responsible for overseeing Bechtel’s operations in the GCC is confident of its long-term growth prospects
After 70 years in the region Bechtel has built relationships which "have made it easier to match opportunities to capabilities".
By Michael Fahy
Fri 21 Jun 2013 11:25 AM

The decision by the world’s biggest construction company, Bechtel, to establish a global centre of excellence targeting rail and ports work in Dubai is not all that surprising once you hear the president of the company’s Europe, Middle East and Africa region, C David Welch, talk about its prospects.

Mr Welch is a well-known figure in the region, having served a US diplomat for more than 30 years, rising to become Assistant Secretary of State for Near Eastern affairs before taking up his post with Bechtel in 2008.

He heads a division of the company that employs thousands of people in the region on big-ticket projects such as the new Muscat International Airport, Doha’s new Hamad International Airport, Jubail Industrial City. Last year, it also completed the $7.2bn Khalifa Port & Industrial Zone at Abu Dhabi.

“The three most dramatic developments in the last 15-20 years in this region have been the development of ports and industrial zones, the complete transformation of the air traffic market, and now railroads,” he said.

“We're looking at opportunities here in the transportation sector, since this has been a convenient place to do business not only in the region but elsewhere. You'll see us expanding the use of our capabilities from the UAE to do business elsewhere, too.”

Bechtel is ranked as the biggest contractor in the world last year by US-based Engineering News Record. Its recently-released figures for 2012 show that its sales grew 15% in 2012 to $37.9bn, and although new contract awards announced during the year fell by 55% to $23.9bn - due largely to the fact that they hit a record all-time high of $53bn in 2011, its project backlog at the end of 2012 was $92bn.

“We're a globally deployed company - a true multinational,” said Welch. “At any given time, we probably have the majority of our revenues from our multinational business. Though we still have an extremely important part that is North American - the United States in particular.”

The firm has its traditional headquarters in the west coast city of San Francisco, but many corporate functions are also carried out from a base in West Virginia. It also has divisional headquarters for oil & gas in Houston, for infrastructure in London and for mining and minerals split between Santiago in Chile and Brisbane, Australia.

The company, which employs 53,000 worldwide, has been active in the Middle East for more than 70 years - initially working in Saudi Arabia on oil & gas and railroads projects. In the UAE, it began its first project in the early 1960s on the Murban oil field in the Emirate of Abu Dhabi.

Bechtel has carried out a full range of activities - project management, EPC and other types of contract - across all parts of the region, and Welch said that it is typically engaged in complex infrastructure or industrial projects.

One example of how long-term relationships have paid off for Bechtel has been at Jubail Industrial City, where the company has been advising the body responsible for the area - The Royal Commission for Jubail and Yanbu - since the idea for the project was developed in the 1970s.

In the 1950s, Jubail was one of a number of small fishing and trading villages on the Eastern coast of Saudi Arabia with just a few thousand occupants.

“By the early 1970s, when it was conceived to have the industrial zone there and the planning and works began, it began to change character - from that little fishing village to 40 years later what it is today, which is, I would guess, the single-biggest contributor of non-oil income to Saudi Arabia.

“In physical size, it's larger than Bahrain. It probably has 100,000 people there now and it is still expanding.”

Bechtel has been responsible for helping to deliver much of the city's infrastructure, such as the water pipes through to housing and services required to convince inward investors to set up in the area. At the other end of a recently-constructed rail line between Jubail and Ras Al Khair is a huge new minerals industrial city.

The centrepiece of this is a $10.8bn integrated aluminium facility containing a bauxite mine, aluminium smelter and a rolling mill that will reportedly be the source of one of the cheapest aluminium supplies in the world. Bechtel completed the project's $4bn smelter last year.

These countries understand that the horizon for their development relies a lot on capturing some of the added value for this development locally, bringing their people into these industries more and more, and keeping those Riyals at home. It brings jobs, it brings economic activity.

“So all of those salaries get spread out and there are people who are buying food, cars, education…It's a centre of economic activity where none existed 40 years ago.

The rapid growth of the region's aviation market has been accompanied by several multi-billion dollar projects to grow capacity in Dubai, Abu Dhabi, Doha and elsewhere as carriers such as Emirates, Etihad and Qatar Airways battle to become global hubs.

These projects are happening because if you look at the globe, 80% of the world's population are within eight hours flying time of the Gulf. It actually is - in terms of operating an airline - very cost-effective to hub it in the Gulf.

Several of these countries - the UAE and Qatar in particular - have seen this opportunity and are going after it vigorously. So the growth of airports is not only accepted but seen as desirable by the governments - in contrast to the political debates that occur elsewhere.

Bechtel has been involved with projects at airports in Dubai, Riyadh, Jeddah, Muscat and is coming to conclusion on the $15.5bn Hamad International Airport in Doha.

The latter project is huge. At one stage, the company had 40,000 workers on site and the workers' accommodation was effectively the seventh-biggest city in Qatar.

It has not been without its challenges, though. It was initially due to open in December 2012, and again on April 1. However, it was reported that an 11th-hour decision was taken to delay the opening because it did not meet new building codes set by Qatar's Civil Defense.

Akbar Al Baker, the CEO of Qatar Airways, which will be the airport's main operator, had blamed the initial delay on a Lindner/Depa joint venture that was carrying out the interior fit-out of interior lounges before it was removed from the $250m contract last year.

He has since said that it would pursue a $600m claim against the JV, which Lindner/Depa has rebutted, claiming that it was denied full access to the site for the first nine months of a 16-month contract.

Following the April postponement, he also pointed the finger at Bechtel, telling a news conference in Chicago that it had been complacent in meeting regulatory standards.

At the MEP Middle East conference in Doha last month, KEO International Consultants' senior commissioning manager, Kirk Rosenbaum said the project was ready to open to the public.

I was there the last night with QCD (Qatar Civil Defense) going through the building. There was power on, there were staff there, there were muffins in the cafe ready to sell to passengers.”

He said that the main issue causing its delay was in getting “life safety issues identified worked off and closed out”.

When asked when the airport was likely to open, Welch said: I think the client has to announce their plans in that respect, but the physical plant for the most part is done and now there are various certification and commissioning and other activities that are going along at pace.

I saw an announcement recently from the head of their airline and he expects to begin their operations there before the end of the year. That's up to them to decide.

We're doing everything they need to have the facility to operate the way they want.

He added, however, that once the airport is open to passengers, they are going to see one of the highest quality facilities built anywhere.

It is a stunning development of which the Qataris should be enormously proud.

At Muscat International Airport, meanwhile, the company is leading a joint venture with ENKA and Bahwan Engineering Company to build a new $1.8bn passenger terminal building capable of handling 12 million passengers a year under the first phase of a series of planned capacity expansions.

The project, due to complete by the end of next year, differs from the expansion efforts in the UAE and Qatar, as the plan is not to create an international carrier hub, but to support Oman's effort to boost its tourism sector.

The project is going well, he said. I think it is also going to be quite a nice facility when it's ready and we're glad to be participants in it, because it's a tough, challenging lump sum job. We like to have a good mix of such contracts. We like to be challenged.

Welch argues that the potential in transport - where rail, shipping and even the plethora of planned new metro projects are expected to throw up more opportunities – and in big-ticket infrastructure schemes bodes well for the future growth of the GCC.

In a sense, what we used to see as an area that was basically a gas pump is now completely different. Those are going to be the areas of dramatic opportunity in the future, he said.

Let's face it, we're coming out of a significant financial crisis, there's still an unfortunate streak of economic weakness in the major industrial markets. Asian growth isn't what people had hoped it would be, but growth in sub-Saharan Africa is strong, in some emerging markets it's still good, in the GCC countries there is stability and economic opportunity.

You have a growing middle class in all of these places - people want health, education, services. That is, I think, a very promising package.

The challenge, he says, comes with the increasing competition being experienced in the area as more contractors turn their attention to the region.

I guess that you could say that’s healthy for the clients, but sometimes I feel it also injects a new element of risk on their side they need to calculate very carefully – particularly on government or semi-government procurements.

Price tends to be the bottom line and when companies don’t have opportunities elsewhere – particularly in the markets they are most familiar with – they tend to rush towards that bottom line promiscuously. It may not always deliver what the client wants.

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