Chinese power contractors seize the initiative
There has been a steady decline in the value of work being bid for and awarded to South Korean industry majors
The past decade has witnessed a significant shift in the composition of international contractors engaged in the power and water sector in the Middle East.
One of the most notable trends is the gradual reduction in the value of work being bid for and awarded to South Korean industry majors, such as Hyundai E&C, Doosan, Hyundai Heavy Industries and Samsung C&T. All of these companies were routinely either securing, or acting as part of joint ventures that secured, multi billion-dollar orders a little over five years ago – allowing them to net total order books that have frequently placed them among the ranks of the top contractors in the regional sector.
Over the past five years, there has been a dramatic drop off in both big ticket projects and the volume of work being awarded to the largest South Korean contractors. From 2013 to 2017, South Korean firms did not rank at all among the top five contractors in the region – in a notable break from the results in the previous five-year period – while only Hyundai Heavy Industries and Samsung C&T clung on to a place among the top 10 contractors in the region.
The culmination of this trend came in 2018 with the complete exclusion of South Korean contractors from the ranks of the top 10 contractors by value of awarded contracts in the region. The relative decline of South Korean contractors, following a decade of major success, reflects the more risk-averse approach that firms from Seoul have taken to projects in the Middle East in the past five years.
Asian power transition
In marked contrast to this trend of declining local activity among South Korean contractors, there has been a clear rise in the presence of Chinese contractors within the segment.
Where no Chinese contractors were previously present among the ranks of the top regional power and water contractors, over the past 10 years, companies such as Shandong Electric Power Construction Corporation, better known as Sepco, Shandong Electric Power Construction Corporation 3 (Sepco3), Shanghai Electric and China Energy Engineering Group have steadily advanced.
Sepco3, in particular, has burst onto the regional power sector contracting scene, securing multibillion-dollar contracts in Saudi Arabia and Oman, as well as numerous big ticket awards in the UAE, Kuwait, Jordan, Egypt and Morocco. Between 2013 and 2017, Sepco3 secured an estimated $6.1bn in projects contract awards.
During that same period, Shanghai Electric and China Energy Engineering Group fell just shy of the top 10 contractors in the region by value of contract awards, but both booked more than $3bn-worth of contracts.
It was in 2018, however, that their ascendency became truly apparent, as Shanghai Electric, China Energy Engineering Group and DongFang Electric Corporation all registered among the top 10 contractors in the region by value of project awards – each with more than a billion dollars in total bookings, and in the case of Shanghai Electric, with a market-leading $4.6bn-worth of project work in tow.
The rapid rise of Chinese contractors in the region’s power and water sector can partly be attributed to their ability to assist projects with financing, or harness funding and backing from Chinese banks and sovereign wealth funds.
For the $3.4bn Hassyan coal power project, the developer consortium of Saudi Arabia’s Acwa Power and China’s Harbin Electric welcomed Chinese sovereign wealth fund Silk Road as a partner and arranged financing from the largest four Chinese banks on the back of Chinese involvement in the project.
Chinese banks will also likely play a key part in the financing of the $4.4bn Hamrawein coal-fired power project in Egypt, for which Dongfang and Shanghai Electric are part of the consortium that has been selected for the EPC-plus finance deal.
Another key trend in evidence in recent years, under the project-oriented presidency of Abdul Fattah el-Sisi, is the rise in the value of bookings among local Egyptian contractors for domestic projects.
While Egypt has a number of contractors capable of carrying out work in the power generation and transmission and distribution (T&D) sectors, the rise of its contractors in the MEED ranking is due to their success in partnering with major international firms and investors for megaprojects. The most pertinent example of this is Orascom Construction and Elsewedy Electric partnering with Siemens to build 16.4GW of capacity under a $9bn mega-deal.
The appointment by Siemens for the megaprojects resulted in Orascom and Elsewedy emerging as two of the largest contractors active in the region’s power and water sector between 2013 and 2018. Elsewedy won $724m-worth of contracts in 2018 following the pickup of about $4.8bn-worth of work between 2013 and 2017.
Orascom Construction is also set to boost its presence as a utilities investor and contractor further afield in the coming years. In January this year, it was selected, as part of a consortium with the UAE’s Metito, as the preferred bidder for the planned Dammam West independent sewage treatment plant in Saudi Arabia.
However, Egypt’s Hassan Allam Holding is the standout success story of 2018, having emerged to command an estimated $3.7bn in bookings for the year after its appointment to not one but two major projects. The first was the $4.4bn coal-fired Sharm el-Sheikh power plant tendered by Egyptian Electricity Holding Company, for which Hassan Allam Holding was part of a consortium bid, and the second was the $2.2bn oil-/gas-fired Luxor independent power plant let by Saudi Arabia’s Acwa Power, and for which the Egyptian firm is the standalone main contractor.
Among the other successful firms in 2018 were India’s Larsen & Toubro, which secured close to $3bn-worth of contracts through a combination of numerous minor works and the award of a $2bn contract to install more than 1,000km of transmission line between Agadir in Morocco and Dakhla in the Western Sahara on behalf of Onee, the Moroccan state utility provider.
French desalination specialist Sidem, meanwhile, made the list with its award of the $1.3bn contract for the Al-Dur 2 independent water and power plant let by Bahrain’s Ministry of Electricity & Water.
A surprising absence among the ranks of the top contractors in 2018 is Siemens. The German equipment provider and contractor has consistently ranked among the top companies in the power and water sector in the region over the past decade, and in 2013 and 2017 secured a value of contracts second only to that of AtomStoryExport with its state-level deals.
The overseas arm of Russia’s Rosatom, AtomStroyExport, was elevated to the top spot during that period by the agreement between the Egyptian and Russian governments to deliver the El-Dabaa nuclear power plant, alongside contracts for two new reactors at the Bushehr nuclear plant in Iran.
Some of these developments are doubtless the effect of the cyclical nature of project awards in certain markets, or in other instances, the pressures exerted by low oil prices. However, the broader picture is one of market disruption, rising Chinese contractors and a bigger role for emerging Egypt.