George Ball, the chief financial officer of US-based engineering consultancy Parsons, says one of the facts that fascinates people in its home market is that the company’s biggest office is not its headquarters in Pasadena, California, but its office in Abu Dhabi.
“It’s materially larger, and that was not the case many years ago. If you go back 30 years, probably half of the company’s employees were in Pasadena,” he says.
The fact that Parsons employs about 1,000 of its staff in Abu Dhabi, compared with about 600 in Pasadena, is a sign of its strength in the local market. In total, about 5,000 of the company’s 15,000-strong workforce is based in the Gulf. The region was responsible for about 20 per cent of its 2015 global revenues of US$3.2 billion (Dh11.8bn) – a 4 per cent increase on 2015.
Mr Ball says that the proportion of revenue earned per employee is lower in the Gulf because of the nature of its work. Contracts are usually commissioned under traditional design-bid-build routes, with designs usually completed well before tenders are issued and contractors chosen. It typically handles labour-intensive elements such as initial designs and the supervision of contractors’ work, while in the US and Canada its contracts are much broader in scope, as it handles procurement through design-build contracts or is part of a consortium in public-private partnerships (PPP). In short, projects that offer more “non-labour revenue”.
Although it has offices in all of the GCC states, 4,000 of its 5,000 staff are based either in the UAE, Qatar or Saudi Arabia, which are, respectively, its three biggest regional markets.
In the UAE, it has been joint programme manager (with Aecom) for stage one of the Etihad Rail project and is supervising construction of the Dubai Canal, as well as overseeing infrastructure design of the Expo 2020 site. In Qatar, it is a joint venture partner designing Qatar Rail's Long Distance Rail project, as well as overseeing infrastructure works at Lusail City and parts of the Doha Expressway project.
In Saudi Arabia, meanwhile, it has been had a presence for more than 40 years advising the Royal Commission for Jubail and Yanbu on the development of Yanbu Industrial City since 1978. It has also been working since 2011 on a major project to design and supervise infrastructure works for 11 huge sites across 10 cities covering 32 million square kilometres of land as part of an initiative launched by the late King Abdullah in 2011 with a view to building an extra 500,000 homes. It is also joint programme manager (with Systra) on the $10bn project for the creation of Line 1 and 2 of Riyadh Metro.
“We do mostly horizontal infrastructure – everything on the ground and under,” explains Mr Ball. “We’re not primarily a vertical infrastructure type of company.”
He says that Parsons has “almost had a front seat in the efforts to create economic diversity over the last couple of decades”. Dubai has been the most successful in this regard, and continues to be a busy market. The rest of the region has slowed by varying degrees, and Mr Ball says that after years of growing its headcount in the Gulf, numbers began to plateau early last year and have now “come down slightly”.
In Qatar, for instance, new orders have slowed down as the government cuts its budget to contend with lower hydrocarbon revenue. “The programmes we are working on are long enough that we haven’t seen any change in staffing levels, but it’s stopped growing.”
In Saudi Arabia, meanwhile, new orders have virtually ceased over the past nine months as the government took stock of spending ahead of last week’s National Transformation Plan. Moreover, like others working in the kingdom, payments on some projects ground to a halt.
“In virtually every quarter in every area, there’s been some slowing – to the degree that if that were to continue for the long term, that would be more troubling,” he says. “If you’re a smaller firm and you don’t have a strong balance sheet it’s a potentially dangerous time, but history suggests that it won’t persist indefinitely.”
The lack of new awards has recently been highlighted by a number of publicly-listed contractors, including Dammam-based Al Khodari and Egypt’s Orascom Construction. The former’s value of new awards has dried up – from 1.1bn Saudi riyals (Dh1.07bn) in the first three months of 2015 to just 16 million riyals in the same period this year, and the latter’s proportion of its backlog earned in the kingdom halved in 2015 to just over 10 per cent. “We are working on mitigating our exposure there and are focused on executing our current projects, while remaining selective on new opportunities,” said Osama Bishai, the chief executive of Orascom Construction.
Yet Mr Ball says that the payment situation has improved over the past six to eight weeks, and he sees potential opportunities relating to the National Transformation Plan.
“It’s something that I think rightly that people are very excited about, because it’s clearly needed. But to coin an old phase, the difficulty is in the details.”
Its opportunity may not come from housing, despite its involvement in designing infrastructure for large-scale sites.
“The infrastructure is in place in many of these sites and it is under construction at others.”
As a result, they are largely ready for developers to begin building on, and unless they are particularly complex “there might not be as much of a role for a firm like Parsons”, Mr Ball says.
Similarly, the two biggest airport projects it has worked on over the past decade have been the construction of Doha's Hamad International, which opened last year, and Abu Dhabi's Midfield Terminal Building. However, once the latter completes next year, it is unlikely that there will be many more projects of this scale over the next 10 years.
Mr Ball says he still expects work will come through the upgrade of smaller, regional airports and some capacity expansion at the biggest sites.
“The substance, size and capability of the airlines in the Middle East is extraordinary. All you need to do is look at who’s buying the equipment,” he says.
Similarly, he expects more work from rail projects, despite the decision by Etihad Rail to suspend its Stage 2 expansion, which is the key stage that links Abu Dhabi, Al Ain and Dubai, as well as the wider GCC network. He argues that although Etihad Rail is experiencing a pause while deliberations over its structure and timing take place, it seems “inevitable that it will move ahead”.
He shares a similar view about Riyadh Metro which, at about $23bn, is the world’s biggest mass transit project. Despite talk of a suspension or rescheduling, he says the amount of time and money invested so far means that stopping the project would not only waste billions, but leave the city without an asset to show for it.
Indeed, right across the Gulf, he argues that the scale and complexity of projects being undertaken means that even if the region entered a period of no growth or slight decline, it offers more exciting prospects than other parts of the world.
“Virtually every major city in some way or form is considering either light rail or metro. As populations grow and the density of urban centres increase, it’s inevitable that some form of mass transit will unfold.”
Similarly, its expertise in public-private partnerships may be of use if the region’s government does decide to adopt them. It is something that has been talked about for decades, but Dubai’s recent passing of a PPP law, and expectations that both Oman and Qatar will soon follow suit, means that it is looking increasingly likely that this is a method of procurement whose time has finally arrived.
“I would say it’s inevitable that this would be a delivery model that would take hold over time,” says Mr Ball. “If I were to put myself in the position of a client or an owner, it’s a faster model in which to deliver a product and it’s also cheaper.”
In a research note published on Saudi’s National Transformation Plan last week, economists from Abu Dhabi Commercial Bank agreed.
“We believe that measures such as PPP programmes, especially to increase investment in critical infrastructure, will be vital in supporting GDP growth outlook,” it said, pointing to the fact that the kingdom’s existing infrastructure falls well short of need in areas like utilities, housing and transport.
“With Saudi Arabia’s population growing at 2 to 3 per cent per annum, infrastructure investment requirements remain substantial,” it said. “Structural measures to support private investment will be vital to meeting medium-term economic objectives.”
mfahy@thenational.ae
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