Investing in infrastructure: Building a foundation for growth

The construction sector is increasingly being driven by investments in core infrastructure to support future growth in the country. The World Economic Forum’s Global Competitiveness Report 2011-2012 indicates that inadequate infrastructure is the fourth most problematic factor for doing business in the country. The government has acknowledged these gaps and is committed to investing heavily in improving transport links, water supply and sustainable energy projects in a bid to enable new businesses, attract private investment into the country and help diversify the economy.

INTEGRATED NETWORK: Transport is at the forefront of the government’s infrastructure investment plans with massive projects planned or already being executed to develop Qatar’s road, rail, air and sea transport facilities. MEED reports show that the transport sector represents more than 30% of all construction projects currently being implemented in Qatar.

While the 2022 FIFA World Cup is driving the momentum behind Qatar’s transport projects, the Qatar National Vision (QNV) 2030 and the National Development Strategy (NDS) have already articulated a long-term strategy for developing an integrated transport network. The NDS highlights the link between infrastructure and private investments, noting that: “Investment decisions by the private sector are critically influenced by the availability and quality of infrastructure services, which influence costs, productivity and [ultimately] asset returns.” According to the Transport Master Plan for Qatar, the state will spend around $100bn over the next decade.

Major projects include the $11bn New Doha International Airport, which will have a maximum capacity of 50m passengers and 2m tonnes of cargo. The new facility is being constructed by Midmac and a global consortium of players including Japan’s Taisei Corporation, Turkey’s TAV and Belgium’s Six Construct. The $8bn New Doha Port is under construction at Mesaieed, south of Doha, and will replace the existing Doha Port. Beijing-based engineering contractor China Harbour is leading a lot of the work on the port.

An integrated rail network is also in the pipeline and will eventually connect Qatar to other Gulf States through a common GCC rail network. This network is likely to reduce existing bottlenecks in Qatar’s transport and logistics sector and will include a metro for the capital city of Doha. A comprehensive rail network is particularly important to the success of Qatar’s World Cup preparations, as it will connect all the major football stadiums. Qatar Railways Company has signed contracts worth QR1.5bn ($411.9m) to initiate the first phase of metro construction.

Qatar’s Public Works Authority has also initiated work on a number of road projects. The Commercial Bank of Qatar reports that road projects worth a total of over $2.3bn were awarded in 2011 alone. Major projects include the Bahrain Causeway ($3bn), Dukhan Highway ($1bn), the Doha Expressway ($440m), Qatar North Highway ($600m) and the Al Khor to Al Ruwais Road ($600m). Furthermore, the Commercial Bank of Qatar also reports that Qatar is likely to announce road projects worth an estimated $7.8bn over the next two years.

EXPANDING THE GRID: Outside the core transport sectors, utilities are also benefiting from Qatar’s infrastructure focus. According to MEED reports, 13% of ongoing construction projects are in the utilities sector and an estimated 19% are in the energy sector.

According to Mohammed bin Saleh Al Sada, the minister of energy and industry, Qatar will invest around QR70bn ($19.22bn) in its electricity and water utilities through 2021 to meet rising demand. Some QR30bn ($8.23bn) will go to the power sector, with a further QR22bn ($6.04bn) allotted to expanding the water system. The Qatar General Electricity and Water Corporation has approved 20 projects related to water and power, according to Al Sada, who added that infrastructure schemes to support industrial and agricultural needs would be announced in the near future.

Demand for water is rising dramatically in Qatar with construction and agriculture accounting for more than 70% of demand in the country. With very limited groundwater supplies and almost no surface water, Qatar meets almost all of its water demand through desalination. While investment in the water sector has declined from $1.5bn in 2007 to approximately $400m in 2011, there are currently several large-scale projects under construction across the country.

Investment will go to increasing desalination capacity and a major expansion of storage and improvements to the water system’s efficiency, including reducing waste and enhancing recycling. The country is developing substantial storage facilities and is currently building a $2.75bn water reservoir project that will have enough capacity to provide seven days of water. The facility will connect the Ras Laffan desalination plant in the north and the Ras Abu Fonts plant in the south via a 183-km pipeline and will store a total of 1.9bn gallons of water. The government is also investing in upgrading the sewerage network with an estimated $362m worth of projects awarded in 2011.

INVESTING IN SUSTAINABILITY: Going forward the focus in the water sector will likely shift toward newer technologies to reduce dependence on energy-intensive desalination plants. GCC countries are increasingly turning to treated wastewater reuse for agriculture and other non-potable needs. In a bid to maximise water re-use, the government is working with Singapore’s Darco Water Technologies to build a $5bn wastewater recycling plant that will add to Qatar’s water supply. A recent report on GCC water resources by NCB Capital estimates that treated wastewater now accounts for 16% of total municipal demand. However, this still adds up to only 2% of total demand.

Investments in water efficiency are part of a broader regional trend, with GCC countries poised to spend more than $100bn between 2011 and 2016 to invest in developing more efficient desalination technologies, solar energy options to reduce energy costs, waste water recycling initiatives and water treatment facilities. While Saudi Arabia and the UAE will account for a large share of these investments, Qatar has one of the more explicit national strategies to reduce dependence on energy-intensive water resources. The country is using its gas revenues to drive innovation within the water sector. Limiting water use is also a strategy to reduce costs for many companies based in Qatar.

A reduction of investment in new oil and gas projects has slowed growth in Qatar’s construction sector in recent years. However, a renewed focus on building core infrastructure over the next decade is likely to drive significant growth. Qatar is preparing for a slew of large-scale infrastructure projects that will support the World Cup and other economic activity going forward. Many of these are in the preliminary stages and will come on-line after 2014. While the government will remain the largest funder of infrastructure projects in the country, the NDS and QNV 2030 call for increased private sector participation in financing, constructing and managing large-scale projects. Private investors, consultants and contractors are playing a central role as the country seeks international expertise and capital to transfer technology and knowledge to local firms.

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The Report: Qatar 2012

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