Economic Update

A raft of major industrial and infrastructure projects are spurring activity and investment in Bahrain’s construction industry.

An initial set of large-scale projects is already under way, with several multibillion-dollar developments on track to be finished in the next three to four years.

Project pipeline

The total project pipeline – including long-term builds like the $3bn King Hamad Causeway, set to be completed around 2025 – amounts to $72.7bn, up 4.7% year-on-year, the latest economic quarterly update from the Bahrain Economic Development Board reported.

This includes the $5bn Bahrain Petroleum Company (Bapco) upgrade and expansion of the Sitra refinery; the $3bn Aluminium Bahrain (Alba) Line 6 smelting project; Bahrain Airport Company’s $1.1bn airport expansion project; and the $655m offshore liquefied natural gas (LNG) terminal being commissioned by the National Oil and Gas Authority (NOGA).

The country’s ability to push ahead with large-scale projects despite a tighter fiscal climate is partially due to the Gulf Development Programme, which has contributed some $10bn to fund infrastructure projects in Bahrain. As of the end of last year, $6bn of the funds had already been allocated and a further $3.7bn tendered.

The housing sector comprised 35% of the funds, followed by electricity and water projects (22%), airport expansion (14%) and roads (12%).

Inflation and investment prospects

Along with financial services and health care, construction ranked as one of the major drivers of the country’s non-oil economy last year, registering a growth rate of 5.4%, the second highest of any sector in 2015.

While the sizeable development pipeline contributes valuable economic stimulus amid low oil prices, some stakeholders in the construction sector have warned that the overlapping project schedules may inflate prices for materials and contracted construction services.

For similar reasons, the sheer volume of construction work planned over the next few years will likely lead to the entry of foreign construction companies into the market, as has been seen with the tender awarded for the Bahrain Airport modernisation project, though Bahraini companies are also expected to benefit from the development pipeline, according to Robin Walton, export manager of Arabian International Contracting.

“Foreign contractors tend to enter the Bahrain market for major infrastructure and complex industrial equipment works. Ultimately, the scale of the project pipeline means there is always plenty of work to go around,” he told OBG.

Projects move ahead despite economic headwinds

Despite fears about inflation, the current construction boom seems unlikely to turn into a bubble, as private and public investors have opted for more sustainable funding models and have tailored expenditure to reflect changing economic circumstances.

The initial capital expenditure for Alba’s Line 6 expansion project, for example, was revised downward in May, from $3.5bn to $3bn, as part of an ongoing financial review process that took into account weaker oil prices and commodity market conditions, according to the company.

The expansion – the largest in Bahrain’s aluminium industry in 15 years – is set to make Alba the largest single-site smelter in the world when it opens in early 2019, adding 540,000 tonnes per annum (tpa) to bring its output to 1.45m tpa.

Several major energy projects are also being pushed forward despite weaker market conditions, as Bapco and NOGA seek to consolidate Bahrain’s energy position.

In June Bapco launched bidding on its $5bn Sitra oil refinery expansion, with the close date scheduled for early October and the contract to be awarded in the first or second quarter of 2017. The project will boost the refinery’s processing capacity from 267,000 to 360,000 barrels per day.

This followed a similar move last December, when NOGA awarded the contract for a new $655m floating LNG terminal to a consortium comprising independent LNG operator Teekay LNG Partners, South Korean engineering and construction group Samsung C&T and the Gulf Investment Corporation, the supranational financial institution of the GCC.

Slated to open in 2018, the terminal’s prospects are supported by strong domestic demand for LNG, with the expanded Alba facility alone set to consume around one-third of the country’s current gas supply.

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