Qatar building boom a challenge for foreign firms

Qatar plans $200 billion in infrastructure spending however the contract terms, slow payment makes it tough for firms

Qatar building boom a challenge for foreign firms

World Bulletin / News Desk

Construction of the Sharq Crossing, Qatar's $12 billion bridge and underwater tunnel link across Doha bay, was due to start this year to be ready for the 2022 World Cup, but that deadline has slipped as the government shifts priorities.

The Gulf state's plans to splurge $200 billion on infrastructure as part of its 2030 development plan has lured foreign contractors to what promised to be big profits, but project delays and problems with contracts and bureaucracy have left many in difficulties and their returns uncertain.

The government, too, appears to be reassessing its plans, although officials allude to a temporary but indefinite halt to projects rather than cancellations.

Other schemes that have been put on hold include a multi-billion dollar chemicals plant north of the capital Dohaand Doha Grand Park, modelled on New York's Central Park.

"Qatar has mothballed a lot of vanity projects," said a source at a construction company operating in Qatar who spoke on condition of anonymity. "It's indicative of how the country's grand aspirations have been toned down a little bit."

Corruption allegations that have rocked soccer's governing body FIFA, have put renewed media focus on Qatarand its hosting of the 2022 football World Cup, although Qatari officials say they are confident the event will go ahead as planned.

The World Cup directly accounts for only about $10 billion of the $200 billion development programme, but uncertainty about the tournament is adding to a testing environment for foreign contractors in the Gulf state.

While Qatar's vast wealth from natural gas production has enabled it to splash out on new infrastructure, it is doing so on strict terms.

"Qatar ... fears being taken for a ride by international consultants - that this is a gold rush, a boom town, and companies are going to fleece them for as much money as they can," said the source.

Clauses in some contracts can make consultants financially liable for several years after the project has been delivered.

"Construction companies and consultants are bank-rolling the projects for their clients," said the source.

Getting their money back can be a lengthy process.

"Project exposure is tens of millions of dollars, which becomes untenable - they tie us up in their approvals process ad infinitum," said the source. "The money trickles out eventually, but you want a fair day's pay for a fair day's work. They (Qatar) try to shave it off at various stages."

Middle East companies and local joint ventures seem to fare better in Qatar because they are seen as long-term investors in the country.

"We prefer somebody who comes to work with us, not only for one job and then leaves," said Jalal Salhi, infrastructure affairs director at Qatar's Public Works Authority (Ashghal), which is in charge of the Sharq Crossing and other projects.

International construction firms or consultants can only apply for projects worth more than about 200 million riyals ($54.93 million), said Salhi.

Many opt for joint ventures to ease cash-flow strains - a local partner employs around 90 percent of workers and gets about 60 percent of the money, with an international firm providing the more expensive employees.

"Contracts in the Middle East generally favour the client more than they would in the West, for example. There are a myriad of clauses that make the contractor liable," said Nick Smith, Partner at engineering consultants Arcadis in Qatar.

Clients unwilling to pay for design alterations is one obstacle, said a second construction industry source who spoke on condition of anonymity.

"Most contractors suffer major cash-flow shortages, in part because clients don't accept paying extra for essential changes due to the original design plans being late or inadequate and unworkable unless amended," he said.

Güncelleme Tarihi: 23 Haziran 2015, 15:04