Building on success

Much of the Middle East is undergoing truly transformational change – a fact not lost on many Western construction contracting companies eyeing opportunities in this fast-changing region. But such companies often bring with them their own needs, be it for equipment, local infrastructure support – even basic needs like language challenges. That’s not a problem for a home∞grown Middle East company like Orascom Construction Industries (OCI). Osama Bishai, a director since 1998, has seen a slew of western companies attempt to work effectively in the region over the years. “Our international competitors often have quite an expensive approach to projects. We have the international sophistication of typical international players, but in most of the regions we work in we own our equipment, we have a lot of existing local on-the-ground support already present and can take on projects, big or small, which is quite a rare combination in the construction industry. There are a few companies like us, but not many.”

Several roofs, same house

• Orascom Construction Industries – deals with large industrial and infrastructure projects principally in the Middle East and North Africa 


• BESIX Group – focuses on major commercial, industrial and infrastructure projects throughout Europe and the Middle East 


• Contrack International – pursues institutional projects in the Middle East and Central Asia

OCI ‘s construction expertise is broad, focusing on large industrial and infrastructure projects – predominantly based in the Middle East and North Africa – as well as major commercial projects across the Middle East and Europe through construction partner, the BESIX Group. “We’re very bullish on the construction industry generally in the Middle East region,” says Bishai. “We’re also in quite a comfortable position. It’s a combination of infrastructure and building work – a lot of work in the utilities sector, for example. Geographically, we’re also very well spread, from the Gulf, Qatar to Algeria.”

Much of the infrastructure work is also being driven by energy demands. Energy in the Middle East is in short supply so independent energy-related projects, such as natural gas, are a big boom area. OCI is deeply embedded in this sector and have made big strides, particularly in the fertilizer business. By 2010 Orascom is likely to be ranked amongst the top 10 nitrogen-based fertilizer producers in the world. “The fertilizer business is an excellent arm for ourselves,” says Osama Bishai. “More than 50 percent of our profits come from the fertilizer business. Prices are volatile and things could be even better next year.” Building on this success, OCI recently bought the Egyptian Fertilizers Company, manufacturers of 1.3 million tonnes of urea annually. The completion of their first greenfield fertilizer plant will add an additional annual production capacity of 800,000 tonnes of ammonia when it comes online at the end of the year. Obviously, OCI  remains very keen to continue developing new greenfield opportunities and partnerships in this sector, which should strategically strengthen its position further.

Renewable energy – the big push
OCI  recently won the first major wind power project ever to be undertaken in Egypt, which is partly funded by a World Bank initiative. “That puts us in a very good position to leverage similar projects in the region, be it the Emirates or Algeria. We have to consider that renewable energy, like solar, is not yet considered a cheap form of power. It needs a lot of subsidies from governments and international agencies. But in the long term, OCI  is in a very, very good position as far as solar is concerned.” Predicting just how soon such renewable energy sources are likely to become more cost-effective is, of course, extremely difficult to predict. “A year ago everyone was saying that solar had to be a much more economical choice. But that was when oil was costing $150 a barrel. Now we’re talking $60 a barrel. Things have changed considerably.”

New power generation projects OCI recently completed include an alliance with Hitatchi and GE Water & Process Technologies. “Obviously we are pursuing renewable energy opportunities, be they straightforward construction projects or where co-investment is needed from government,” says Bishai. “We are also looking very hard at wind power. We have done quite a lot of work in this area already and we intend to improve on this.”

Risks and opportunities
Despite much of the current global economic doom, many opportunities remain says Osama Bishai. “A lot of new work is likely in the areas of water desalination and power generation, particularly in the Middle East region. We believe we’re in the right place for those opportunities.”

Of course, there is still concern about credit supply and the ability to borrow for many companies. Investment costs for some have already gone up thanks to tighter lines of credit. That means the cost of development will go up for some developers admits Bishai. “However, we’ve also seen commodity prices decrease in some instances. Certainly we have signed contracts in the last year where falling commodity prices will benefit us. Plus we have a backlog of work in some areas. So it’s a very fluctuating situation which we will continue to monitor.”

Bishai is particularly optimistic on business in Algeria. OCI  recently significantly increased annual steel fabrication capacity in North Africa through a new greenfield state-of-the-art steel fabrication plant. Fabricated steel is a vital component in the construction of industrial projects especially in the oil, gas and power sectors, as well as in infrastructure works. According to Bishai, the country’s prudent economic policies have increased its appeal: “Algeria have been particularly conservative on budget projections. Also they have very little exposure generally to the global credit market. Their banking system is highly localised. The Gulf generally is pretty well-insulated too. Saudi is another place where they have major reserves that support their economic superstructure.”

Creating shareholder value
Looking ahead, Bishai sees plenty of opportunities to enhance shareholder value. “That is always the aim,” he affirms. “Even though conditions have been difficult, we were confident enough to pay out the largest dividends – from a Middle Eastern company – at the start of the year. “We’re also constantly adapting, learning and making our projects as lean and aggressive as they can be. We’re also very selective on the opportunities. Although credit supply can be tight for some, we don’t want to waste time on projects where finance is difficult. We want serious projects were we deliver real value to the customer and make money for ourselves and our shareholders.”

New contracts should translate into healthy margins based on a marked improvement in the competitive landscape for construction services since 2007 – and several new awards for OCI reinforce this. Infrastructure work on the Al-Reem Island and the Saraya development in Abu Dhabi – worth a combined value of $251m – are Orascom’s first contracts in this promising market. Contrack International, part of OCI, was also awarded a contract in consortium with Spain’s OHL, valued at $2.4bn for the Sidra Medical and Research Centre in Doha, Qatar, of which its share is 4bn Qatari Riyals ($1.1bn).