Light at end of tunnel for Saudi’s contractors, says Al Khodari

Above, construction activity in Riyadh. Payments owed by the government are being made to contractors, although slow in coming through. Waseem Obaidi for The National

Conditions in Saudi Arabia’s contracting market are likely to improve this year but only in the second half, according to the head of a leading construction company in the kingdom.

Fawwaz Al Khodari, the chief executive of Al Khodari Sons, said that his company had experienced “a very, very challenging year in 2016”, along with the rest of the Saudi market as the government halted payments for most of the year and held off from awarding new contracts.

The Tadawul-listed company won just 214 million Saudi riyals (Dh209.6m) worth of new work during the year – an 86 per cent drop on 2015. It posted a net loss of 118m riyals, compared with a profit of 33.4m in 2015 as revenue declined by 34 per cent to 1.03 billion riyals.

“Government spending has been extremely low on infrastructure projects, and that huge dive naturally impacts our awards, and therefore our revenue and our bottom line as well,” Mr Al Khodari said.

He said that government spending on infrastructure is likely to significantly increase this year, with capital spending likely to rise by 43 per cent to 262bn riyals.

“Last year, it [the government] did have an allocation but to be very frank we did not see very much of this on the ground.”

This year, Mr Al Khodari said he does not expect any new awards in the first quarter, as this is only when government departments will start tendering again.

“The active government bodies will award in the second quarter, and then in the third and fourth quarter you will start to see the revenue being booked,” he said.

He said that he expects to pick up more work as plenty of contracting capacity has been removed from the markets as firms have shrunk in size. He also expects more work to be generated in the housing sphere as more plots are developed in response to the white land tax.

Mr Al Khodari also said that payments owed by the government were being made to contractors, but this was slow in coming through.

“We expect the ministry of finance will be paying from 60 days of a payment order being issued, but we’ve voiced our concern in that a payment order takes a long time to be issued.”

In some cases, he said that payment orders have taken as long as nine months to be generated as invoices “keep ping-ponging” between various government departments.

He expects this situation to improve next year once the new National Project Management Office is set up and a new electronic payments system implemented.

Meanwhile, Saudi Arabia’s other listed contractor, the embattled Mohammed Al Mojil Group, said on Thursday that its net loss for 2016 dropped by 49 per cent to 161.2m riyals. The company, whose shares have not traded since 2012, has now accrued cumulative losses of 3.7bn riyals and it has a shareholders’ deficit of just short of 2.5bn riyals.

Last month, the company said that the ministry of labour had filed a case against it demanding that it pay 88m riyals it owes to employees from the sale of company assets.

David Clifton, a regional development director for the project management company Faithful + Gould, said that there were about 330,000 redundancies in Saudi Arabia’s contracting sector last year.

“Overall, I’d suggest that in Saudi, the market hit the basement last year. We tracked about US$20bn worth of awards. I think that’s going up by a very high percentage factor. I think that should be about $27bn this year, but that relies on Mecca Metro being awarded.”

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