Arabian Construction Company (ACC) says it is bidding for new projects worth about Dh8 billion and has enough work to take it through until 2012.

The company says it has registered significant growth during the past few years and had to restrain itself and also warns that the forecast for 2009 will be less optimistic compared to previous years.

Wassim Merhebi, Executive Director at ACC, speaks about the company's strategy for the future, its recent expansion and the state of the construction industry in the region.


Could you elaborate on the company's performance during the recent years?

During the past few years, ACC has been growing at 50 per cent year on year. Since 2005, we have been restraining our growth, otherwise we could have grown by about 100 per cent year on year, which is definitely not healthy.

In terms of our bottom line, we took on projects that were quite profitable. Most are on track so we do not anticipate any problems.

How do you see 2009?

Like any organisation, we are looking at substantial growth. But we don't see it happening in 2009. The whole industry depends on financing. We are all aware of the liquidity situation in the banking sector and the general lack of confidence. Even when projects are managing to get finance, it has become very expensive.

The downside is the return to competitive bidding, which is globally recognised as the least preferred method of awarding a contract.

However, when it comes to work in hand, we have enough to take us until 2012. Last October, we were awarded the construction contract for Lamar Towers in Jeddah and are in the process of mobilisation. We are also involved in several projects in Qatar. We are negotiating with several clients in Abu Dhabi, Dubai, Saudi Arabia, Egypt and Qatar. The overall value of projects we are negotiating and bidding for at present range from about Dh2bn to Dh8bn. If they all materialise, we will be in excellent shape and are not looking at downsizing till 2012.

Do you plan to move into new markets?

2008 was very successful for ACC – we secured our first project in 20 years in Saudi Arabia. We are quite optimistic about that market since it is the largest in the region and the population growth is phenomenal, which translates into a large demand for housing and infrastructure. Else, we have always had a strong presence in the UAE and Qatar. Our other markets include Egypt, Lebanon, Syria and Jordan. We believe these markets might slow down too.

However, Iraq could be promising and we are currently involved with a few projects in the Kurdistan area. The focus would be towards southern Iraq this coming year.

Are there any advantages in building now?

There is a significant cost advantage but it depends on the location. In Abu Dhabi, demand still outstrips the supply by several times. Rebar prices have dropped. So have all steel products, aluminium and other commodities.

We further anticipate readymix concrete and cement prices to fall towards the third quarter of 2009.

At present, due to the ongoing projects, the demand for cement is stable. Whereas once these projects are handed over, we will see overcapacity of cement in the regional and global markets. And this coupled with undersupply will bring down prices. We estimate the construction prices to drop by around 20 per cent by the end of 2009.

Can we expect the same phenomenon across the GCC?

So far, it has been cheaper to build in Saudi Arabia, especially, when it comes to low-cost construction. Generally speaking, there has been major investments in the manufacturing sector in Saudi. Furthermore, Saudi is very rich in minerals and raw materials and hence do not have to rely on imports. This is why Saudi is self-sufficient in terms of construction industry or in terms of supplies.

When we are referring to high-rise and luxury projects, there isn't really a benchmark because it is only Dubai, Abu Dhabi and Qatar which have tackled this type of market. So the prices are pretty much the same.

Do the contractors stand to gain?

The contractor does not stand to gain when construction costs go down. A vast majority of projects were signed before material prices started rallying last year and contractors are basically averaging down to return to their original cost structure. On the human resource side, we are freer to choose the better resources available in the market.

Is it true that most developers are in the process of renegotiating contracts that were finalised?

As far as ACC is concerned we are very much open to workable solutions and have expressed it to our clients. We have to try and get the best prices and are always revisiting the subcontractors' prices to see where we can get the best deals.

But in certain instances we have seen certain developers terminating contracts just for the sake of re-tendering it and bringing a new cheaper contractor on board. We personally feel it is highly unethical because when you enter into a contract it is a contract that binds both parties.

Have you been affected by this situation?

None of our projects so far have gone for re-tendering. But the market is very dynamic so you never know what tomorrow holds.