Arabtec may shave Gazprom project budget
December 10. 2008 8:48PM http://www.thenational.ae/article/20081210/BUSINESS/33993181/1005
Arabtec Construction could see up to Dh3 billion (US$817 million) trimmed from its Dh10bn contract to build Gazprom Neft’s headquarters in St Petersburg as the Russian oil producer reviews the project because of an economic slowdown in the country.
Arabtec, the UAE’s largest and only publicly listed construction firm, won the contract in April, its largest this year.
The contract involves the construction of the Okhta Centre, which includes a 400-metre tower, five other buildings, office space and leisure facilities, on behalf of Gazprom Neft, a subsidiary of state-owned gas company Gazprom.
But the project’s design has since been revised to reduce costs.
Riad Kamal, the chief executive of Arabtec, said the contract could be reduced to between Dh7bn and Dh8bn. The new deal is expected to be confirmed by the end of the year.
“We’re in final negotiations with the client on all the outstanding issues,” he said. “They have finalised a lot of issues with the design aspects and looked at reducing the value of the contract. We’ve been working closely with them on value engineering and to maintain the scope of the project in its entirety, but without having to spend as much as initially budgeted for.”
Still, Mr Kamal is confident work will begin in the first quarter of next year despite restrictions on liquidity in Russia.
“Gazprom is probably the strongest client you could have in Russia,” he said.
With Arabtec expecting turnover of more than Dh6bn this year, he didn’t expect the lower contract value to seriously hit profits.
The global financial meltdown has put the brakes on the growth of Russia’s construction sector, with several projects being put on hold.
The country hopes to emulate the style of development seen in Dubai, such as with Polanka Parkline, a “city within a city” planned on the outskirts of the capital, Moscow.
But the project, launched last year, was postponed by the developer, Mirax Group, in October.
“The ripple effects of the global economy have hit Russian markets significantly,” said Glenn Collins, country manager for Russia at Turner International, a US-based construction company.
“Turner is engaged in three tower projects in Moscow, and we hope the Russian government at least has the money to finish these.”
Meanwhile, Arabtec plans to escape the slowdown in construction at home by targeting more work in overseas markets, where the company expects about 50 per cent of its revenue to come from over the next couple of years.
According to Mr Kamal, Qatar and Saudi Arabia are keys to this strategy.
The company was already working on Al Waab City in Qatar and was on the verge of winning another large contract there, he said.
Arabtec will also set up operations in Saudi Arabia early next year.
“While we’re going to be fairly busy with our current backlog, we cannot stay stagnant so are looking for growth,” he said. “And we see this happening in Saudi Arabia and Qatar.”
He added that Arabtec was in talks with potential partners in Saudi Arabia.
“For a newcomer in the market, we will need a strong partner that will make the formalities easier as far as registration and the recruitment of labour is concerned.
But the work is there, and for a company like Arabtec it’s not going to be difficult to pick up work because of our strong presence, reputation and the resources we have.”
Mr Kamal said the company was negotiating for three major contracts within the GCC. He declined to give further details but said they should be announced by the end of the year.
Arabtec’s backlog of work is worth Dh50bn.