GCC Projects 2018 The outlook for business in the Middle East in 2018

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2 GCC Projects 2018 The outlook for business in the Middle East in Breakbulk Middle East 6 February 2018

3 2017 Donald Trump inaugurated as U.S. President Mohammed bin Salman becomes Crown Prince Qatar crisis Yemen and Syria Kurdish independence referendum U.S. sanctions threat to Iran Iran/Saudi relations deteriorate Turkey becoming more assertive

4 GCC growth hits 8-year low in 2017 Real GDP growth (%) June 2014 Oil prices crash from $114/barrel peak Jan 2016 Oil prices hit 30-year low of $26/barrel 2018 Strong recovery in growth to about 2.5% in GCC as confidence in oil prices improves and as reforms begin to deliver : Governments use reserves to maintain spending 2016 & 2017: Growth slides as governments cut spending MENA GCC Source: IMF, World Bank, BP, MEED

5 Where next for oil prices? Oil producer deal to slash output by 1.8mbd until end 2018 $80/barrel Global growth Supply fears Slow unconventional Producer agreement $50/barrel $55/barrel New ceiling on prices New Normal Seasonal $40/barrel US oil shale recovers Oil producer indiscipline Oversupply returns Renewables Energy efficiency

6 The Gulf projects market in 2017 $3.4tn of projects planned or underway in the Gulf 10.7% increase year on year 11.6% increase for GCC 8% decline if remove Neom GCC awards in 2017 = $108bn 8% fall in GCC awards in 2017 Follows 32% fall in 2016 UAE, Oman and Bahrain best KSA worse than anticipated O&G and Power grew in 2017

7 GCC contract awards 2017 Third year in a row of shrinking GCC projects market but levelling off 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 $7.9bn Source: MEED Projects Value of GCC contract awards in 2017 = $108bn 8% decline in awards year on year (follows 32% fall in 2016) UAE, Oman and Bahrain better than expected KSA performed substantially worse than anticipated $10bn $11.6bn $10.5bn $24bn Bahrain Kuwait Oman Qatar Saudi Arabia $43.5bn UAE

8 GCC contract awards by sector, ($m) 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Chemical Construction Gas Industrial Oil Power Transport Water Source: MEED Projects

9 Sector highlights in 2017 Awards rose 170% to about $22.5bn Iran IOCs Adnoc restructure Kuwait cancels Jurassic gas Adnoc downstream Aramco projects Aramco LTAs Awards rose 64% to about $14.3bn Saudi renewables FEWA/DEWA coal Solar projects in UAE and Kuwait Nuclear in Saudi IWPPs in Bahrain and Qatar Awards fell 8% to about $43bn Dubai drives contract awards Dubai real estate prices soften Vison 2030 megaprojects PPP

10 The market restructures Adnoc restructuring and single supply chain Adnoc distribution company IPO Carillion goes bust McDermott acquisition of CB&I FAB banking sector consolidation Tadawul seeks emerging markets upgrade SEC and SWCC planning to privatise assets Aramco IPO

11 Saudi Arabia s transformation challenge Vision 2030 Launched in April 2016 National Transformation Plan 2020 launched in June 2016 Grow private sector to 65% of GDP from 40% Privatise government services. Up to 146 assets Government becomes regulator Private investment in healthcare, services, housing and energy Up to 5% of Saudi Aramco floated in 2018 could raise $100bn PPP for projects and services Localisation of oil & gas sector from 40% to 75% Launch the King Salman Renewable Energy Initiative

12 Key organisations Council of Economic Development Affairs (CEDA) Formed by King Salman in Jan 2015 to achieve Saudi Vision Covers all Saudi domestic affairs, from health, labour, education and Islamic affairs. Led by Crown Prince Mohammed bin Salman Public Investment Fund Sovereign fund established 1971 to provide financing support for strategic projects. Able to fund companies inside and outside the Kingdom since In March 2015, oversight of PIF was moved from Min of Finance to CEDA. Seeking to grow assets from about $200bn today to $2tn by Re-invest proceeds from privatisations domestically and internationally National Project Management Office Formed by Ministry of Economy & Planning in 2015 to manage spending on major projects. Each ministry will have a Project Management Office. Bechtel to run National Project management Office National Centre for Privatisation Established in March 2017 to set policy and programmes for privatisation, PPP and capacity

13 Where are we now? Big changes taking place Government spending driven decades of strong growth Fall in oil prices marks a New Normal Government spending can no longer drive growth It has brought hiatus but fundamental needs still there Looking for a new path to deliver growth The adjustment is tough. Increased uncertainty

14 The Middle East 350m people Centre of global energy Suez Canal and GCC trade hub for Asia, Europe and Africa Vision-driven leadership with rapid decision making capability Government driven spending with well defined goals Region undergoing long-term transformation Major high-value opportunities emerge quickly Desire to adopt new technologies Regional instability driving security spending

15 Markets by size GDP ($bn) Saudi Arabia Iran UAE Egypt Algeria Qatar Kuwait Iraq Morocco Libya Oman Sudan Tunisia Lebanon Yemen Jordan Bahrain

16 Markets by wealth 120, ,000 GCC GDP per capita, 2015 ($) 80,000 60,000 40,000 20,000 0 Qatar UAE Kuwait Bahrain Saudi Arabia Oman Lebanon Iraq Jordan Iran Algeria Tunisia Egypt Morocco Sudan Yemen

17 The Gulf market Population Gulf = c150 million GCC = 53m (Saudi 32m) Iran = 80m GDP (2017) Gulf = $2tn (2017) GCC = $1,.5tn (S Kor, Rus, Can) est. $1.9tn by 2022 Among wealthiest countries Centre of global energy Gulf = 66% of global oil reserves GCC =40% global oil resrvs + 20% gas 20% of global oil supply Logistics hub Jebel Ali, Suez Canal Global investors Home of Islam

18 Drivers of growth GCC growth of 2.5% - 3.5% a year Growth factors: Population growth Oil and gas Economic diversification Globalisation Inadequate infrastructure Long-term transformation High-value opportunities emerge quickly Neom, Expo 2020, Qatar World Cup Vision driven Vision 2030, UAE Vision 2021 (soon Vision 2071) Complex and opaque

19 The impact of low oil Fiscal breakeven oil price 2018 ($/barrel) $50/barrel Bahrain Kuwait Oman Qatar Saudi Arabia UAE Iraq Iran Algeria Libya Yemen Source: IMF

20 Fiscal consolidation will continue From 2015, governments started to take action to minimise deficits and keep a lid on debt Fiscal consolidation Cut spending Public sector restructuring Job cuts and public sector recruitment freeze Energy subsidies cut Public salaries cut Diversify non-oil revenues Fees Taxes VAT

21 New Thinking for the New Normal Across the region, governments have embarked on reform programmes to roll back the dependency on the state and diversify the economy Privatisation of inefficient state entities Alternative financing models Energy reform Efficiency Localisation of employment

22 Oil & Gas upstream International output reduction pact Output caps have seen production cut by 1.8mbd until end 2018 Market appears to be rebalancing as optimism grows for global growth Global energy demand projected to grow at 1.5 per cent a year Oversupply reducing Saudi Arabia seeking cooperation beyond 2018 Russia hints cooperation with Opec and Saudi specifically for many years Regional actions Quest for gas Enhanced oil recovery Iraq oil development Adnoc offshore concession renewal Aramco investment will drive Saudi projects Adnoc to invest $109bn to raise output capacity to 4.5mbd by 2030 KPC has announced $112bn investment programme Aramco has announced plans to spend $414bn over the coming 10 years

23 Oil & Gas downstream NOCs seeking to augment downstream production and increase exports of petrochemicals products, especially to Asia UAE Planned Borouge 4 expansion Ruwais refinery study Aramco Jubail refinery on track Petro Rabigh II scheduled to come online in Q Bapco modernisation Bahrain s plan to upgrade its Sitra refinery Kuwait Expansion plans for the new refinery at Al-Zour on hold Global oil storage Market to grow 4.2 per cent past $17bn by 2023 Middle East region to remain a global leader

24 Construction & Infrastructure Key construction projects, opportunities and challenges in the region Saudi Arabia PIF/Vision 2030 projects in Saudi Arabia Lots of consultancy activity, and we are starting to results in work for contractors Will be next years at earliest before there is a tangible pick up UAE Dubai will continue to be very active due to open investment market and Expo Dubai still awarding contracts but pace may be slowing compared to previous years Abu Dhabi starting to move but we have been saying that for a few years now Challenges Delivering schemes with fixed deadlines such as Expo and World Cup Will companies going bust have an impact? Cashflow and payments remains key issues for project supply chain

25 Saudi Vision 2030 megaprojects Neom $500bn Neom project made headlines around the world when it was unveiled on 24 October by Crown Prince Mohammed bin Salman at the Future Investment Initiative in Riyadh. The proposed new city state will cover 26,500 square kilometres and will straddle Jordan and Egypt and will seek to attract investments in nine different sectors including energy, water, biotech and robotics. The Qidiya Project The Qiddiya project is among the most significant investment initiatives in the Kingdom s Vision Located 40km outside Riyadh, Qiddiya s purpose is to provide an entertainment destination for Saudis and it is set to be Saudi Arabia s biggest cultural, sports and entertainment city. Jeddah Downtown One of a series of megaprojects aimed at developing the kingdom s Red Sea coast, the PIF s $5bn Jeddah Downtown project aims to redevelop Jeddah s waterfront corniche and create 36,000 new jobs in the city over the next 10 years. Red Sea Project The Red Sea project is the flagship development in Riyadh s goal to develop its tourism sector to create investment opportunities and jobs for Saudi nationals. Developed in cooperation with leading hotel companies, the Red Sea Project will see the development of 50 natural island between the cities of Amlaj and Al-Jawh on Saudi Arabia s west coast.

26 Transport Rail Shift to PPP/privatisation for rail schemes especial in Saudi Arabia Dubai and Oman also considering PPP First high-speed railway (Haramain - KSA) to enter full operations this year Multiple rail schemes (monorail and high-speed) planned in Egypt (EPC plus finance) Doha Metro Green Line extension (potential award) Airports 4 airport PPPs in Saudi Arabia expected to reach financial close this year Baggage handling system and automated people mover (APM) packages for the $33bn expansion of Al-Maktoum International airport could be awarded this year New airports in Muscat and Jeddah to enter operations Riyadh airport equity sale Hamad International airport extension Ras al-khaimah airport considering privatisation Contract award for second passenger terminal at Iran s Imam Khomeini Intl airport Ports UAE ports development - Khalifa Port T2, Fujairah terminal Egypt: DP World Sokhna and dry port terminal PPP

27 PPP pipeline ($bn) Pipeline of 155 PPP project valued at about $170bn Saudi Arabia Kuwait Morocco UAE Iran Bahrain Tunisia Iraq Egypt Jordan Oman Qatar Source: PPP in the Middle East & North Africa

28 The PPP opportunity Saudi Arabia National Centre for Privatisation will lead PPP programme NTP aims to carry out 5 PPP projects by 2020 PPP model to be applied in transport, health and education UAE Dubai is forging ahead with a new PPP law as well as some PPP Projects. PPP projects are getting bigger as trust builds. $3.4bn sewer project Union Oasis TOD are going ahead Kuwait The Kuwait Authority for Partnership Projects (KAPP), is set to become one of the most important clients in Kuwait over the next five years with a significant pipeline of projects to tender and award. The relaunch of the PPP programme may result in more openings for foreign companies Qatar New law governing the use of PPP expected. Eversheds and PwC advising. Qatar is studying first PPP project in the hospitality sector. Doha planning to use PPP to fund two World Cup stadiums Iran, Oman, Egypt and Bahrain also working on a number of PPPs

29 Power Additional 124GW of power capacity needs to be installed by 2021 across Mena Gas supplies Securing additional gas supplies for power plants key strategic aim UAE, Kuwait and Bahrain are all importing LNG, and Saudi Arabia is considering importing gas for the first time to meet power demand Political dispute with Qatar may complicate issue Energy diversification governments seeking to increase energy security by diversifying fuel supplies Utilities are moving into renewables, nuclear and even coal Saudi s renewable and nuclear energy programmes will be focal point in 2018 Private capital/privatisation Reduce capital expenditure through IPP model Privatisation Sale of existing assets to the private sector Saudi Arabia largest utilities market is preparing to sell assets in 2018, Kuwait is also exploring the possibility of selling brownfield assets Subsidy removal/tariff reforms Saudi Arabia introduced new tariffs on 1 January.

30 The renewables opportunity Saudi Arabia Saudi unveiled the National Renewable Energy Programme (NREP) in February. It plans 45GW of renewables planned by 2030 and 9.5GW by 2023 Renewable Energy Project Development Office (Repdo) is heading the programme UAE UAE plans to invest $272bn by 2050 to meet energy demand, which is rising at 6% a year UAE wants 50 per cent of its energy to come from clean resources by per cent will come from renewable energy 38 per cent will come from gas 12 per cent from coal 6 per cent from nuclear power Currently, more than 90% of the UAE s energy is generated from natural gas Dubai wants clean energy to contribute 75% of its energy supply by 2050 with 7% from lower-emissions sources by 2020, rising to 25% in April 2015

31 Water & wastewater Almost 1,300MIGD of additional desalination capacity required by 2020 Decoupling of water and power projects Utilities developing standalone desalination plants due to Rise of reverse osmosis (RO) and a quest for more flexible grids and power and water provision Private financing Majority of desalination plants will be developed using PPP models (IWP/IWPP) PPP will also increasingly be used for sewage treatment plants Saudi Arabia will tender several PPP sewage treatment plants in 2018 Increasing drive for water reuse Treated sewage effluent increasingly used for industrial and irrigation for landscaping Abu Dhabi recently said it was targeting 100 per cent water reuse Large scale sewage system overhauls Dubai moving ahead with large tunnel sewerage project

32 Economic Outlook 2017 was a challenging year but outlook for 2018 is for recovery 2.5% for GCC 4.4% in UAE Extension of oil production cuts keeps pressure on finances but easing. Fiscal consolidation and reforms shape agenda but austerity to ease Privatisation and PPP reforms start to gain momentum Financing will be a primary challenge as market conditions harden But banks are liquid and looking for investable projects Many project companies restructuring or pulling out of the region entirely GCC 2018 project spending similar to 2016 and 2017 Contract awards around $100bn-$120bn a year

33 Value of planned, unawarded GCC projects by country ($m) $2tn project pipeline 1,400,000 1,200,000 $1,243bn 1,000, ,000 $715bn 600, , ,000 0 $69bn $172bn $135bn $158bn Bahrain Kuwait Oman Qatar Saudi Arabia UAE Source: MEED Projects

34 Value of planned, unawarded GCC projects by sector $2tn project pipeline 1,600,000 $1,459bn 1,400,000 1,200,000 1,000, , ,000 $454bn 400, ,000 $83bn $79bn $29bn $108bn $224bn $56bn 0 Chemical Construction Gas Industrial Oil Power Transport Water Source: MEED Projects

35 Saudi Aramco World s biggest company by asset value Sole producer of kingdom s oil and gas Production capacity of 12mbd Responsible for development of oil & gas infrastructure IPO Riyadh to raise capital from sale of Aramco shares Plans to float of up to 5% of Aramco in 2018 Biggest share sale in history and could raise $100bn Market capitalisation estimates range from $1.5tn-2tn (Apple is $652bn) Dual listing on Tadawul and international exchange Moelis, JPMorgan and Michael Klein advising BUT Concerns about what offered and transparency Aramco is attractive but only small stake offered Riyadh recently cut Aramco s tax bill to 50% from 85% Engine of the economy Aramco to invest $334bn over 10yrs to sustain oil production 42% on drilling 31% on facilities 11% on infrastructure Plans to tap debt markets for $10bn to finance its programme

36 Challenges and risks Political risk rising Qatar, Iran, Syria, Yemen Slow pace of reforms undermines political will Oil market volatility US oil shale Rising costs VAT, tax, subsidy cuts Security physical and cyber US policy on Middle East Iran, Jerusalem, Saudi Money is tight lowest price is still best Digital disruption

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