ACWA Power International, the biggest Saudi power project developer, was rebuffed by GDF Suez SA and Marubeni Corp. in 2004 when it proposed partnering to bid for a $2.4-billion desalination and power plant.
Now ACWA is collaborating with those companies on separate water and power projects. ACWA consortiums have won all seven contracts to build and operate water desalination and power plants, worth $12.6 billion, awarded in Saudi Arabia during the past five years.
Paris-based GDF Suez, Siemens AG and Alstom SA are among Western companies seeking Saudi contracts as the world’s largest oil exporter embarks on a $400-billion spending program that is the country’s biggest power, transport and industrial expansion since the early 1980s. This time, local firms such as Riyadh- based Saudi Oger, Saudi Binladin Group and Al-Rajhi Group are in the lead.
“You do really need a very strong local partner who can support you, who has knowledge of the local conditions and a relationship of trust with the customer,” ACWA Chief Executive Officer Paddy Padmanathan said at his Riyadh headquarters.
The government-supported strategy to bolster Saudi companies means Westerners have to share profits and technology with their local partners, creating future competitors as Saudi enterprises expand globally.
“Thirty years ago, foreign companies just walked into the market,” said Saleh Al-Shoaibi, the head of the Economic Affairs and Energy Committee in the Shoura Council, Saudi Arabia’s consultative assembly. Now they face “stiff competition from large Saudi companies that are carrying on projects in Malaysia, Lebanon and all over the world.”
Roads, Rails, Bridges
Saudi Arabia is constructing three railroad lines as well as a light railway network in the capital, Riyadh. Also planned are new roads, ports and bridges; expansion of oil, manufacturing and petrochemical facilities and four new industrial cities. Saudi Arabia has the largest stimulus package in the Group of 20 as a percentage of gross domestic product: 69 percent.
Riyadh-based Al-Rajhi is one of three Saudi companies that own privately held ACWA. It leads a group including Beijing- based China Railway Construction Corp. that in March 2009 won an initial $1.8 billion contract to build a high-speed railway between the holy cities of Mecca and Medina.
Saudi Arabia, where the unemployment rate among people aged 15 to 24 is 25 percent, is trying to allocate funds to local firms to ensure more jobs for Saudi citizens, said Paul Gamble, head of research at Riyadh-based Jadwa Investment.
“Job creation is obviously important for the kingdom,” he said. “If by implementing these projects, they can create jobs for nationals, that’s good for them.”
Technology Transfer
The Saudi investment authority, SAGIA, which is responsible for the industrial cities, is eager to encourage local-foreign partnerships that add value to the domestic economy, said Essam A. Bukhamseen, SAGIA’S vice-president for economic cities development in Riyadh.
“The local skills and economy can both be improved by technology transfer,” he said in e-mailed comments.
Al-Rajhi, Paris-based Alstom and the French rail operator Societe Nationale des Chemins de Fer, or SNCF, are planning to bid jointly for the remaining phase of the $6 billion, 450- kilometer (280-mile) rail project that will ferry pilgrims between the Jeddah international airport and Mecca and Medina, Alstom said. Munich-based Siemens, which makes the Velaro high- speed train, is in a rival consortium.
TGV Plans
Stephane Farhi, a Paris-based spokesman for Alstom, builder of the TGV high-speed trains in France, declined to comment on its strategy in Saudi Arabia.
Tokyo-based Marubeni has a 30 percent share in a consortium awarded a contract in August 2005 to develop a Saudi water and power plant that began operation in 2008. Two other Japanese firms hold a combined 45 percent stake and ACWA has 24 percent.
Marubeni, along with Suez, in 2004 rejected an offer from ACWA to bid jointly for a $2.4-billion desalination and power plant south of Jeddah. The Saudi company, which then faced competing bids from Suez and U.K.-based International Power Plc, won the contract in April 2005 with Malaysian partners.
Now, Suez is a partner with ACWA in a $3.4-billion water and power plant that started up in October. Suez announced March 3 that a group with it and Riyadh-based Saudi Aljomaih Group were preferred bidders for Saudi Arabia’s project to build and operate a power-generation plant for $2 billion.
Australian Builder
Al Habtoor Leighton Group, a joint venture between Dubai’s Al Habtoor Engineering and Sydney-based Leighton International, won its first contract in Saudi Arabia last year by teaming up with Al-Rajhi. It is now in talks with other Saudi construction companies on partnerships.
“We already have relationships with local players, and see the establishment of key partnerships as essential to our success there,” said Laurie Voyer, managing director and CEO of the Dubai-based company.
ACWA is now looking to expand overseas. It will take part in tenders this year in Oman, Abu Dhabi, Morocco and Turkey and may later also bid on projects in Qatar, Jordan, South Africa and Botswana, Padmanathan said.
It is working through local companies in these new markets, he said: “One thing we don’t underestimate is the value of a local partner.”