Primed For Actionby Jason O'Connell on Sep 1, 2015
These are uncertain times for companies earning a living from infrastructure developments in the Gulf. Recent years have witnessed economic growth on an unprecedented scale, underpinned to a large degree by strong global demand for the region’s chief export.
But flagging oil prices are threatening to put the brakes on the breakneck pace of economic expansion. Governments are closely monitoring their budgets and a sustained drop below $50 per barrel could see some projects shelved.
This is just one of a number of challenges facing Al Mashariq Trading and Contracting, a Saudi EPC contractor engaged primarily in the utilities sector. Saad Mohamed Al Zahrani, owner and president of the company his father founded, says business has not been hit yet, but he admits the lower oil price could eventually take its toll.
As evidence that government spending is being more tightly controlled than ever, any project that exceeds SAR 100mn ($26.65mn) now needs special approval from a higher authority before being signed off.
“We have won two substations with the Ministry of Education six months ago, and they have still not confirmed the projects because of funding,” he says. “The number of government projects will shrink in the medium term, but Saudi Electricity and Aramco can manage their finances, because they have the budget for new projects.
“There could be a delay in payment, and contractors are anticipating this,” Saad adds. “It hasn’t really hit yet, but it will if the oil price continues at this level. We are hopeful that within a year or two the oil price will rise back above $60 per barrel. The government will be safe if it’s above $63 per barrel.”
In such a tight market, companies that are well organised and have established a reputation for reliability and quality, will be best placed to navigate choppy waters and position themselves to take advantage of the inevitable changes in the energy landscape, such as the shift towards more renewable energy.
Saad’s father established Al Mashariq in 1978, undertaking MV Distribution Works for state-controlled utility Saudi Electricity, then known as DEPCO. After his father’s death in 1980, the company carried on with some partners until Saad graduated from the King Fahd University of Petroleum and Minerals (KFUPM) in 1992 with a degree in Industrial Engineering. Today he remains the major shareholder and, though he has partners on the board, they are not active in the day-to-day management of the company.
Upon taking charge of Al Mashariq, Saad immediately set about expanding the business into HV substations, water works and the telecommunications sector. The company’s main activity is building EHV/HV Substations as Turnkey Projects throughout the Kingdom of Saudi Arabia. Most of these substations are built for Saudi Electricity (National Grid Sa), oil giant Saudi Aramco, the Royal Commission for Jubail & Yanbu, and government ministries who build their own substations independently, such as the Ministry of Finance, Ministry of Higher Education, Ministry of Water & Electricity, and Ministry of Defence & Aviation.
Al Mashariq’s Transmission & Distribution Division is also involved in MV substation works, HV U/G cabling, and consumer connections for Saudi Electricity in the Eastern and Central Regions.