Higher Saudi Construction & Labour Costs.

The feedstock challenge is not the only one the petrochemicals industry is facing in Saudi Arabia. Strong international demand has in the past two years pushed up the cost of materials, including steel and titanium. It has - in the case of titanium, which is needed in seawater cooling systems, for example - led to supply shortages. Strong international demand has also driven up key equipment costs. The situation is aggravated by a shortage of sub-contractors. Importing workers continues to be a struggle as the Saudi Labour Ministry's tight regulations make it hard to obtain block visas.

For the handful of engineering, procurement and construction (EPC) contractors capable of carrying out the type of large-scale projects being tendered in Saudi Arabia, the uncertainty surrounding materials and equipment, subcontractors and labour has increased the risk of completing major projects in time and at a fixed price. This risk is passed on to the clients, which have often been surprised at the high prices submitted by EPC contractors for lump-sum turnkey (LSTK) contracts.

"This will make some projects unfeasible and some of the ambitious plans may not materialise", Abdullah Al-Rabeeah, president of SABIC affiliate Petrokemya, said at the same MEED conference. So far, no projects have been cancelled, but the situation is forcing bidders and clients to seek creative ways of keeping a lid on spiralling costs and minimising risk for contractors. (See survey of Saudi Arabia to be serialised in Vol. 65, Nos. 13-17).