June 12, 2013 2:02 pm

World Cup spending kicks off with $8.2bn Doha metro contracts

International companies got a taste of Qatar’s World Cup 2022 spending last week as the emirate’s railway company awarded contracts worth $8.2bn for Doha’s first metro system, a key infrastructure project to ease transportation woes in the city.

Global companies from construction to logistics groups are jostling for contracts as Qatar prepares to increase domestic spending on infrastructure ahead of the World Cup. While bank estimates on projected spending over the next nine years differ wildly, most are more than $100bn.

The awarding of the metro contracts, as well as the recent selection for the design of a 45,000-people stadium have been well received in Doha where business people have complained about the slow start to Qatar’s spending plans, noting a lack of construction activity since the 2010 awarding of their rights to host the World Cup.

“It’s just beginning to build momentum; it will still be a while before the projects are executed,” says Simon Williams, chief regional economist at HSBC in Dubai. “But this isn’t discretionary spending, it has to happen.”

While few contracts have yet been awarded, the Doha Metro may signal the direction of the country's domestic spending. Analysts say the granting of the four lucrative deals to international companies including Italy’s Impregilo and South Korea’s Samsung C&T, points to the emirate’s broader strategy: to reward international companies that bid with Qatari groups.

“It’s an unwritten rule here, you have to JV [joint venture],” says one Doha-based analyst. “There are greater attempts to make sure Qatari companies are the ones benefiting.”

All of the winning metro bids included influential Qatari family businesses such as Galfar Al Misnad Engineering & Contracting, Al-Darwish Engineering, Hamad bin Khalid Contracting, Qatar Building Company as well as the government’s own Qatari Diar.

Qatar’s encouragement of joint ventures plays into its plans to diversify its hydrocarbon-dependent economy, allowing Qatari companies to develop expertise and tap into the government’s extensive spending.

“Local companies joining with international contractors in a joint venture like this helps Qatari companies to further enhance their skills and capabilities and encourages the transfer of knowledge and expertise,” Qatar Rail said in the statement, announcing the contracts last week. Qatar is planning to start construction of the metro by the end of the year and open the first-phase operations by 2019.

“The awarding of these contracts marked an important step in the implementation of one of the largest infrastructure projects in Qatar,” Qatar Rail said.

Public transport has taken centre stage as the Gulf’s cities compete to become international hubs and tourist destinations as well as improve traffic-choked city centres. Dubai opened the first part of its metro system in 2009 and has plans to extend the network further.

Other oil-rich countries including Saudi Arabia are now quietly pushing ahead with plans for a metro.

A steady flow of Qatari contracts could be a game changer for the international companies that win them, yet outsiders will be watching closely to see whether international companies with Qatari ownership get preferential treatment.

Qatar’s global investment strategy has also focused on companies where it sees synergies to bring business to Doha. That has led it to invest in banks, utility and construction companies and hotel chains. The emirate has also set up Doha-based joint ventures with Barclays and Credit Suisse, in which it owns minority stakes.

In 2010, Qatar bought a 9.1 per cent stake in German construction company Hochtief, making the emirate the second largest shareholder. Since then, Hochtief has set up a joint venture with Qatar’s Lusail Real Estate Development, a unit of Qatari Diar, to develop a new city for 200,000 people.

In the latest metro contract award, Qatar Rail awarded a consortium including France’s Vinci construction company a €1.5bn deal. Qatari Diar, the state-backed real estate developer, which took a 5.8 per cent stake in France’s Vinci three years ago, led the winning bid.

Vinci’s metro contract applies to the design and construction of the underground tube system, linking the airport to the city centre. It covers the design and construction of six underground stations and the network’s safety connections. The project will take five years to complete and employ up to 3,000 people, the company said.

Officials say that competition is fair and the same as anywhere else in the world.

Last month, the Qatar 2022 Supreme Committee selected Los Angeles-based Aecom Technology Corporation to offer design consultancy and construction supervision for Doha’s Al Wakrah Stadium and precinct for the World Cup. Zaha Hadid was chosen as architects.

The designs include plans for a cooling technology system with climate control requirements for renewable energy production.

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