In Middle East, the big one that didn’t get away

The Korean construction sector, struggling to find overseas projects, has finally come up with a gem.

According to sources in the industry, five Korean builders - Daewoo Engineering & Construction, Hyundai Engineering & Construction, Hyundai Heavy Industries, SK Engineering & Construction, and Hanwha Engineering & Construction - won a $5.34 billion contract to build an oil refinery in Kuwait.

Sponsored by the state-owned Kuwait National Petroleum Company, one part of the project is an oil refinery in the Al-Zour area of the country. It will produce 615,000 barrels of low sulfur fuel per day for power plants in Kuwait.

The winning bids are for four parts of a five-part overall project that industry sources said has a total value of about $14 billion. Those sources refused to describe the scope of the entire project or what the various “packages” contained, but given the relative value of the Korean consortium’s award and that of the total, some of the four parts won by the Korean firms were minor ones. But the contract is still the largest won by Koreans this year.

A consortium of Hyundai E&C, SK E&C and the Italian builder Saipem will be in charge of one package; Daewoo E&C, Hyundai Heavy Industries, and the U.S. builder Fluor Corporation will work on two others and Hanwha, the Spanish builder Tecnicas Reunidas (TR) and Sinopec of China will handle the fifth.

Hyundai E&C and SK E&C will be paid $600 million and $450 million respectively. Daewoo and Hyundai Heavy Industries will be paid $1.92 billion each, and Hanwha will receive $420 million.

Industry observers welcomed the order; Korean builders have struggled to land a large project in the sagging construction market in the Middle East this year, mainly due to the dizzying collapse of global crude oil prices.

As of the end of July, the total value of overseas construction orders this year stands at $26 billion, a drop of 34 percent year-on-year, according to the International Construction Information Service.

Particularly in the Middle East, Korean builders have won only about $7 billion in contracts this year, much less than the $25 billion in business they landed at the same point in 2014.

“The project is expected to revitalize the participation of Korean builders in overseas construction market, including the sluggish Middle East market,” said Kim Un-jung, a manager at the International Contractors Association of Korea.

Construction will require 45 months, a source told the Korea JoongAng Daily. A starting date has not been set and the details of each package have not been released yet.

An industry observer told the Korea JoongAng Daily that the project award was delayed because even though the local companies submitted the lowest bids, the overall project price was higher than the Kuwait government had anticipated.

BY HWANG EUI-YOUNG, KIM HEE-JIN [kim.heejin@joongang.co.kr]