Korean companies to help build $500 billion Saudi city

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Korean companies to help build $500 billion Saudi city

A rendering of NEOM City’s Oxagon, a floating island in the city. [NEOM]

A rendering of NEOM City’s Oxagon, a floating island in the city. [NEOM]

A construction boom in the Middle East is coming as oil-producing countries aim to build facilities and plants that help them go carbon neutral.
The big deal in the market is the NEOM City project, a $500 billion project announced by Saudi Arabia crown prince Mohammed bin Salman in 2017. Although Saudi Arabia is known as an oil-rich country, it aims to build a zero-carbon city and prepare for a greener future. 
NEOM City will only run on renewable energy, and be built on a 26,500-square-kilometer desert area in Tabuk Province, which is 43 times the size of Seoul. Robots will perform duties such as delivery and security patrols. Autonomous cars either powered by electricity or hydrogen and flying taxis with provide transportation in the city, as carbon-dioxide emitting vehicles are prohibited. 
The city will be built in separate phases, with areas centered with tourist attractions to open in 2026. The residential area will open in the future, without a set date, but aims to have a million residents by end of 2030. NEOM, a joint-stock company fully owned by the Public Investment Fund (PIF) of Saudi Arabia, is leading the project.
Although construction will take place on the other side of the globe, various Korean companies are named as the main contenders.
A consortium between Hyundai Engineering & Construction and Samsung C&T won a deal to build a railway tunnel at NEOM City in June. Although both companies couldn’t disclose the amount of the deal, media reports indicate it is around $1 billion.
Other construction companies, such as China’s State Construction Engineering Corporation and India’s Larsen & Toubro, participated in the bid, but lost to the two Korean companies.
HanmiGlobal, a construction project management company, won a 2.6 billion won ($1.98 million) deal to manage a part of the NEOM City construction. The company will manage overall construction of The Line area of the city, a residential area.
More contracts are up for grabs, and Hyundai Motor and its subsidiaries is another a big contender. 
They are one of the few groups of companies that have all the necessary technologies that NEOM City requires — construction capabilities, expertise in mobility and renewable energy.
The Line, a part of NEOM City, is shown on the map. [SCREEN CAPTURE]

The Line, a part of NEOM City, is shown on the map. [SCREEN CAPTURE]

Shuttle buses in NEOM City will all be autonomous, and Hyundai Motor is one of the companies leading the field. It is currently testing Level 4 self driving taxis — meaning the vehicle can operate on its own but may need human intervention — in Gangnam District, southern Seoul. The company is one of the few that has begun testing Level 4 cars in real life, along with GM and Waymo. 
Hyundai Motor is ahead of the game in flying taxis as well. It in 2020 introduced a mock-up of an electric vertical takeoff and landing aircraft, known as the S-A1, that can fly autonomously. Other Korean companies are tapping into the market, but are mostly in the research and development and investing stages.
“Middle Eastern countries will aim to invest more in infrastructure that aren’t oil and petrochemical facilities, aiming to focus on future development of its cities,” said Baek Jae-seung, analyst at Samsung Securities. “Saudi Arabia’s NEOM City project, which invests in renewable energy facilities and urban development, is a deal where companies that have expertise in energy facility construction such as Hyundai E&C will have an upper hand.” 
Another NEOM City project is a $2 billion construction deal to build a reservoir and water pipeline. Saudi Arabia’s NEOM will receive bids from companies throughout the second half  and until early next year.
Various Korean companies have participated in construction deals in the country, and successfully completing them is expected to help them in the bidding war, which will go on as late as 2030. 
Companies such as Doosan Heavy Industries & Construction bagged a 780 billion won deal to build a sea water desalination plant in Saudi Arabia in 2021 and another to build a casting and forging facility in January. 
Posco Holdings is another, with the company aiming to focus on clean energy-related businesses after its change to a holdings structure. 
Posco Holdings signed a memorandum of understanding with ACWA Power on Tuesday, agreeing to jointly develop green hydrogen and green ammonia. ACWA Power is a company that has half of Enowa, a joint venture that oversees decisions in selecting companies to make NEOM City’s green hydrogen plants. ACWA Power is 44 percent owned by PIF, the parent of NEOM.
Export-Import Bank of Korea head Bang Moon-kyu, left, poses for a photo with Ziad T. Al-Murshed, chief financial officer of Aramco, after signing a memorandum of understanding in January. [EXPORT-IMPORT BANK OF KOREA]

Export-Import Bank of Korea head Bang Moon-kyu, left, poses for a photo with Ziad T. Al-Murshed, chief financial officer of Aramco, after signing a memorandum of understanding in January. [EXPORT-IMPORT BANK OF KOREA]

The government is also helping Korean companies win.
Export-Import Bank of Korea (Eximbank) signed a memorandum of understanding (MOU) with Aramco, Saudi Arabia’s oil refiner, and Abu Bhabi National Oil Company in January. Eximbank will be lending up to $11 billion won to companies that win deals from the two Middle East-based companies, guaranteeing those Korean companies are backed with enough funding. 
Bang Moon-kyu, head of Eximbank, also highlighted that the loan agreement will “offer more opportunities for Korean companies to win big energy project deals” during a MOU signing ceremony in January.
The Hyundai E&C-Samsung C&T consortium was funded by Eximbank’s loan, and the bank plans to do so for other companies part of the NEOM City project. 
During U.S. President Joe Biden’s visit to Saudi Arabia on July 16, he signed partnership agreements to help the country develop clean and nuclear energy technologies. 
Although the agreement seems less likely to influence Korea, some say it could help Korea be prioritized above non-U.S. ally countries such as China, which is also participating in various bids. 
“Companies such as Hyundai E&C and Samsung C&T did win construction contracts for the NEOM City project,” said Hwang Soo-wook, an analyst at Meritz Securities. “It is key for Biden’s visit to Saudi Arabia to be finished on a positive note for Korea, a country that is close to the United States, to gain competitiveness in the bid to win more contracts for the project.”

BY LEE TAE-HEE [lee.taehee2@joongang.co.kr]
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