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South Korean Builders’ Overseas Business Conditions are Deteriorating
A Series of Order Cancellations
South Korean Builders’ Overseas Business Conditions are Deteriorating
  • By marie
  • June 22, 2016, 04:30
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South Korean builders are witnessing cancellations of the contracted projects in the Middle East.
South Korean builders are witnessing cancellations of the contracted projects in the Middle East.

 

South Korean construction companies are witnessing a decline in order backlog in the Middle East as oil-producing countries in the region are suffering from ongoing low oil prices. Some of their projects in progress there have been cancelled with some of the others subject to non-payment.

For example, a construction project of Samsung C&T in Qatar was cancelled in early May this year after the Qatar Railway Company, the ordering agency, demanded something that is not included in the contract.

Samsung C&T won the deal in 2013 by forming a consortium with Qatar Building Company and Obrascon Huarte Lain, which is a major Spanish construction firm. Samsung C&T has 50% shares in this project worth US$1.4 billion. The project was cancelled after 40% of the construction process was completed, incurring a loss of 70 billion won on the part of the South Korean builder in the first quarter of this year alone.

At present, the three companies in the consortium are discussing their response to the situation. The ordering agency, in the meantime, recently announced that it would complete the construction works for 39 train stations and 86 km-long railways by 2019 through negotiations with subcontractors.

In East Timor, Hyundai Engineering & Construction notified the Ministry of Petroleum & Mineral Resources of the country of the cancellation of the Suai Supply Base Construction Project after the company won the 465.5 billion won contract in August last year but the local court did not approve of the project.

In Iraq, Hyundai Engineering & Construction is experiencing a delay in payment with regard to the Karbala Refinery Project. This project was started two years ago by Hyundai Engineering & Construction, GS Engineering & Construction, SK Engineering & Construction and Hyundai Engineering. The total construction cost amounts to US$6.04 billion, the largest amount in the plant construction history of South Korean builders.

The project for refining 140,000 barrels of crude oil a day was halted at a completion rate of 22% as the companies decided to slow down with the Iraqi government failing to pay the cost due to a budget deficit. The construction period is likely to become longer than the previous estimate of 54 months. As of the end of the first quarter of this year, the total non-payment regarding the project added up to 148.8 billion won or so. At least some of this amount is expected to be dealt with sooner or later as the Iraqi government has asked for an IMF loan.

This year, South Korean construction companies are having difficulties abroad. In the first quarter, they signed international construction contracts worth a total of US$14.5 billion, down 41% from a year ago, to hit a four-year low. The new contracts in the Middle East totaled US$4.5 billion, down 36% from a year earlier, while the combined value of those in Asia plummeted by 43% to US$6.8 billion. The amounts associated with European and Latin American markets dropped by 99% and 68% as well, respectively. Those obtained in Pacific & North American and African markets, in contrast, rose 34% and 113%, respectively. Still, the absolute amounts are rather petty at US$1.4 billion and US$0.5 billion.