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Dubai: The price of steel has more than doubled in the last seven months, affecting the UAE's construction sector. But the good news is that cement prices are due for a correction, said Riad Kamal, chairman of Arabtec Holding.
"Cement prices are due for a correction although rising prices of steel remain a major concern for all of us in the industry," Kamal told Gulf News.
"The cement price is inflated although it has a direct relation with the rise in oil price and transportation costs. This is partly demand driven and partly due to high oil price."
Arabtec is the first private company in the UAE to go public through an initial public offering. The company, which employs 52,000 workers, is listed on the Dubai Financial Market.
Established in 1975, it has undertaken a substantial programme of construction, including but not limited to high-rise developments, hotel interiors, residential complexes, office blocks, commercial and industrial projects, major airport developments, stadiums, drainage, sewage treatment plants, offshore oil and gas installations, cinemas, entertainment facilities, residential complexes and communities, and luxury villas.
In an exclusive interview with Gulf News, Kamal expressed his views on the sector and providing updates on the status of Burj Dubai, the world's tallest structure. Excerpts:
Gulf News: At what stage is the construction of Burj Dubai?
Riad Kamal: Construction is proceeding smoothly. Concrete work is nearly done as it has reached the top floor - 160th. The cladding work is going on and is expected to be completed in a few months.
The steel spire, which will be completely installed in four months time, is about 50 per cent complete. Malaysian contractor Eversendai is doing the fabrication and installation work on the spire, which will sit on top of the tallest floor. The fabrication work is being done in the UAE although the pipe is coming from Korea.
Mechanical electrical and plumbing work is in full swing. The first phase of the tower is scheduled for delivery in the first half of 2009.
How safe is the structure? There are concerns about earthquakes and other factors.
There's nothing in the world that could challenge the will of God. But exceptional limits have been taken into consideration in the design and construction of Burj Dubai.
The Gulf region is not known for frequent earthquakes. However, it has been designed to withstand earthquake tremors of the highest scale. The structure stands on 50-metre deep concrete piles.
Building technology has improved significantly and the best solutions have been used in the tower's design and construction.
How has September 11 impacted building design and construction?
A lot of lessons have been learnt. The changes have improved construction.
Some of these include building shelters for people living and working in the building so that they can be rescued fast should there be any incident.
A lot of thought has gone into the design so that people can be evacuated fast.
Arabtec is probably the biggest construction company in the UAE. What is the value of your order book?
We have an order backlog of Dh34 billion, including Dh24 billion worth of construction projects within the Gulf and Mena region.
We have recently been awarded a contract worth Dh10 billion to build the tallest tower in Russia, which we will start working on soon.
We are currently in negotiations for more projects worth around Dh5 billion. These include Dh3 billion worth of projects in the UAE and another Dh2 billion outside the UAE.
One of our major projects is the Meydan construction where we are involved in the biggest package worth Dh4.6 billion, in a joint venture with a Malaysian company. We are on course to deliver the first phase early next year while the complete project will be delivered at the end of 2009.
Arabtec has been acquiring companies to consolidate its grip on the supply chain. Are you planning to acquire more?
We are in final negotiations to acquire a major piling company that will help us manage the entire supply chain and undertake projects on a turnkey basis.
We are continuously looking out for opportunities that add value to our shareholders and create synergies with our existing business at the same time.
However, we are not planning to buy any building materials company.
What about setting up your own cement plant to secure supplies and reduce risks of the fluctuating cement price?
Setting up a cement plant involves heavy capital. Even acquiring stakes in them is very expensive.
However, I think the cement price is due for a correction as the current prices are highly inflated, partly due to the higher oil price and transportation cost and partly due to demand.
Besides, a dozen new cement plants are coming on stream within the next 24 months and that will help the price stabilise.
What about the price of steel?
Steel prices have doubled in seven months. It is a single most cause for concern for us, and the industry. Steel is a major component of the construction business. We are all suffering.
But how do you manage with soaring costs and sudden price escalation when, if I have understood correctly, the majority of the projects are executed on fixed price contracts.
You are absolutely right. Although minor, price escalation cost is built in the contracts. Fortunately, developers are responding positively to these issues in a responsible manner. They all know the reality and are positively compensating contractors for the additional costs even in a fixed rate contract.
So, if there is added costs, we charge the developer and they take a realistic view of the additions.
How is the margin? Four years ago, contractors used to carry out projects on a mere five per cent profit margin. How is it now?
About 10 per cent net margins are considered reasonable today.
How are you coping with rising labour costs? What is the minimum wage in Arabtec?
We pay unskilled workers a minimum of Dh650 with accommodation while skilled workers get Dh830 per month, including accommodation.
Rising labour costs have been an issue and we had to face work stoppages last year. However, that is in the past.
The worst is over. We have actively engaged the senior management with the workers' representatives to look at and try and solve their problems. This has helped us develop greater understanding with our workforce.
What about project delays? People blame the contractors. What is your defence?
There are many reasons why a project is delayed. One of the most frequent issues is the amendment to the designs.
On large-scale projects, often the master plan changes. Sometimes the infrastructure gets delayed due to reasons beyond our control.
In our case, we do not have project delays caused to us. These delays are caused by other factors.
Arabtec is still a UAE company. What is your gameplan in expanding regionally or internationally?
Although we have got a major contract in Russia and another in Pakistan, I would like to see Arabtec expand within the region. We have entered Qatar, Syria and Jordan. We want to expand in Saudi Arabia - a major market - before growing more internationally.
However, one day we hope to become one of the world's major construction companies, there is no reason why we should not since we have what it takes to become one.
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