united arab emirates infrastructure report q3 2009

Published by BUSINESS MONITOR INTERNATIONAL LTD

Including 5-year industry forecasts

© 2009 Business Monitor International. All rights reserved.All information, analysis, forecasts and data provided by Business Monitor International Ltd is for the exclusive use of subscribing persons or organisations (including those using the service on a trial basis). All such content is copyrighted in the name of Business Monitor International, and as such no part of this content may be reproduced, repackaged, copied or redistributed without the express consent of Business Monitor International Ltd.

All content, including forecasts, analysis and opinion, has been based on information and sources believed to be accurate and reliable at the time of publishing. Business Monitor International Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information provided, and accepts no liability whatsoever for any loss or damage resulting from opinion, errors, inaccuracies or omissions affecting any part of the content.

Business Monitor InternationalMermaid House, 2 Puddle DockLondon EC4V 3DS UKTel: +44 (0)20 7248 0468Fax: +44 (0)20 7248 0467email: [email protected]: http://www.businessmonitor.com

United Arab Emirates InfrastructureReport Q3 2009 ISSN: 1750-5550

Business Monitor International Mermaid House, 2 Puddle Dock, London, EC4V 3DS, UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: [email protected] Web: http://www.businessmonitor.com

© 2009 Business Monitor International. All rights reserved. All information contained in this publication is copyrighted in the name of Business Monitor International, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher.

DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained.

United Arab Emirates Infrastructure Report Q3 2009 Including 5-year industry forecasts by BMI

Part of BMI's Industry Report & Forecasts Series

Published by: Business Monitor International

Publication date: June 2009

United Arab Emirates Infrastructure Report Q3 2009

© Business Monitor International Ltd Page 2



CONTENTS

Executive Summary .........................................................................................................................................5

Market Overview...............................................................................................................................................6

UAE ............................................................................................................................................................................................................................ 6 Global......................................................................................................................................................................................................................... 8

Steel Prices Remain Depressed In The UAE.......................................................................................................................................................... 8 Global Overview.................................................................................................................................................................................................. 10 Table: Infrastructure Stimulus Plans List, 2009-2010 (US$bn) ........................................................................................................................... 11

SWOT Analysis...............................................................................................................................................17

United Arab Emirates Infrastructure Industry SWOT.......................................................................................................................................... 17 United Arab Emirates Political SWOT ................................................................................................................................................................ 18 United Arab Emirates Economic SWOT .............................................................................................................................................................. 19 United Arab Emirates Business Environment SWOT........................................................................................................................................... 20

Major Infrastructure Developments And Key Projects...............................................................................21

Transport Infrastructure Overview ........................................................................................................................................................................... 21 New And Ongoing Projects.................................................................................................................................................................................. 23 Airports................................................................................................................................................................................................................ 23 Ports .................................................................................................................................................................................................................... 24 Roads................................................................................................................................................................................................................... 24 Railways .............................................................................................................................................................................................................. 25 Other Transport Developments............................................................................................................................................................................ 26 Table: United Arab Emirates – Major Infrastructure Projects – Transport......................................................................................................... 27

Energy And Utilities Infrastructure Overview........................................................................................................................................................... 29 New And Ongoing Projects.................................................................................................................................................................................. 34 Power Plants And Transmission Grids ................................................................................................................................................................ 34 Oil And Gas Pipelines.......................................................................................................................................................................................... 35 Water ................................................................................................................................................................................................................... 36 Table: United Arab Emirates – Major Infrastructure Projects - Utilities ............................................................................................................ 38

Construction Overview ............................................................................................................................................................................................. 40 New And Ongoing Projects.................................................................................................................................................................................. 41 Residential Construction...................................................................................................................................................................................... 41 Commercial Construction.................................................................................................................................................................................... 43 Table: United Arab Emirates – Major Infrastructure Projects – Construction.................................................................................................... 45 Tourist Construction............................................................................................................................................................................................ 48

Industry Forecast ...........................................................................................................................................49

Table: Economic And Construction Data ............................................................................................................................................................ 49

Business Environment ..................................................................................................................................50

Middle East Infrastructure Business Environment Ratings....................................................................................................................................... 50 Table: Regional Infrastructure Business Environment Ratings............................................................................................................................ 52 Limits Of Potential Returns.................................................................................................................................................................................. 53 Risks To Realisation Of Returns .......................................................................................................................................................................... 53

Project Finance Ratings: Outlook For Middle East.................................................................................................................................................. 54 Table: Design And Construction Rating .............................................................................................................................................................. 56 Table: Commissioning And Operating Rating ..................................................................................................................................................... 57



Table: Overall Project Finance Rating................................................................................................................................................................ 59 Foreign Direct Investment ................................................................................................................................................................................... 59 Labour Force....................................................................................................................................................................................................... 60 Legal Framework................................................................................................................................................................................................. 62 Property Rights.................................................................................................................................................................................................... 63

Macroeconomic Economic Activity..............................................................................................................64

Table: United Arab Emirates – Economic Activity .............................................................................................................................................. 66

Political Outlook .............................................................................................................................................67

Company Monitor...........................................................................................................................................70

Dutco Balfour Beatty Group ................................................................................................................................................................................ 70 Al Habtoor Leighton Group................................................................................................................................................................................. 73 Veolia Water........................................................................................................................................................................................................ 76 Emaar .................................................................................................................................................................................................................. 79 Nakheel ................................................................................................................................................................................................................ 82 Mubadala Development ....................................................................................................................................................................................... 85

BMI Forecast Modelling.................................................................................................................................87

How We Generate Our Industry Forecasts ............................................................................................................................................................... 87 Construction Industry .......................................................................................................................................................................................... 88

Sources ..................................................................................................................................................................................................................... 88 Business Environment Ratings.................................................................................................................................................................................. 89 Ratings Overview...................................................................................................................................................................................................... 89

Table: Infrastructure Business Environment Indicators ...................................................................................................................................... 90 Project Finance Ratings Methodology...................................................................................................................................................................... 90

Design & Construction Phase.............................................................................................................................................................................. 92 Commissioning and Operating Phase- Commercial Construction....................................................................................................................... 94 Commissioning and Operating Phase - Energy and Utilities............................................................................................................................... 96 Commissioning and Operating Phase –Transport ............................................................................................................................................... 98



Executive Summary

In an effort to cushion the blow to their economies governments of the region, including the UAE’s, have

bolstered investments in infrastructure. In Dubai, Dubai Electricity and Water Authority (DEWA) has

embarked on a multi-billion dollar capital expenditure programme, while the government of Abu Dhabi is

pushing ahead with its transport master plan.

As the dust settles, there is increasing optimism coming from the Gulf region on the momentum behind

infrastructure projects, which seems to have been sustained in spite of the global financial turmoil. True,

projects have faced delays and sponsors have departed (see, for instance, the case of Concourse 3 at the

Dubai Airport), but the speed that infrastructure projects managed to get back on track is noteworthy

(after just one month the Concourse 3 project had a new contractor). Therefore, we have significantly

revised our outlook this quarter, adopting a more optimistic forecast for industry value growth in 2009

onwards. The investments Abu Dhabi is making in infrastructure, in transport especially, and also

ongoing infrastructure investments in Dubai, such as the metro, have not only survived the downturn, but

have attracted the attention of international majors, which are seeking a safe haven in the UAE’s (and

certainly the wider Gulf region’s) infrastructure markets. Such investments we believe will grease the

wheels of the industry and propel it towards growth in 2009.

In BMI’s Q309 UAE Infrastructure Report we forecast that the industry value real growth for 2009 will

be 6.8%, compared with our previous forecast of 0.9%. As such, we forecast that industry value will

reach AED86.7bn (US$23.6bn). A similar level of growth is expected for 2010, with value climbing up to

AED95.9bn (US$26.1bn).

In addition, the positive effect of lower raw material prices cannot be overestimated. As raw material

prices decline, developers in infrastructure and general construction may become more confident about

long-term cost estimates, which in 2008 were constantly being revised as prices of steel and cement

reached new heights.

However, we also stress that most of the developments in the infrastructure sector of late have been

overwhelmingly government backed. As such, we maintain our assessment that that government-backed

infrastructure spending will sustain the construction sector growth at a time when private investments are

expected to decline. We anticipate that bridge loans will become the modus operandi for the majority of

the project-financing arrangements as investors take a much more circumspect approach to long-term

commitments, at least while uncertainty is the state of play in the global financial markets.



Market Overview

UAE The International Monetary Fund (IMF) estimated in a study released in early March 2009 that US$201bn

will be invested in infrastructure in the UAE, the daily journal Emirates Business reported, though did not

specify a timeframe for investments. The UAE’s share of the investments in infrastructure will amount to

one-third of the total for the entire Gulf Co-operation Council (GCC) region, which amounts to an

estimated US$605bn. According to BMI’s database of infrastructure projects, from 2007 to today, at least

US$33bn have been pledged for transport infrastructure projects and US$60.9bn in energy and utilities.

The construction sector has been a primary beneficiary of the almost decade-long oil boom and surge in

investments in the Emirates. Although not the largest oil exporter in the region, the UAE has optimised

the process of turning oil windfalls into investments for diversification of its economy. For this reason the

UAE accounts for the bulk of ongoing and planned infrastructure projects among the Gulf Co-operation

Council (GCC) countries. The crisis in financial markets and the global macroeconomic instability are

taking their toll on the UAE’s infrastructure sector, however. Low oil prices, higher interest rates, a

potential correction in real estate prices and dented investor confidence will reduce growth in the

construction sector for 2009 and we believe for 2010 as well. The evidence of an abrupt correction taking

place is mounting. The journal Middle East Economic Digest reported in early January that the value of

construction contracts awarded in the UAE in Q408 were worth US$14.4bn, a decline of 85% year-on-

year (y-o-y).

We reiterate that the long-term fundamentals that will support infrastructure growth in the Emirates are

still strong. Adequate infrastructure development is the backbone of the UAE’s growth. Investments in

transport and utilities are pouring in, but they follow decades of underinvestment and assets that are now

struggling to keep up with the rapid pace of construction. For the first time, the governments of the

emirates are opening up sectors to private investments, in an effort to draw in as much expertise and funds

as possible and respond to rising demand.

In utilities, the Dubai Electricity and Water Authority (DEWA) is planning the financing for

infrastructure investments, while the partial divestment of Abu Dhabi’s integrated water and power plants

(IWPPs) has given several investors the opportunity to enter the utilities market in the UAE. In addition,

the Department of Transport in Abu Dhabi unveiled a five-year plan for the development of the emirates

transport network. The highlight of the plan was the proposal to build the country’s first high-speed

railway between Dubai and Abu Dhabi. The continued involvement of the private sector and a clear

regulatory environment for public private partnerships in the UAE have ensured that the country has the

highest levels of foreign direct investment (FDI) in the region, much of which is diverted toward

infrastructure development.



In a May 2007 report by Gulf News, the IMF Director for Middle East and Central Asia said that the

‘private-public partnerships are working perfectly well in places like Dubai and gone are the days of

inefficient public undertakings gobbling up resources’. We are particularly bullish about the future

growth of emirates other than Dubai, where new investment opportunities are becoming more abundant

as the governments follow in Dubai’s footsteps. Being the largest among the emirates in the UAE, we

anticipate that Abu Dhabi will continue to be at the forefront of ongoing efforts to diversify the economy

away from oil revenues and boost the manufacturing and services sector. The Khalifa port is one such

example. According to Emirates Business, the government is planning infrastructure projects worth close

to AED1trn (US$272bn) in the next five to seven years. We anticipate that such initiatives will become

even more popular in the Emirates as the various governments attempt to shore up economic growth

through stimulus plans, which will place significant emphasis on infrastructure projects as a means to

boost demand levels in the ailing construction sector.

Dubai’s 2009 budget was released on January 10 and encompasses government expenditure of

AED37.7bn (US$10.26bn), a 42% increase y-o-y. This will send the fiscal balance into negative territory

of 1.3% of Dubai’s estimated GDP for 2009, or AED4.2bn (US$1.14bn), on an average oil price of

US$45.0/bbl. According to BMI forecasts, there will be a sharp decline in the fiscal balance in the UAE

for 2009, which is much in line with the anticipated movement of oil prices, clearly indicating how

volatile the economy is to oil price fluctuations. With the new budget announced, the risks to the fiscal

balance forecasts are to the downside.

The finance ministry is planning to funnel money into social and transport infrastructure, and public

authorities and public projects such as the Roads and Transport Authority, the Dubai metro project and

the Dubai Ports Authority. No other specific details have been released yet, but major projects already

under way include the new tramline in Dubai, the Dubai metro, the Parallel Roads project and a possible

expansion of the Jebel Ali port.

We maintain our view (strengthened by new spending announcements) that spending on infrastructure

projects will sustain the overall construction sector in positive territory, particularly in the short term,

when private investments (especially in residential and commercial construction) will decline as even the

majors (Nakheel and Emaar, for example) show caution in taking up new ventures.

Of all the sectors, we are most optimistic about the growth potential of the utilities sector. We anticipate a

continuous stream of investments – public mainly, but also private in some flagship projects – as the

fundamentals of population and economic growth will be strong in the emirates. In addition, the utilities

companies are racing to respond to rising demand for more water services, power generation and power

transmission infrastructure, coming from new residential and mixed-used developments. We forecast that

the utilities industry value will rise by nearly 90% between 2007 and 2012, a figure that highlights the

growth opportunities in the sector.



The three main areas of construction activity in the UAE are Abu Dhabi, Dubai and Sharjah, all of which

have distinct infrastructure-spending programmes. Abu Dhabi is at the centre of the construction sector

boom, with projects worth AED37.32bn (US$10.16bn) already in various phases of completion. One of

the initiatives in place is the overhaul of the road infrastructure in the western region of Abu Dhabi, as

part of an AED98bn (US$26.6bn) development plan unveiled in August 2007. The Western Region

Development Council, established in 2006 to supervise new social and economic infrastructure projects,

estimates that the proposed private development projects will be worth close to AED20bn (US$5.4bn).

The Dubai government has plans to invest AED300bn (US$81.67bn) in the development of its aviation

sector as part of its Strategic Plan 2015 (announced February 2007) to develop Dubai as a leader in

aviation and logistics. Last but not least, Sharjah and Ajman present some very interesting prospects with

deregulation and FDI initiatives, following in the footsteps of Dubai and Abu Dhabi.

Although real estate is outside the scope of this report, in the UAE the property sector is a main barometer

of investor confidence. Fears over the strength of the property market are intensifying. Despite bullish

statements from local developers, property stocks speak for themselves – Dubai's Emaar is down 60.9%

since the start of 2008 and Deyaar Development is down by 56.8%. Two of Dubai's largest mortgage

lenders, Amlak Finance and Tamweel, are currently in merger talks, suggesting financial weakness.

Both firms have denied funding difficulties, but their stocks’ decline since January 2008 illustrates the

market's plunging confidence. With sentiment negative and funding in short supply, debt-laden property

firms will struggle to raise new capital, putting future construction projects in doubt. Already, Nakheel,

the semi-state owned property developer, has been forced to halt construction on some of its projects.

In a regional context, the country remains the most attractive market in the Middle East and Africa

(MEA) region. Low levels of political risk, a sound regulatory environment, healthy sector growth and

strong demand for infrastructure projects are key variables for the infrastructure sector. For these reasons

the UAE ranks first in BMI’s Middle East and Africa business environment ratings.

Global Steel Prices Remain Depressed In The UAE

According to the CEO of RAK Steel Ajay Agarwal, as cited by Emirates Business in February 2009, the

demand for steel in the UAE is expected to decline by about 50% in 2009, compared with 2008.

Consumption of rebar in the UAE last year was approximately 5.5mn tonnes and the fall in demand is

attributed to a slowdown in the construction sector. Reuters reported that the demand for steel from the

Gulf states' construction industry could drop up to 35% in 2009.



The UAE government decided to re-impose customs duty on imported cement and steel in early April

2009. This move was welcomed by the UAE's traders and manufacturers who believe that customs duty

will save local manufacturers and will also discourage oversupply in the market, according to reports by

Emirates Business. Earlier, the UAE government had eliminated the 5% customs duty on steel and

cement to help boost the UAE construction industry. As a result, Danube Building Materials noted that

there was an increase in the price of steel, from US$430 to US$500.

According to The Abu Dhabi Department of Planning and Economy (DPE), local steel prices plunged by

38% in December 2008. The DPE added that the drop may be due to declining domestic demand caused

by a continuing downward trend that began in September 2008. The fall – a byproduct of the global

financial crisis – is the largest domestic decline in steel prices since the trend began.

Steel prices in Abu Dhabi declined in September by up to 20% for the second consecutive month, the

DPE said. The decline is attributed to fears of global demand destruction as a result of the worsening

macroeconomic environment. However, this is a small decline in light of the 90% rise witnessed during

the first half of 2008.

According to the government's data, Turkish spiral steel dropped approximately 20% month on month

(m-o-m) in September; it had previously declined by 15% m-o-m in August. In July, the price of Turkish

spiral steel was AED6,150/tonne and, according the DPE, this dropped to AED4,438/tonne in September.

The price of Korean angled steel declined by 11% to AED4,725/tonne, and the price of rebar slipped by

8% to AED4,950/tonne.

These figures follow news on October 6 that Saudi Arabia's Sabic, the region's largest steelmaker, was

reducing rebar prices for the third time since September in light of declining demand. This is a

remarkable change in attitude that comes as a result of a weak third and most likely fourth quarter of the

region's steel industry, which up until September was positive that demand for steel would remain robust.

We also held the same view, although in our latest analysis on the steel markets in early September (see

Global Steel Market Calls For Nerves Of Steel In The Middle East, September 4 2008) we did caution

against the risk of deceleration of global growth causing demand destruction – this is in addition to

surplus stockpiles of iron ore in the major producers around the world, which will also forced prices

down. Both our risk scenarios materialised only a month later.

In a move that prima facie seems contradictory, on October 13 Sabic also announced that it is planning a

capital expenditure programme to triple its steel production output to 17mn tones by 2020. However,

according to a report by TradeArabia, the company anticipates demand to resume in 2009 and, until then,

it is looking to expand through a series of mergers and acquisitions of smaller companies while prices are

falling.



There is a consensus among traders and market players in the UAE that fears of shortages, followed by

fears of demand destruction since October 2008, overshadowed demand and supply fundamentals during

the past six months. According to the report, most estimates see prices in the UAE stabilising at around

AED2,500 (US$680). Turkey increased steel prices by US$200, causing prices in the UAE to rise to

AED2,200 (US$600) from AED1,800 (US$490).

Global Overview

Governments To The Rescue: The Global Surge In Infrastructure Spending

The proliferation of infrastructure-geared fiscal stimulus plans across the world, led by multi-billion-

dollar pledges from the US and China, breathed some life into the sector, which has been suffering from

the credit crunch and investors' risk aversion. Governments and multilateral organisations are stepping in

and stepping up public finance allocations for infrastructure projects to help their economies and cushion

the blow.

China announced a US$586bn stimulus plan, with grand plans for transport infrastructure. In the US,

President Barak Obama announced in early December that government spending on infrastructure will be

the largest the country has seen since the Highways Programme of the 1950s, arguing that fiscal prudence

is not a priority at this point. France, Germany and Australia have all announced multi-billion-dollar fiscal

stimulus packages, with significant provisions for infrastructure works. The European Commission,

through various mechanisms and EU schemes, is also channelling funds for infrastructure projects, the

latest being the EUR1.7bn for railways under the TEN-T programme. In emerging markets, South Korea,

Peru, Israel and Argentina are just some

of the countries that have announced

stimulus plans to boost economic activity

though large public-works projects. All

of these projects will significantly boost

the infrastructure sector, especially the

transport segments, and go some way in

meeting rising demand from emerging

markets for new and improved

infrastructure

According to data available at the time of

writing, BMI estimates that the stimulus

plans announced globally amount to a

combined total of approximately

US$2.4trn, which amounts to 4.3% of global GDP in 2009, which according to BMI forecasts will be

US$55.4trn. Approximately US$480bn (20%) is earmarked for infrastructure spending programmes in

Asia To Lead Demand For Infrastructure Five-Year Investment Needs Estimates For Emerging

Markets (US$bn)

355

140

500

660

150

165

890

500

3360

0 1,000 2,000 3,000 4,000

Latin America & Caribbean

MENA

India

China

Sub-Sahara Africa

East Asia (exc. China)

South East Asia

Central & Eastern Europe(exc. Russia)

Total

Source: Deloitte Research, Goldman Sachs, World Bank, PriceWaterhouseCoopers, BMI



2009 and 2010. BMI's is among the more conservative estimates of the infrastructure allocations, which

vary between US$430-US$680bn. Though the numbers may change significantly as more governments

announce new projects or increase their existing pledges, BMI has estimated the infrastructure allocations

based on the minimum amount announced by governments thus far, which have also clearly stated the

value of funds that will go towards infrastructure.

Table: Infrastructure Stimulus Plans List, 2009-2010 (US$bn)

Country Total stimulus package Infrastructure allocation

US 787 98

China 586 263

EU 254 6.1

Japan 250 na

Italy 105 15.77

Germany 103 22.3

France 33.8 12.7

Argentina 32 21.2

Canada 30 12

UK 29 4.1

Australia 27 3.12

Russia 20 na

Malaysia 16.2 na

Spain 14.45 8 (public works)

Singapore 13.6 3

South Korea 13 1.9

Mexico 8.2 na/NIP in place

Indonesia 7.5 5.7

Netherlands 7.5 na

Hungary 6.9 na

Vietnam 6 6

Israel 5.5 2.5

Taiwan 5.2 1.7

Chile 4 0.7

India 4 na

Bulgaria 3.66 na

Czech Republic 3.3 na/small amount

Norway 2.87 0.386



Table: Infrastructure Stimulus Plans List, 2009-2010 (US$bn)

Country Total stimulus package Infrastructure allocation

Sweden 2.8 na

Portugal 2.2 na

Lithuania 1.65 na

Slovenia 0.8 na

Slovakia 0.332 na

Brazil na Growth acceleration programme (PAC) in place

Saudi Arabia 126.7 (stimulus budget) 18 (including telecoms and agriculture)

Total 2,386.5 480.2

Source: BMI

The infrastructure deficit globally runs in

the trillions of dollars. For developed

states the needs are in maintenance and

repairs, with the US needing an estimated

US$2.2trn in repairs alone over the next

five years, while for developing countries

greenfield projects in transport, energy

and utilities are necessary to promote and

sustain growth. This is especially so for

the BRIC (Brazil, Russia, India and

China) economies, whose infrastructure

needs will increase parallel to their

population and growth levels.

We reiterate however, that the

momentum the private sector was

creating, by participating in infrastructure programmes through the proliferation of public private

partnerships, was a key thrust behind the investments made in infrastructure projects before the financial

crisis.

Not only was there a much larger pool of funds made available for new projects – currently locked in the

credit markets – but efficiency levels were also much higher, and targets for projects (from budgets to

timescales) were better adhered to.

Annual Needs Of Developed States Infrastructure Needs For Sample Of Developed

States* (US$bn per year)

90

60

70

75.7

40

440

775.7

0 200 400 600 800 1000

Germany

Italy

France

UK

Spain

US

Total

* Calculated using 2007 US$ converted GDP data. US data only is from the 2009 USSCE Report on US Infrastructure. Source: US Society of Civil Engineers, Deloitte Research, BMI



We highlight the inherent time-lag effect of these plans. Decisions on fund allocation, feasibility studies

and planning are processes that can take up to 12 months. Adding to that the bureaucracy associated with

public bodies assuming significant responsibilities for implementing large-scale capital expenditure

programmes, the time-lag between the decision and the actual implementation increases. It is therefore

highly possible that many of the projects envisaged by governments will take years to materialise, and

possibly at a much higher cost than initially estimated. Hasty decisions are going to backfire in the long

term if governments, in an effort to speed up the creation of new jobs, embark on white-elephant projects.

Though we anticipate that government investment will be a cushion to soften the blow for industry

players and the wider economy, we believe that the long-term capital requirements of meeting rising

needs lies in the cooperation of the public and private sectors and the proliferation of well implemented

PPPs.

Having briefly assessed the potential benefits and shortcomings of the infrastructure provisions within the

fiscal stimulus plans, what follows is an overview of the major infrastructure-geared stimulus plans from

each region.

Americas

US stimulus plans were announced in February, with the signing into law of a US$787bn package, which

includes US$48bn for transport infrastructure and US$50bn for energy projects. The allocations will

boost investment into infrastructure, one of the areas that has historically hindered the US's infrastructure

business environment. In early 2009, the American Society of Civil Engineers released a report on the

country's infrastructure that rated it at a D-grade, defined as poor, and noted that US$2.2trn needed to be

invested over the next five years to bring it up to scratch.

Argentina published one of the most comprehensive stimulus packages, which earmarked US$21bn for

public works projects. However, we are most concerned about Argentina's plans, as the government has

shown minimal fiscal prudence in dealing with the crisis. We believe that any efforts will be short lived

and will not be enough to avert a potentially much deeper crisis in the economy.

Chile announced a smaller US$4bn package, with US$700mn allocated for infrastructure. Chile is one of

the best-placed countries in the region to sustain this level of government spending owing to years of

prudent fiscal policies, resulting in a budget surplus.

Colombia has announced a US$37.8bn spending on infrastructure to 2010. However, it is not well placed

to follow through on this, with a budget deficit forecasted at 3% in 2009.



Brazil, one of the largest economies in the region, has announced commitments to its pre-existing growth

acceleration programme (PAC), including a boost allocated in February 2009. In total, it expects to invest

BRL642bn (US$291bn) in infrastructure projects between 2007 and 2010. This includes around 1,200

projects.

Mexico's US$141bn five-year infrastructure plan (starting from 2007) is not so secure, however. With the

multi-billion-dollar Punta Colonet port project having being suspended already and a reduced FARAC II

road tender floated, BMI is wary of more cancellations to come.

Asia Pacific

China's fiscal stimulus plan dominates the region, owing to its scale of US$586bn, which represents 12%

of GDP, the largest in the region. The breakdown of the funds earmarked for infrastructure is as follows:

45.0% of the CNY4trn package to be spent on railways, highways, airports and power grids, 25.0% to be

spent on post-disaster reconstruction and 9.3% on rural development and infrastructure.

Japan's government has launched a record fiscal stimulus of JPY15.4trn (US$154bn). The package will

be the third initiated by Prime Minister Taro Aso since he took office last September, and will take the

cumulative total to JPY25trn (US$250bn), representing 5.5% of the country's GDP. The fiscal stimulus

plan does not contain any specific provisions for infrastructure projects, or at least none have been

announced.

Australia's infrastructure stimulus plan represents a risk to the upside of the country's infrastructure

market score. Though we do not see risks to the upside for 2009, 2010 may see the industry recover on

the back of the US$27bn fiscal stimulus plan, which allocates US$3.12bn for infrastructure expenditure.

Singapore has made one of the largest pledges for fiscal stimulus investments in the region with

US$13bn allocated, accounting for 8% of the country's GDP. Provisions for infrastructure amount to

approximately US$3bn. The abrupt contraction in Singapore's economy as a result of the financial crisis

led to an equally abrupt deterioration in the industry value outlook, which halved the country's

infrastructure market score for 2009, and as a result Singapore remains at the bottom half of the table.

However, the risks are heavily to the upside. One of the largest projects in the pipeline is the Marina

Coastal Expressway.

Indonesia has pledged US$7.5bn for its fiscal stimulus plan, with US$5.7bn allocated for infrastructure.

Though this represents an upside potential for Indonesia's infrastructure sector growth, we believe that

deep structural problems in Indonesia such as corruption, a weak legal framework and an opaque

tendering process will continue to weigh down the country's overall score.



Vietnam has similar problems. The country has seen a massive influx of investment in infrastructure in

recent years and the government's US$6bn infrastructure stimulus plan is aimed at sustaining the

momentum in the sector. However, regulatory hurdles, inefficient government procedures and

bureaucracy pose risks that the already ill-defined stimulus plan may face a difficult implementation.

South Korea’s government has announced that it will allocate KRW1trn (US$661mn) in special loans

for private infrastructure construction companies. According to AFP, it is prepared to take on up to 80%

of loan repayments in the event of an abrupt rise in rates. In addition, it will provide KRW2trn

(US$1.32bn) in debt guarantees for private-sector companies involved in the construction of

infrastructure.

Taiwan's government has been forced to step in to try to offset the demand void, and this has taken the

form of a four-year, TWD500bn (US$14.7bn) fiscal-stimulus package including, among other things,

subsidies, tax cuts/refunds and infrastructure spending. Preliminary information for infrastructure

provisions indicate allocations of approximately US$1.7bn.

Europe

France’s president, Nicolas Sarkozy, announced a EUR26bn (US$33bn) stimulus package in December

2008 to boost the country's economy. Under the scheme, state-owned companies will increase investment

by EUR4bn (US$5.1bn) in 2009 and the government will supplement this with a further EUR4bn for

high-speed rail projects, dams and canals, university campuses, road maintenance, and other projects.

Sweden, Slovenia, Slovakia and Lithuania have all announced smaller fiscal stimulus plans, though

specific infrastructure provisions were not available at time of writing.

Spain's infrastructure and construction sector is probably the one most in need of an infrastructure

stimulus plan, and already tangible progress has been made in some major projects, such as the Madrid-

Valencia high-speed railway. The government has pledged US$13bn for infrastructure projects.

Portugal, Spain’s Iberian neighbour, has unveiled plans for EUR18bn (US$28bn) to be invested in

transport infrastructure projects over the next decade. Portugal's public works minister, Mario Lino, said

that of the EUR18bn, EUR9.15bn (US$14.3bn) will be invested in high-speed rail projects, EUR3.31bn

(US$5.16bn) will go towards the construction of a new international airport, and EUR3.12bn

(US$4.86bn) will be used for Portugal's road network. In the short term, the government has pledged

US$2.2bn.



Germany and Italy have announced two of the largest plans, of US$103bn and US$105bn respectively.

Germany has allocated US$22.3bn for infrastructure, while according to a report by Reuters, Italy's plans

are mostly a 'recycling' of existing funds.

The European Commission (EC) has announced a US$254bn fiscal stimulus plan. Approximately

US$6.1bn has been pledged for energy and transport investments, but in reality we expect this to be much

higher through loans for various programmes such as the Trans-European Networks and the European

Investment Bank loans.

Industry Keeping Its Fingers Crossed

An infrastructure stimulus plan has never been done before on such a global scale before, so expectations

of the effects of the plan vary. Industry participants, such as infrastructure and construction majors and

energy and water utilities, are clearly

pinning their hopes on government

infrastructure spending. As far as the

industry is concerned, these stimulus

plans are the silver lining of an otherwise

bleak outlook for 2009. This is why, in

all annual reports thus far, companies

across all infrastructure sectors and from

all over the world have highlighted the

expected benefits from the stimulus

plans.

Major players in the sector have

advocated caution in their outlook for

2009 and have trimmed down their

expectations for revenue and profit growth this year. A common theme was the reduction in capital

expenditure programmes and a focus on organic growth for companies whose balance sheets were

suffering from declining activity in the sector. According to a report published in early April 2009 by

ratings agency Fitch, the economic downturn will have a delayed effect on European infrastructure

majors, culminating in declining revenues and reduced cash flows.

Negative Outlook For 2009 Global Construction Industry Value Real Growth,

2009-2013 (%)

-3.752

2.365

4.854 5.076 5.490

-6

-4

-2

0

2

4

6

2009f 2010f 2011f 2012f 2013f

Global Construction IndustryValue Real Grow th (%)

f = forecast. Source: National Statistical Agencies, BMI



SWOT Analysis

United Arab Emirates Infrastructure Industry SWOT

Strengths Government-supported infrastructure spending in transport and utilities will intensify as a means of boosting demand levels

Clear regulatory environment and governing private investments in infrastructure creates a favourable investment climate

Demand for better transport and utilities infrastructure will continue as population figures rise and new developments increase the size of cities

Government-backed infrastructure investments will support construction sector growth, which we anticipate will falter in 2009/2010 as investors brave the storm of global financial markets

Weaknesses Rising unemployment is a result of the contraction in the sector

Project finance operations are onerous while the credit markets remain clogged

Rapid growth of the residential and commercial construction sectors has not been matched by an equally rapid growth in the local utilities sectors. This has resulted in new buildings not having access to power and water, potentially for years to come, making them unusable

Opportunities The record high raw material prices have subsided

The construction industry remains one of the largest sectors after oil and gas in the UAE. With plans to develop Dubai as a regional business and manufacturing base, this growth is set to continue

Government willingness in Dubai and Abu Dhabi to allow private participation in infrastructure still seems to be high

Threats Limited supply of credit on the global financial market impacts project finance

Demand destruction as a result of the global macroeconomic volatility

The main threat is to the political stability of the region as a whole. Recent terrorist attacks elsewhere in the Middle East have caused a reduction in the number of tourists visiting the region. However, tourism has continued to thrive in the UAE, but this could change if terrorism threatens the UAE more directly



United Arab Emirates Political SWOT

Strengths Standards of living are high for nationals, which has dampened any demands for greater political representation

The monarchy enjoys strong support nationwide

Weaknesses Lack of democracy poses long-term risks given trends towards greater popular participation elsewhere in the region

Sheikh Khalifa bin Zayed assumed the presidency after the death of Sheikh Zayed al-Nahayan. He is equally conservative and is unlikely to make concerted efforts to address constitutional issues

The succession lineage is somewhat opaque, raising concerns about longer-term stability

Opportunities The UAE co-operates closely with other GCC states in security and economic policy

The UAE is typically a 'dove' within OPEC, sympathetic to the needs of consumer states, which is good for its relations with the West

Dubai enjoyed a smooth political succession following the death of former ruler Sheikh Maktoum bin Rashid al-Maktoum in January 2006, with new ruler Sheikh Mohammed bin Rashid al-Maktoum welcomed by most of the public

Threats There is a long-running territorial dispute with Iran, which continues to affect bilateral relations

Relatively poor living conditions among some foreign workers have led to strikes and demonstrations. Given the size of the expatriate community, this poses some threat to domestic stability



United Arab Emirates Economic SWOT

Strengths The UAE is a member of the Gulf Co-operation Council, which, as well as being a common market, is targeting a common currency by 2010

The UAE has one of the most liberal trade regimes in the Gulf, and attracts strong capital flows from across the region

In common with most Gulf states, there are a high number of expatriate workers at all levels of the economy, making up for the otherwise small workforce

The UAE is progressively diversifying its economy, minimising vulnerability to oil price movements

Weaknesses The UAE's currency is pegged to the dollar, giving it minimal control over monetary policy and reducing its ability to tackle inflationary pressure

The state's location in a volatile region means that its risk profile is, to some extent, affected by events elsewhere. US concerns about regional militant groups and Iranian WMD programmes could affect investor perceptions

Opportunities Oil prices are expected to stay high (by historical standards) over the forecast period

Economic diversification into gas, tourism, financial services and high-tech industry offers some protection against volatile oil prices

The construction, tourism and financial sectors are growing rapidly, driven by domestic and foreign investment

Threats Heavy subsidies on utilities and agriculture and an outdated tax system have contributed to persistent fiscal deficits in the past, although rising oil revenues have masked the problem in recent years

Some bottlenecks have been forming in the construction sector and there is a chance of delays in several high-profile construction projects



United Arab Emirates Business Environment SWOT

Strengths The UAE is a member of the Gulf Co-operation Council, a six member common market, and has been a member of the WTO since 1996

The state has invested large amounts in infrastructure, and will continue to do so over the next 10 years

The UAE's diversified economy reduces risks from volatile oil prices

Weaknesses Due to the state's federal nature, regulations can vary considerably across the emirates

The regional economy is oil-dependent. This has historically been very cyclical, which increases risks for long-term projects

Opportunities Large number of free trade zones offering tax holidays and full foreign ownership

Comparatively relaxed rules on expatriate employment

The UAE's social stability and relative prosperity means that there is far less concern for security than in some other Gulf states

Threats The state is bureaucratic relative to regional peers

Strong oil prices have massively increased liquidity in the region. This has resulted in strong financial inflows, increasing risks that projects of lower investment potential are currently being funded



Major Infrastructure Developments And Key Projects

Transport Infrastructure Overview

The rapid pace of the UAE’s expansion is putting pressure on transport infrastructure. Abu Dhabi, in

particular, suffers from chronic congestion problems, as the city’s population now far exceeds the original

population expectations of its designers and it has not developed its transport infrastructure as rapidly as

Dubai.

The Abu Dhabi government plans to launch a long-term investment programme to upgrade its airports,

seaports and public transportation system. Some of the projects it announced are the construction of a

US$7bn international airport, to be completed between 2010 and 2012, and a new seaport facility at the

Khalifa Port and Industrial Zone, located in Al Taweelah. ‘Plan Abu Dhabi 2030’ outlines a major

transport infrastructure overhaul to cater for a growing population, estimated to reach 3mn by 2030. Plans

for the metro, high-speed rail with Dubai, freight rail corridor and new roads are all taking shape. In

January 2009, the Abu Dhabi Department of Transport was expected to announce the final route and

construction is due to begin immediately after that, with view to be completed by 2015.

The end of 2008 also saw the first public-private partnership (PPP) scheme in Abu Dhabi’s transport

sector. Abu Dhabi’s transport department is planning an overhaul of the UAE-Saudi Arabia highway. The

works have been divided into four phases, each of which will be tendered as a separate contract under a

25-year concession to build, operate and transfer (BOT). One of the frontrunners for two of the contracts

is Italian construction and infrastructure major Salini Costruttori, which told the journal Arabian

Business that it is bidding for the contracts for phase one and phase three to build and operate a 80km and

105km stretch of the highway, respectively.

The Abu Dhabi Transport Authority announced several major road projects in July 2008, with an

estimated cost surpassing AED12bn (US$3.26bn). In addition to the UAE-Saudi Arabia highway, which

will be the flagship road project in the emirate, others include a new highway to Al Ain in the eastern part

of the country, new roads around the industrial city of Mafraq, and new highways between the major

towns of Al Gharbia, including the Ghayathi-Madinat Zayed road construction.

In March 2008, the RTA’s chairman told reporters that the roads and transport authority has earmarked

AED10.5bn (US$2.86bn) for investments in transport every year for the next five years. The RTA’s

chairman further said that the RTA is not looking to borrow money for the projects, thus refuting earlier

reports that the transport authority was considering tapping the international debt markets to fund

investments in transport infrastructure. The government of Dubai and the RTA will fund the projects, the

chairman said. Specifically for 2009, the chairman of the board and executive director of the Dubai Roads



and Transport Authority (RTA), Mattar Al Tayer, stated that the organisation will spend AED2.5bn

(US$0.68bn) on road and transport projects in 2009. He added that the RTA's work has not been affected

by the global economic slowdown and that 40-50% of road projects in Dubai are complete, with primary

phases of projects scheduled to be finished after two years.

Currently, the emirates have 1,088km of road networks and BMI forecasts that road haulage will grow

5.9% per year (2008-2011). Furthermore, car ownership is forecast to rise in the country. Interestingly,

however, the share of roads in freight transport is going to decline (marginally) between 2006 and 2011.

Of course, share of roads will still be more than half of all freight, underlying the road system’s

importance to the UAE’s economy. However, with more investments going into ports and airports, we

believe the new transport infrastructure will slowly but steadily alter the modal transport balance and as a

result achieve the desired aim of decongesting the road system.

Airports are also at the forefront, with the largest airport in the world currently under construction in

Dubai. The UAE has eight international airports.

As the emirates grow, both in terms of population and in terms of physical infrastructure, the need for

more advanced transport becomes increasingly pressing. Dubai was the first to introduce rail as a means

of public transport and has now become a model for the neighbouring emirates, which are eager to reap

the benefits of rapid mass transit systems, such as metros and trams. On a regional level, the increasing

importance of rail networks is evident from several projects that introduce rail travel not only within

countries (for instance the north-south line in Saudi Arabia) but also between them, like the GCC Railway

– a project in planning since 2005, which will, if completed, integrate the railway systems in the Arab

Peninsula.



New And Ongoing Projects

Airports

Dubai

In late April 2009, Dubai Airports CEO, Paul Griffiths, disclosed that the opening of the new Al-Maktoum

International Airport, which was scheduled for June 2009, will be delayed by a year. Griffiths has stated that

the number of planned runways had been reduced from six to five.

The contract to build Dubai Airport's Concourse Three, which was awarded to the Al Habtoor Leighton -

Murray & Roberts - Takenaka (HMRT) Joint Venture, was cancelled in mid-April 2009, due to inability to

finalise the terms of the contract with the contractor, Dubai Civil Aviation Authority (DCAA). The

AED4.9bn (US$1.3bn) contract for construction of a new concourse at Dubai International Airport was

awarded in December 2008. For Murray & Roberts, this is the fourth contract to be terminated in the region in

the last six months and brings the company's total cancelled order book to ZAR20bn (US$2.2bn), according to

Engineering News. However, the contract was picked up just a month later by UAE-based international

construction company Al Jaber Engineering and Contracting. The work on the new concourse is estimated

to finish in the first half of 2011.

Airports

Q1 2009 Ajman

According to online news source Emirates Business 24/7, the Ajman government has received

preliminary approvals for the Ajman airport project and is in the process of obtaining final approvals

from the General Civil Aviation Authority (GCAA) to carry out its AED2.2bn (US$600mn) project. The

airport will be constructed in two phases, and is due to start operating in 2011. The new air hub for

the emirate will have capacity for 1mn passengers per year and this will rise to 10.4mn by 2046. The

airport will be located 3.5km from Al Manama.

Abu Dhabi

A second runway and a third terminal were completed in March 2009 as part of the ambitious

AED25bn (US$6.8bn) redevelopment and expansion programme at Abu Dhabi International Airport,

according to Abu Dhabi Airports Company (ADAC) as cited by TradeArabia News Service. The

project has been planned to extend the total capacity of the airport to over 20mn passengers

annually.



Ports

Ports

Q1 2009 Ras Al Khaimah

The customs and ports department of Ras Al Khaimah (RAK) commenced construction on the third

phase of a project to expand and modernise the Ras Al Khaimah Saqr port. The cost of the contract

is expected to total AED14mn (US$3.8mn). The third phase is expected to be completed by May

2009. The earlier two phases of expansion work are already under way at the port and will see 12

deepwater berths added, with draughts of up to 15.3m, enabling the port to cater for larger vessels

classes. The port is the biggest bulk port in the Middle East with an annual handling capacity of 40mn

tonnes of bulk and general cargo.

Q3 2008 Abu Dhabi

The CEO of Abu Dhabi’s Ports Company announced during a speech at the Abu Dhabi Chamber of

Commerce and Industry that the Khalifa Port and Industrial Zone, now under development, will most

likely be completed ahead of schedule in 2028 because of very high investor interest and activity that

has accelerated operations and construction. Abu Dhabi is investing AED88bn (US$24bn) in its

industrial port and city project. The project will be implemented over several phases. The first phase

will comprise the beginning of Khalifa Port and is expected to be completed in 2012, while the other

phases will focus on industrial sectors, such as petrochemicals. The port is to be managed by Abu

Dhabi Terminals (ADT) and DP World. For the first phase, the government has awarded contracts

worth AED3.5bn (US$953mn) and according to stated plans it is looking to award a further

AED24.5bn (US$6.67bn) in total for the rest of the project. The project was announced in 2006 and

works began on the port in February 2008, with Archirodon Construction SA, Boskalis Westminster

Middle East and Hyundai Engineering commencing the dredging works.

Roads

Roads

Q1 2009 Abu Dhabi

In early February 2009, Impregilo SpA, MTD Capital, China Harbour Engineering Company and

Macquarie Capital Group, Consolidated Contractors Company of Greece, Bouygues Travaux Publics,

and Strabag Societas Europaea were shortlisted by the Abu Dhabi government for a highway project

worth AED10bn (US$2.7bn) that will link Abu Dhabi to Saudi Arabia. The tender is for the

construction of the 325km Mafraq-Ghweifat highway, under a built, operate and transfer scheme. The

project is the first PPP scheme in the transport sector of the emirate. The concession is for a period



Roads

of 25 years. The new road will be fully operational by 2011.

Q4 2008 Dubai

In October, the Roads and Transport Authority (RTA) of Dubai awarded an AED86mn (US$23.4mn)

contract to Al Wasit Co for the construction of roads in the Nad El Sheba area of the city.

The RTA awarded the fifth contract for the Parallel Roads Project to South Korea’s Sungwon. The

contract is worth US$463mn. This section of the road will run 108km to the outskirts of Abu Dhabi. It

will include the construction of 30 bridges.

Railways

Abu Dhabi

In late May, bids were submitted for the Abu Dhabi metro consultancy tender. In February 2009, Abu Dhabi's

Department of Transport (DoT) sought tenders from local and international firms to work as consultants for the

emirate's new metro and rail project. The selected bidder will conduct a feasibility study, create a concept and a

preliminary design, and perform other works for the project. The metro is due to begin operations in 2015.

According to a senior official at the Abu Dhabi Department of Transport the plan is for the metro to eventually

extend for 130km.

Railways

Q1 2009 Dubai

In January 2009, Dubai's minister of pubic works, Shaikh Hamdan Bin Mubarak Al Nahyan, noted

that tenders for the trans-emirate Dubai-Sharjah rail network would be released in 2015. The rail links

are being fast-tracked in order to tackle traffic congestion on the Dubai-Sharjah road.

Also in January, a Dubai transport chief announced that the Alstom-Besix Consortium has started the

initial work for phase one of the Al Sufouh Transit System project. The project will serve residents in

Al Sufouh, Dubai Marina and Jumeirah Beach Residence. The tram project, which is projected to be

commissioned in April 2011, will expand 14km along the Al Sufouh Road. Phase one of the project

includes the construction of a 9.5km-long track beginning from Dubai Marina up to the mall of the

Emirates Station.



Railways

Q4 2008 Abu Dhabi

In early December local press reported that tenders for the construction of an 800km railway project

to connect Dubai with Abu Dhabi and the northern emirates have been issued. The first part of the

project, expected to be completed by 2011, will extend for 573.5km. The second part, involving a

246km-long track, will be completed by 2015.

Dubai

In October, Middle East Business Intelligence (MEED) reported fundamental disagreements between

the RTA and Dubai Airports on the financing structure for the construction of the Purple Line, which

will run between Dubai International Airport and the new Al-Maktoum International Airport. MEED

reports that Dubai Airports is looking to finance up to 25% of the project, while the RTA is asking for

Dubai Airports to have a much larger stake in financing. The costs of the project have more than

doubled to AED40bn (US$10.9bn) since 2006, when the project was first announced and the tender

for the construction contracts has been pushed back to Q109.

Other Transport Developments

Other Transport Developments Q4 2008

Dubai

The transport infrastructure that is being developed in Dubai World Central – a logistics and tourism

hub twice the size of Hong Kong – is estimated to cost a total of US$33bn. The latest project to be

announced will be a light rail system that will link through to the Dubai Metro. It will have a total of 10

stations. Light rail is becoming a very popular transport mode in Dubai, mainly supplementing the

metro system, with new projects in Palm Jumeirah and downtown Burj Dubai.

Q3 2008 Sharjah

In September 2008, Emirates Industrial Cities awarded Sharjah General Contracting a contract worth

US$11mn for the expansion and improvement of road infrastructure in and around the Emirates

Industrial City project.



Table: United Arab Emirates – Major Infrastructure Projects – Transport

Project Project value,

US$ mn Company name(s) Timeframe Status

Airports

Al Maktoum International Airport 3,300 Dubai Airports 2008

delayed- Mid-2010 opening

Sir abu Nu'air Airport 68 Sharjah Department of

Aviation 2007- Announced May

2007

Abu Dhabi International Airport expansion 6,800

part financed by Abu Dhabi Government 2007-2010

First works to be completed in March

2009

Ajman International Airport 600 na na

Preliminary approval granted in March

2009

Dubai International Concourse 3 1,300

Al Jaber Engineering and Contacting 2009-2011 Contract re-awarded

Ports

Construction of new industrial port in Abu Dhabi 7,623

Archirodon Construction SA,

Boskalis Westminster Middle East and

Hyundai Engineering 2008-2012 (first

phase)

Industrial zone and port to be completed

by 2028

Construction work on Terminal 2 project at Jebel Ali port 68.06

Hyundai Engineering and Construction

Company 2005-2008 Completed February

2009

Mega Max container terminal in Jebel Ali Port na DP World 2007-2030

Phase one of first stage completed

Khalifa Port 1,365 Abu Dhabi Ports

Company 2006-2028

Currently under way – will possibly be

completed ahead of schedule

Ras Al Khaimah Saqr port 3.8 RAK Customs and Ports Department 2008-2009

Expected to be completed in May

2009

Roads

Abu Dhabi-Al Guwaifat highway concession 2,700

five international groups shortlisted 2009-2011

Firms short listed in February 2009

Nad El Sheba roads- Dubai 23 Al Wasit Co. 2009 Contract awarded in

October 2008

Parallel Roads Project 5th contract 463 Sungwon 2008- na

Shahama-Saadiyat highway, Abu Dhabi 1,480 na na na

Improvements to the Sheikh 188 Dutco Balfour Beatty 2006-2009 Second phase 50%



Table: United Arab Emirates – Major Infrastructure Projects – Transport



Zayed road complete

Phase three of Dubai bypass road 78.68 na na Contract awarded

Construction of 10 bridges and other works, Dubai 175.6 Chimozo 2007-2009 At planning stage

Ras al Khaimah road network 600

Funding split between the Emirate and the Federal government 2008-

announced January 2008

Phase IV of Parallel Roads Project, Dubai 490 RTA 2008-

permission granted in May 2008

Railways

Abu Dhabi Metro na Abu Dhabi Department

of Transport 2009-2015 Tender under way

Dubai Light Rail Transport project 4,220

Mitsubishi Corporation, Mitsubishi Heavy

Industries, Obayashi Corporation, Kajima

Corporation, Yapi Merkezi 2005-2010

Due to be completed in

September 2009

Al Safooh tramline, Dubai 786.2 Alstom, Besix and

Serco 2007-2011 Phase one under

way

Bridge

Shams Abu Dhabi bridges 60.71 Nurol Construction and

Trading 2007-2009

Expected to be complete in the autumn of 2009

Abu Dhabi city-Saadiyat Island bridge 191.3 Strabag 2006-2009

To be completed in December 2009

Other

Marine Public Transport Network 500 RTA 2007-2020

First phases already in operation

na = not available. Source: BMI



Energy And Utilities Infrastructure Overview

The UAE holds 10% of the world’s proven oil reserves, with daily production estimated at 2.95mn b/d in

2007, according to the BP Statistical Review of World Energy. The majority of this oil, however, goes to

exports, with the emirates consuming just 1.4% of the oil it produces.

Electricity in the emirates overwhelmingly depends on natural gas. Almost all the natural gas produced in

the country (an estimated 52bn cu m in 2007, according to the BP Statistical Review of World Energy) is

also domestically consumed.

Revised forecasts on power generation indicate a more intense use of gas-fired power generation than

expected a year ago. Accordingly, BMI now forecasts that gas-fired power generation will climb to

98.6TWh to 2013, from 77.4TWh in 2009, representing 97.5% of total generation by 2013. The rapid rise

in demand is increasing the need for more imports. The UAE currently imports approximately 9bn cu m

of its gas from Qatar though the Dolphin gas pipeline.

Over the long term, demand is expected to grow. Industrial consumption should increase in tandem with

new activity, albeit there may be a decline in household demand from Dubai as the numbers of expat high

skilled workers leave the emirate. Nevertheless, we believe that this will be muted, by the rise in demand

that will come from transport infrastructure, namely railways. Dubai’s and Abu Dhabi’s new metros and

the UAE’s new railways (eventually to be part of the GCC railway) will burden the power sector in the

years to come.

In an unexpected move, Ajman announced in July 2008 that it will invest in a coal-fired power plant, the

first such plant in the Gulf. The choice to add coal as a fuel within the UAE’s power sector is an unusual

one. The country has no coal reserves and therefore will be forced to import the fuel. Due to the high

carbon emissions associated with the burning of coal for power, most countries are in fact trying to

diversify their power sectors away from using the ‘dirty’ fuel.

Ajman’s move into coal has been followed by one of the other smaller emirates, Ras Al Khaiman, which

announced in March 2009 that it will have a new coal-fired power plant within two years. According to

the Ras al Khaimah Investment Authority (RAKIA), the plant will initially have a 400MW or 500MW

unit and this may be extended to 1000MW in five years. In fact, the Ras Al Khaimah Minerals and

Metals Investment (RMMI), a mining venture of the emirate of the same name, was issued a licence in

late March 2009 to construct a US$600mn railway project in the province of East Kalimantan in

Indonesia. The railways will be used to transport coal to a jetty it is also building, to transport coal back to

the emirate for use in the new power plant.



The major re-orientation in UAE’s energy mix is the plan to adopt nuclear power for electricity

generation. France and the UAE agreed to jointly develop the UAE’s nuclear power sector during French

President Nicholas Sarkozy’s visit to the Gulf States in January 2008. Although all GCC states are

considering the adoption of nuclear power (minus perhaps Saudi Arabia), the UAE is the first country to

agree to a nuclear co-operation accord.

The GCC countries have made significant headway in their plan to link up on a common power grid and

implement the US$1.25bn first phase of the project. The GCC instigated the project to connect the power

grids and share electricity in 1998 (although construction began in 2005) in an effort to ensure the

necessary infrastructure will be in place to support the region’s economic development. The GCC

Interconnection Authority (GCCIA) estimated the total cost of the project at more than US$3bn. Under

the first phase, an 800km, 400 kilovolt (kV) overhead line will link Kuwait’s Al-Zour station with Doha,

and a 400kV submarine line will link Saudi Arabia with Bahrain. The first trial operations were due to get

underway during the first quarter of 2009 and the grid will be inaugurated in May. The project includes

the establishment of six transformer stations and a control centre, and the setting up of a converter on the

Saudi network. Saudi Arabia will meet 40% of the first phase cost, while Kuwait will provide 36.5%,

Qatar 13.5% and Bahrain the remaining 10%. The second phase will link the UAE with Oman. The

resulting two mega-grids will be joined in the final phase.

The local water and electricity authorities in the meantime are raising capital investments into their

emirates infrastructure. In March 2008, DEWA was looking to issue bonds to secure long-term funding

and is currently seeking short-term and medium-term loans. The global credit crunch reportedly

hampered efforts to issue bonds in late 2007 and according to Al Tayer, any renewed efforts would take

place after June 2008. According to Gulf News, DEWA is planning to invest around US$16bn in

generation, distribution and transmission projects in the next five years. Because of the difficulty the

authority faced last year in raising cash from Islamic and conventional bonds due to the credit crunch, it

has been using internal cash flow to fund its projects so far. The utility is planning to spend AED13bn

(US$3.5bn) in 2009 on new projects.

In light of DEWA’s AED70bn capital expenditure plan to 2012 onwards – which will see power

generation capacity triple to 22GW in 2017 and water desalination capacity also triple to 913mn gallons

per day – Moody’s expressed concern in December 2008 over the availability of financing for these

programmes. However, the fact that DEWA was able to refinance a US$2.2bn Islamic loan, which was

due to mature in April and which was cited as a key concern for Moody’s outlook, is a positive sign for

the Dubai utility. The new US$2.2bn loan was granted by 18 international, regional and local banks. The

lead coordinators in the agreement are Emirates NBD, Dubai Islamic Bank, National Bank of Abu

Dhabi and Standard Chartered Bank. The loan had a three-year maturity and a paid margin of 300

basis points (bps). In addition, the company posted a profit of AED4.24bn (US$1.5bn) in FY08,



compared with a loss of AED744m (US$263.2mn) in FY07. The profit was mainly attributed to higher

revenues and a decline in generation and distribution costs in FY08.

The utility is implementing a AED57bn

(US$15.5bn) capital expenditure

programme that will increase water

production by 20% by the end of the year.

According to DEWA’s official data, its

operating margins between installed

capacity and peak demand in both

electricity and water have been growing

smaller each year. Regarding water, the

fastest-growing and largest segment of

demand is coming from the residential

sector. Water consumption in Dubai grew

by 57% between 2001 and 2006. In terms

of electricity consumption, the emirate’s demand grew by 75.5% during the same period, with the

commercial sector representing the largest consumer. The residential sector has caught up, reducing the

difference between them to 42% and 39%, respectively. DEWA’s CEO maintained that the utility

anticipates power consumption growth of 15% and water consumption growth of 12%, based on an

assumption of economic growth in the emirate of between 6% and 11%. BMI believes that this is an

overly hopeful assessment of macroeconomic growth. We forecast the UAE to show a significant

contraction to 0.08% in 2009. The tender for the construction of the US$8.6bn Hassyan power and

desalination plant has been deferred until the August/September 2009.

The UAE has one of the highest water consumption levels in the world due to climatic conditions and

high per capita income. Water supplies usually come from two sources: ground water and desalination

plants. Residents of the UAE consume on average 550 litres per day. The authorities are trying to reduce

this to 350 litres per day over the next few years, through rationing water supplies as much as possible, in

addition to adding new capacity.

The value of investments in water projects in the UAE has increased by 20% from US$11.62bn in 2007 to

US$14bn in 2008, research firm Proleads estimates. While the rise partially reflects increased

construction costs, it also highlights efforts to compensate for years of under-investment at a time of rapid

economic and population growth. Abu Dhabi Water and Electricity Agency (ADWEA) projects account

for about 26% of the new generation capacity, with US$1.3bn invested in expanding five existing

desalination plants. ADWEA projects that demand for water in the emirate will grow by 43% in the next

five years and has therefore set targets to increase production from the current 626mn gallons per day to

969mn gallons by 2013. In Dubai, nearly US$7bn is being spent on projects, with the Dubai Electricity

Operating On Tight Margins

0

10

20

30

40

50

60

70

80

90

2004

2005

2006

2007

e

2008

f

2009

f

2010

f

2011

f

Electrcity Consumption (tw h)Electricity Generation (tw h)

f=forecast. Source: BP Statistical Review of World Energy, June 2007; BMI



and Water Authority (DEWA) spending US$335mn on water projects, with further projects likely by the

end of the decade. Investments in power and water in other emirates is also high: Sharjah is currently

spending US$1.17bn, Ajman US$357mn and Furjairah US$856mn. It should be noted, however, that

according to the director of privatisation in ADEWA, one of the major obstacles to the development of

the water and IWPP sectors is the scarcity of experienced engineers and project managers at the scale

necessary to meet growing demand.

The government has reportedly approved plans to sell all electricity and water plants owned by the

DEWA, either through an IPO or private sales. Government-owned DEWA delivers electricity to about

240,000 customers and water to almost 195,000 customers across the emirate of Dubai. In 2006, installed

generating capacity was 4.6GW, via six power stations aimed at meeting peak demand of 4.11GW. There

are 1,180km of overhead transmission lines, plus 1,935km of underground cables.

In addition, the partial divestment of Abu

Dhabi’s integrated water and power plants

(IWPPs) has given several investors the

opportunity to enter the utilities market in

the UAE. ADEWA disclosed in late

March 2009, that AED60bn (US$16.3bn)

worth of investments are taking place in

the desalination, power generation and

waste water as a direct result of the

privatisation programme.

For large companies in the international

market, such as France’s Veolia and Suez SA, and Japan's Marubeni Corp, establishing an MEA base in

the UAE is highly desirable given the stable business environment. Investor interest in the UAE market

remains strong, especially as forecasts in the utilities market point to rising demand and therefore ample

opportunities for investments in the sector. Nevertheless, although the demand risk is very low, the

engineering and operational risks are rising proportionally with new demand. In an interview with

Reuters, the director of privatisation in ADEWA said: ‘The challenge is engineering, procurement and

construction contractors. There is too much competition in the market with too many projects coming up.’

The divestments of the power sector and the venture into nuclear power mark significant changes for the

emirate’s utilities sector and highlight the severity of a potential power crunch. In fact, the there have

been reports coming from Ajman and Sharjah that several new developments remain idle because there is

simply not enough power and water to provide for all the new buildings going up. In a report in the

Business Spectator, an expert writing on the issue said that the threat to Dubai’s economic ambitions may

indeed come from ‘the simple failure to provide enough affordable power and water’.

Value In Utilities

0

5

10

15

20

25

30

35

4020

05

2006

2007

e

2008

f

2009

f

2010

f

2011

f

2012

f

0

1

1

2

2

3

3

Electricity, gas and w ater industry output, AED bn Industry as % of GDP RHS

f=forecast. Source: Ministry of Economy, BMI



According to BMI’s new electricity, gas and water industry value forecasts, the industry’s value in the

UAE will see nominal growth of 86% between 2008 and 2013. These figures highlight the challenges that

state-owned utilities in the region face, which is why we do not foresee any reversal in plans to develop

IWPP projects in the Gulf. At the same time, the demand projections also highlight the significant scope

(and need) for private sector participation for the rapid development and management of more such

facilities.

In a report published in December 2008, ratings agency Moody’s expressed optimism for Dubai’s power

and water sector long-term growth. Moody’s argued that because DEWA has a fundamental role to play

in the emirate’s future growth it is highly unlikely that it will not receive support from the Dubai

government. According to Moody’s senior vice president for the Middle East, there are strong political,

operational and strategic ties between DEWA and the government of Dubai that will ensure the continued

investments in Dubai’s water and electricity sector.

We share Moody’s optimism and add that this assessment can be extended to the other emirates as well.

More than once we have highlighted the strong fundamentals in the UAE market, driven by population

and macroeconomic growth to sustain the interest of investors in the utilities sector. In addition, half a

decade of unprecedented oil windfalls almost guarantee that investments in vital infrastructure will be

sustained in the states of the Gulf, if nothing else then to boost growth levels, even if private sector

interest falters in the short term.




Power Plants And Transmission Grids

Fujairah

UAE-based energy company Abu Dhabi National Energy (TAQA), announced in May that it will acquire a

90% in Fujairah Water and Electricity for AED1.11bn (US$302mn) from the Abu Dhabi Water and

Electricity Authority. TAQA will make the payment in instalments. Fujairah Asia Power, in which Fujairah

Water and Electricity holds a 60% equity interest, owns the Fujairah 2 power and water desalination plant in

the UAE.

Power Plants And Transmission Grids Q1 2009

Dubai

Spanish daily Cinco Dias reported in March 2009 that Spain’s utilities major Ibedrola, together with

Abengoa and ACS, have been pre-selected for the concession to build the largest solar thermal

power plant in the world in Dubai. The final selection will take place in May the report said, without

citing sources.

Also in March 2009, DEWA commissioned the construction of two transmission stations. The first will

be located at Warsan, with a total estimated cost of US$110mn, and the second will be in the

Gardens, with a total estimated value of US$178mn. They will have a combined capacity of 400kV.

Greece-based Portland Group said that it is looking to develop wind and solar energy in Dubai. The

company’s CEO told Gulf News in March that the company will begin with an initial investment of

EUR100mn and plants with capacity of 20MW.

International water treatment, desalination and wastewater treatment expert Metito and the DEWA

signed a US$10.4mn turnkey project agreement in February 2009. The project involves design,

construction and augmentation works in the Jebel Ali Power Complex.

Abu Dhabi

Indian engineering conglomerate Larsen and Toubro (LT) was awarded two contracts worth

AED848mn (US$231mn) in Abu Dhabi in February 2009. The first contract was received from Al Ain

Distribution, valued at US$164mn, to construct seven electrical substations in Al Ain. The second

contract was from Abu Dhabi Distribution for expansion of a 33KV power transmission network in the



Power Plants And Transmission Grids west of the emirate, for US$67mn.

Abu Dhabi's alternative energy initiative Masdar disclosed in January that construction is in progress

for an on-grid 10MW solar power plant, which is projected to generate 17,500MWh annually. The

plant will primarily generate electricity to support the continuing construction activities of Masdar City.

The Masdar Sustainable City will be completely reliant on renewable sources for its power needs,

including solar and wind. It will also be completely car-free as the aim is to produce no greenhouse

gases.

Japan’s Ministry of Economy and Trade said on January 19 that it has signed a Memorandum of

Understanding with the Abu Dhabi government for co-operation in the nuclear power generation

sector. The co-operation pertains to the preparation and planning for the development of a nuclear

power plant, training for staff and the handling of nuclear waste.

Q4 2008 The Emirates Nuclear Energy Corp. (ENEC) awarded US-based programme management,

engineering, construction and operations firm, CH2M Hill, a 10-year contract to manage UAE's

planned civilian nuclear power programme through all phases. CH2M Hill would be in charge of

selection and supervision of key contractors, planning of the master programme, licensing and

ensuring adherence to International Atomic Energy Agency (IAEA) recommendations. French

companies Areva, Suez and Total will have exclusive rights to be part of Abu Dhabi’s civil nuclear

power project, by providing two third generation pressurised water reactors, which is Areva’s

expertise.

Q3 2008 Ajman

The UAE and a unit of Malaysia Mining Corp Bhd (MMC) – an investment holding company with

interests in transport, logistics, energy, engineering and construction – have signed a US$2bn deal to

build the Gulf’s first coal-fired power station. The 1,000MW plant will be located in the emirate of

Ajman, and will take 40 months to complete. Feasibility, technical and environmental studies are set

to take place over the next six months. MMC Utilities will set up a concession company that will

manage and operate the power plant for the next 20 years, with the Ajman government to purchase

electricity throughout the concession period.

Oil And Gas Pipelines

The start-up of the planned 320km oil pipeline from the Habshan fields to the port of Fujairah in the United

Arab Emirates (UAE) has been delayed by two years, according Dieter Blauberg, the director of the project.

The project was originally due to come on-stream in 2009. Blauberg has attributed the delays to the current

'market conditions', without giving further details. The pipeline is aimed at bypassing the Strait of Hormuz and



could allow the UAE to transport most of its oil exports, permitting it to significantly reduce its reliance on

having to transport oil exports through the strategic shipping chokepoint. In early December, China National

Petroleum Corporation (CNPC) was awarded the US$3.29bn project to build the major oil pipeline. CNPC

will construct a 400km (250 mile) pipeline to Fujairah port from the Habshan oil field in Abu Dhabi. The

pipeline, having a maximum capacity of 1.5mn barrels of crude oil per day, which could be increased to 1.8mn

b/d at a later stage. The pipeline will provide an alternative route to the Strait of Hormuz, which connects

Persian Gulf oil producers to the Gulf of Oman, and beyond that to the world's main ocean tanker routes.

Water

Ajman

In late April 2009, the Federal Electricity and Water Authority (FEWA) unveiled plans for three new water

desalination plants in the UAE. One plant will be established in emirate of Ras al-Khaimah, which is scheduled

to be operational during 2011. The remaining two plants will be established in emirate Ajman. The first Ajman

plant will start operation later this year and the second one will be operational by 2011. The capacity of the

three plants will be 10mn gallons of drinking water daily each.

Abu Dhabi

GDF Suez was negotiating in late March the sale of half of its 40% stake in the Shuweihat 2 IWPP to Japan’s

Marubeni Corp. This potential partnership was prompted by the Japan Bank for International Commerce

(JBIC)'s involvement with the project finance arrangement, which requires a Japanese partner with a minimum

20% stake. Abu Dhabi's Water and Electricity Authority owns the other 60%. Marubeni has ongoing IWPP

projects in Abu Dhabi, Qatar, Saudi Arabia and Turkey. In Abu Dhabi it is involved in the Fujairah 2 IWPP,

due to be completed in 2010 and the Taweelah B.

Fujairah

In late March 2009, international water desalination and wastewater treatment company Metito secured an

AED10mn (US$2.72mn) deal to for a demineralisation plant in Fujairah. According to the press release, the

plant will treat desalinated water, which will then supply the Qidfa power plant in the emirate.

Water Q1 2009

Dubai

The tender for the construction of the US$8.6bn Hassyan power and desalination plant has been

deferred for eight months, DEWA said in February 2009.



Water Q4 2008

Abu Dhabi

In November 2008, GDF Suez Energy International was finalising a bridge loan agreement with a

consortium of six banks to finance the initial phases of construction of the Shuweihat 2 Independent

Water and Power Project in Abu Dhabi. The consortium of six banks that will arrange for the

US$900mn bridging loan are Standard Chartered, Natixis, National Bank of Abu Dhabi, Kreditanstalt

fuer Wiederaufbau, Caylon and Bayern LB, Middle East Business Intelligence (MEED) reported.

Accordingly, the loan will be priced at 150 basis points above the LIBOR rate. The initial project

financing was for US$2.6bn, for which a 23.5-year financing agreement was underway when the

deterioration in the global financial markets prompted caution and eventually preferred exposure to a

smaller loan.

Sharjah

SEWA announced in October the commissioning of the Khor Fakkan desalination plant. In its initial

phase the plant will produce 2.5mn gallons per day, increasing to 5mn gallons per day when the

second phase is complete. The cost of building the plant was AED90mn (US$25.5mn).

The director-general of Sharjah municipality, Salah Al Haj, said in early October that the government

of Sharjah has allocated AED1.24bn (US$340mn) for improvements and completion of sewage

treatment and road projects. The funds will be allocated to projects included in the emirate’s

infrastructure plans for the next 20 years, which will be reviewed every five years.

Q3 2008 Abu Dhabi

In August, Belgium construction group BESIX, which is 50%-owned by Egypt’s Orascom

Construction Industries (OCI), announced that it won a EUR525mn (US$817.69mn) build, own,

operate and transfer (BOOT) contract for two wastewater treatment plants in the UAE, planned for

the cities of Abu Dhabi and Al Ain. BESIX was awarded the contract in a joint venture with UK-based

water supply company Veolia Water. ADWEA awarded the latest deal, which will run for 25 years.

The wastewater plants will have a capacity of 300,000m3 and 130,000m3 respectively, and will

generate water to be used predominately for irrigation.

In July 2008, France’s Veolia Water signed a contract with the ADEWA for the construction of two

wastewater treatment plants in Abu Dhabi and Al Ain. The projects will be implemented as a PPP

scheme, with Veolia designing, financing, building and operating the two plants for 25 years.

Construction will take two and a half years and Belgium’s BESIX will be responsible for the civil

engineering projects. The Abu Dhabi plant will have capacity to treat 300,000m3 of water per day,

while the Al Ain will have capacity of 130,000m3 of water per day.



Table: United Arab Emirates – Major Infrastructure Projects - Utilities



Oil And Gas Pipelines

320km Abu Dhabi-Fujaraih oil pipeline 3,290

China National Petroleum Corporation -2011

Start-up delayed by two years

Oil storage terminal in Fujairah 5,500

Gulf Petrol Supplies and Chemoil Energy na

Likely to be operational by January 2009

Gas processing facilities, Abu Dhabi 7,000

Abu Dhabi National Oil Company 2009-

Investments planned

Power Plants

IGCC plant, Dubai 6,000

Sino Global International, Samena

Power & Energy Ltd, Skyline Services Group 2008-

MoU signed in February 2008

Jebel Ali power plant 10 Metito 2009- Contract awarded in

February 2009

Dubai thermal solar power plant na na na

Tender to be completed in May

2009

Warsan and Gardens transmission stations 288 DEWA 2009-

Construction commissioned in

March 2009

Solar and wind power projects, Dubai 130 Portland Group na At planning stage

Al Ain Substations and power transmission network expansion 231 Larsen and Tourbo 2009-

Contracts awarded in February 2009

Hassyan IWPP 8,600 DEWA na

Tender deferred to October/November

2009

High-voltage grid power station on Reem island 142 ABB na Contract awarded

Solar power plant in Abu Dhabi 350

Future Energy, Abu Dhabi Water & Electricity

Authority na To be operational in

2009

400kV transformer, Dubai 59 Hyundai Engineering

and Construction 2006-2008 na

Water

Shuweihat 2 IWPP 5,600

GDF Suez- Doosan/Siemens/

Samsung (EPC Contract) 2009-2011

Bridge loan (US$900mn) agreed

in December 2008



Table: United Arab Emirates – Major Infrastructure Projects - Utilities



Wastewater and brackish water treatment plants 18 and 15.6 Veolia Water 2008

Contract awarded February 2008

Desalination plant in Dubai 563 Impregilo na Contract awarded

ADEWA sewage network tunnel system 1,090 na 2008-

Tender to be officialy launched in

November 2008

Ras Al Khaiman desalination plant na FEWA 2009-2011

FEWA unveiled plans in April 2009

Ajman two desalination plants na FEWA

2009/ 2009-2011

First plant due to begin operations by

year-end 2009

Al Khawaneej and Al Barsha sewage and rainwater drainage lines 143.5 na 2008-2010 Contract awarded

Other

Mastar City, Abu Dhabi 22,000 Masdar Initiative 2008-2016

Construction commenced in February 2008




Construction Overview

Steel prices in the UAE have been declining since August and we anticipate that raw material prices will

remain depressed, heralding an easing of costs for contractors. However, the decline in prices comes as a

result of feared demand destruction,

indicating that the construction sector in

the UAE has – as we have been expecting

– entered uncertain territory.

The booming UAE construction sector has

not been able to avoid the impact of the

financial crisis and global macroeconomic

instability. Appetite to take on costly

projects is decreasing. In addition, the

decline of the oil prices, the government’s

main revenue source, is a sign that the oil

windfalls will quickly wither. Oil

windfalls have been a major source for

infrastructure funding as they have been re-invested in transport, energy and utilities projects that have

fuelled the infrastructure boom in the emirates. Having said that, government spending on infrastructure,

particularly in Abu Dhabi, will be the bright spot in the sector. Dubai’s government has said that it is

willing to go into its first deficit in order to sustain growth through government spending. In addition, we

have revised upwards our forecasts for government capital investments, which are due to increase as the

government attempts to boost demand through injecting money into infrastructure projects.

We have significantly revised our outlook

this quarter, adopting a more optimistic

forecast for industry value growth in 2009

onwards. The investments Abu Dhabi is

making in infrastructure, transport

especially, and also ongoing infrastructure

investments in Dubai, such as the metro,

have not only survived the downturn, but

have attracted the attention of

international majors, which are seeking a

safe haven in the UAE’s (and certainly the

wider Gulf region’s) infrastructure

markets. Such investments we believe will

Slowing Down, But Stability On The Horizon

0

50

100

150

200

250

2008

e

2009

f

2010

f

2011

f

2012

f

2013

f

2014

f

2015

f

2016

f

2017

f

2018

f

02468101214161820

Construction industry value, AEDbn, LHSConstruction industry real grow th (%) RHS

e=estimate, f=forecast. Source: Central Bank of UAE; BMI

Government Intervention

0

2

4

6

8

10

12

14

16

2007

2008

e

2009

f

2010

f

2011

f

2012

f

2013

f

2014

f

2015

f

2016

f

2017

f

2018

f

Gross Fixed Capital Formation Real Grow th (%) LHSGovernment Capital Investment, % of total spending

e=estimate, f=forecast. Source: BMI



grease the wheels of the industry and propel it towards growth in 2009.

In BMI’s Q309 UAE Infrastructure Report we forecast that the industry value real growth for 2009 will

be 6.8%, compared with our previous forecast of 0.9%. As such, we forecast that industry value will

reach AED86.7bn (US$23.6bn). A similar level of growth is expected for 2010, with value climbing up to

AED95.9bn (US$26.1bn).

In an effort to respond to the plethora of challenges in the construction sector that have compounded

recently in the UAE’s and the wider Gulf’s construction sector, developers and contractors are entering

into long-term partnerships in an effort to share risks and costs. The partnership between Al Habtoor

Leighton Group, Tameer Holdings and Murray, Roberts and Al Rajhi is among the first partnerships of its

kind in the UAE.


Residential Construction

Abu Dhabi

In October, Dutch firm Van Oord was awarded a contract for dredging and marine works for the Nurai project

by UAE-based luxury real estate developer Zaya. The Nurai project is an AED3bn (US$820mn) property

development that will include beach-front estates on a natural island off the coast of Abu Dhabi. The project is

expected to be completed in December 2010.

Dubai

In April 2009, South Korean construction firm Samsung C&T stated that Nakheel, has cancelled the

KRW1.38trn (US$1.04bn) construction contract for Palm Jumeirah Village Centre. The project included

construction of apartments, shopping malls and other commercial structures by October 2013. The Palm

Jumeirah Village Centre was to be a mixed-use development project, which included the construction of

120,000m2 of retail space and 150,000m2 of residential space.

Dubai-based property developer Limitless in November dismissed reports that it would delay the sale of its

US$61bn Arabian Canal properties and said instead that it is reviewing the pace of developments.

Also in November, Al Madar Investments launched construction on the Suhail Tower residential property

project in the Madinat Al Arab area in the Dubai waterfront development. The project will be completed in

2011 and the estimated cost is AED1.4bn (US$381mn).



In October, Consolidated Contractors (CCC) won an AED400mn (US$108.9mn) contract from Dubai-based

property developer Plus Properties for the construction of two major waterfront projects in Dubai. Under the

contract, CCC will build Wave Residence 1 and Pixel Tower in Madinat Al Arab.

Residential Construction Q3 2008

Abu Dhabi

In September, Australia’s Leighton UAE subsidiary, Al Habtoor Leighton Group, finalised an

agreement with Abu Dhabi developer Tameer Holdings for the construction of a US$2bn multiuse

property project. Al Habtoor’s share of the project is worth approximately US$670mn. Al Habtoor has

entered into a joint venture with local contractors Murray, Roberts and Al Rajhi for the development of

the project. The project will comprise of four residential towers, a five-star hotel, an office tower and a

marina. Construction on the residential units was due to begin in September 2008 and will be

completed in June 2011. The hotel and office towers will be completed six months later.

Q2 2008 Abu Dhabi

Two major companies from Abu Dhabi and South Korea announced their strategic partnership in

April 2008. Abu Dhabi’s National Projects and Construction LLC (NPC) and South Korea’s

Ssangyong Engineering and Construction Co said that under the terms of their new alliance they will

share expertise and equipment to jointly develop projects in the UAE, mainly in Abu Dhabi. Both

companies have portfolios of projects in real estate ventures, including projects in Abu Dhabi’s Al

Reem Island for NPC, and Emirates Tower Hotel in Dubai for Ssangyong. Although NPC has focused

on opportunities in the UAE, in Dubai and Abu Dhabi in particular, Ssangyong has established a

strong presence in Asia and the Middle East. Ssangyong is a much more diversified group than NPC

and has been involved in large infrastructure projects alongside its property developments.

It was announced in May 2008 that Aldar Properties is looking to launch a US$1.1bn real estate fund

in 2009 for investments and acquisitions in the United States and Europe.

Dubai

In early April 2008, local property developer Damac announced that it was pulling out of its Palm

Springs beachfront development, part of the larger Palm Jebel Ali manmade island project being led

by Nakheel. The Palm Springs development was already severely behind schedule – construction

had not even begun at the end of March 2008, despite an original completion deadline of December

2007. The decision provoked consternation and anger among investors; a group of almost 60 UK-

based investors reportedly gave Damac until April 11 to change its mind regarding the cancellation or

face legal action. The ultimatum appears to have worked: on April 16, the company announced that it

had reversed its cancellation decision.



Commercial Construction

Ajman

In November, Imad Dana, chief executive of Al Zorah Development, stated that the construction of the

US$60bn Ajman city project in the UAE will slow down due to the global economic crisis, which is hitting the

Middle East's grand development plans.

Abu Dhabi

The status of the US$1.6bn Tameer Towers project in Abu Dhabi looked uncertain in March 2009, after

Murray & Roberts Holdings, the joint venture partner in the project, declared that the contract had been

terminated. However, Al Habtoor Leighton Group has denied reports of the termination of the joint venture

(JV) construction agreement, stating that the project has been suspended, not terminated.

Australian project development and contracting group Leighton Holdings Ltd (LEI) has stated that its Al

Habtoor-Murray and Roberts joint venture has secured a contract from Abu Dhabi-based Mubadala

Development Company to design and develop the new Zayed University campus. The AED3bn

(US$816.6mn) project will be on a 75 hectare plot in Abu Dhabi, and the construction area itself is 200,000m².

Work will begin now, and the campus is set to be completed in July 2011.

Dubai

In January 2009, Dubai-based real estate major Nakheel PJSC delayed the project for the construction of the

world's tallest tower, planned to reach a height of 1km, following the impact of the global downturn on the

property market in the emirate. Construction will be delayed for 12 months.

In the end of December, South Korea’s Samsung C&T Corporation announced that it has received a

US$1.04bn order from Nakheel for the construction of apartments, shopping malls and other commercial

structures by 2013.

Pearl Dubai, a leading real estate developer in the UAE, has offered an AED8.9bn (US$2.4bn) contract for the

construction of its Dubai Pearl project to the Al Habtoor-Leighton Group. The construction is expected to start

in January 2009. The deal is one of the leading single contracts of its type in the region and possibly one of the

largest real estate projects worldwide.



Commercial Construction Q4 2008

Dubai

Work is set to start on the Arabian Canal, after it was announced in early October that Abu Dhabi-

based Tristar Transport and Contracting had been given the first of 10 contracts to be awarded for

the US$11bn first phase of the canal’s development. The construction has been split into two phases.

The entire project will cost a massive US$61bn. The first phase is for the construction of a 75km

waterway, 150m-wide and six metres deep. The canal will flow inland from near Palm Jumeirah in the

north to the Dubai Waterfront near Palm Jebel Ali. Tristar’s contract involves excavation and land

reforming, which will include moving more than 200mn m3 of earth, which will be used to create the

banks of the canal, including hills up to 200m high. This part of the project is expected to be

completed in three years. The second part of the massive project is for a US$50bn waterfront city,

which will be built along a 33km inland stretch of the canal. The development, located near the new

Al Maktoum International Airport, will cover 20,000 hectares and will include marinas, residential

communities, hotels and office space.

Q2 2008 Dubai

In May 2008 it was announced that Al Jaber Engineering and Contracting (ALEC) won the

development contract for the first phase of the Dubai Trade Centre District. The contract is worth

AED3.35bn (US$912.1mn) and was awarded by the Dubai World Trade Centre. The Dubai Trade

Centre District will become an integrated commercial/business destination in the area of the Dubai

International Convention and Exhibition Centre.



Table: United Arab Emirates – Major Infrastructure Projects – Construction



Residential

Abu Dhabi residential housing fund 5,500

Abu Dhabi Commercial Properties 2008-2012 At planning stage

Bristol Towers 408 Deyaar 2008- At planning stage

La Vista Residence, Dubai 68

Zahrat Al Safa Construction and Al

Qandell Contracting Co. 2008-2009 Construction to begin

in 2009

Abu Dhabi central business district towers 735 Arabian Construction 2007 Currently under way

Al-Salam City project 8,300 Tameer Holdings 2007-2009 (for the first phase)

Emirates Roads Contracting awarded

first phase of construction package

Final phase of Palm Jebel Ali 350 Samsung 2007-2010

Construction under way to build bridges to connect with the shore

Residential development, Dubai Silicon Oasis 422

Dubai Silicon Oasis Authority -2010 na

Emirates Gardens-1 48 Al Awatan Contracting 2007-2009 Planned to be

complete early 2009

Dana Gardens in Dubai 554 Dana Property Development 2007 At planning stage

Noor al-Ain 544.52 Aldar Property 2007-2009 Construction is under

way

Shuaib Residential development 435.65 Nakheel 2006-

Construction is under way

Zone B, Marina Square Plot 1, Al Reem Island 1,360

Tamouh Investments and China National Overseas

Enginnering 2006-2009 Construction is under

way

Al Reef Villas, Abu Dhabi 816.7 Manazel 2006-2009 Construction is under

way

Commercial

Dubai Industrial City Infrastructure 15,000 Tatweer 2008

Construction is underway

Ajman Al Helio City 4,000

Real Estate Investment Est. and DSEC

International 2008-2012 Construction to

commence in 2008

G-Tower, City of Arabia 269.6 Belhasa Engineering 2008-2010 Construction is under

way






The Universe 3,000 Nakheel 15-20 for

completion At planning stage

Arab Canal Project 11,000 Limitless 2008-2011

Construction under way since January

2008

Sharjah Maritime City Infrastructure 140 na 2008

Projects to take place in 2008

Fashion Island na Infinity Holdings 2008 Construction to begin

at the end of 2008

Formula 1 circuit, Abu Dhabi 371 Cebarco-WCT -2008 Contract awarded

Dubai Trade Centre District 912

Al Jaber Engineering and Contracting 2008-

First contract awarded in May 2008

Onyx 490 Ishraqaf and Zaharan

Group 2007-2010 Currently under way

Fifty One @ Business Bay 81.6 Deyaar 2007-2009

Construction due to be completed in Q309

Shaikh Hamdan Awards Complex 77 Dutco Balfour Beatty 2007-

Construction is under way

Emirates Flag development in Ras Al Khaimah 1,900

High Rise Real Estate, Dream Industrial Park,

A&A investment and Ras Al Khaimah Free Zone

Authority 2015

Construction of first phase to be complete

in 2009

Construction of an Exhibition City, Dubai 2,170 na 2006-2009

Bids for phase one evaluated

Gemini 136.1 Omniyat Properties 2006-2009 To be completed in

Q209

Industrial

Belgium Aluminium and Glass Industries Plant 21.7

Belgium Aluminium and Glass Industries 2008

To be completed in May 2008

Fluorides complex, Abu Dhabi 544 Gulf Fluor -2009 At planning stage

Steel-making complex, Fujairah 95.3 Star Steel International na At planning stage

Single-site aluminium smelter, Abu Dhabi 6,000

Mubalada Development and Dubai Aluminium 2006-2010 Phase one planned

Construction of a steel complex in the capital’s Mussafah 300

Al-Nasser Industrial Enterprises 2005-2007 At planning stage

Hotels

Capital Centre five star hotel 272.00 NCT&H 2008-2010

Construction under way






Carlton Hotel Group three new hotels, Dubai 54.00 Carlton Hotel Group 2008-2009

Hotels to be complete in 2009

Gulf Hotel, Abu Dhabi 272.00 na na At bidding stage

Hotel for Emirates Airline 715.00 Multiplex na At planning stage

Burj Dubai hotel, Dubai 500.00 Emaar Hotels and Resorts 2007-2009 Construction under

way

Danat area hotel 163.40 Planet Goup 2007-2009 Construction under

way

Ritz Carlton, Dubai International Financial Centre na Union Properties 2007-2008 Due to open in 2008

50 Isthmar hotels 400.00 Isthmar Hotels 2007-2013 Construction to take

place until 2013

Four-star hotel at Expo Centre, Sharjah 40.83 na 2007-2009 At planning stage

Abu Dhabi five-star hotel 217.80

Al Fahim Group and the Tourist Development and

Investment Company 2007-2008 Construction under

way

Dubai Park Square Tower 1,200.00

Bonyan International Investment Group 2007-2010

scheduled to be completed in 2010

Lake view hotel 200.00 Emaar Properties 2007- At planning stage

Resorts

Oqyana development, Dubai World 3,500.00 Investment Dar 2008-2012

Construction to begin in 2008

Festival City Dubai 4,770.00 Al Futtaim-Carillion 2007-2013 scheduled to be

completed in 2013

Falcon City of Wonders, Dubai 1,500.00

Pauling Middle East /Salem al-Moosa Group 2005-


five star hotel, Mina Al Fajer Real Estate 163.40 Mina Al Fajer Real Estate 2007-2009


Rezidor Hotel Group resort 175.00

Atlas Group and Tourism Development and

Investment Company 2007-2010 Construction under

way

Palm Jumeirah Village na Nakheel 2008-2012 Cancelled




Tourist Construction

Abu Dhabi

In November, the Ritz-Carlton Hotels and Aldar properties singed an agreement to develop hotels in Abu

Dhabi, to be managed by the hotel group.

Tourist Construction Q2 2008

Abu Dhabi

Australia’s Leighton Holdings announced in late April 2008 that its joint venture (JV) with the UAE’s

Tourism Development and Investment Corp. had won contracts to develop tourism assets in Abu

Dhabi. The contracts are worth US$435mn and include projects like a tourist village, hotels, resorts,

golf courses and office space redevelopment.



Industry Forecast

Table: Economic And Construction Data

2008e 2009f 2010f 2011f 2012f 2013f 2014f 2015f 2016f 2017f 2018f

Construction industry value, AEDbn 75.6 86.7 95.9 108.7 123.1 134.5 146.1 158.7 172.3 187.0 202.9

Construction industry value, US$bn 20.58 23.60 26.11 29.60 33.52 36.62 39.79 43.21 46.91 50.92 55.25

Construction industry, real growth, % y-o-y 18.61 6.82 6.14 9.37 9.25 5.75 5.64 5.61 5.57 5.54 5.51

Construction industry, % of GDP 7.68 10.40 10.20 10.02 9.94 9.95 10.46 10.94 11.29 11.75 11.92

Total capital investment, AEDbn 189.6 214.7 235.6 264.6 297.2 323.0 349.3 377.8 408.5 441.8 477.9

Total capital investment, US$bn 51.6 58.5 64.2 72.1 80.9 87.9 95.1 102.9 111.2 120.3 130.1

Total capital investment, % of GDP 19.26 25.75 25.07 24.38 24.00 23.89 25.00 26.03 26.78 27.76 28.08

Capital investment per capita, US$ 40,224 46,008 49,487 53,446 57,722 60,310 62,120 63,983 65,903 67,880 69,916

Real capital investment growth, % y-o-y 15.00 5.00 5.00 8.00 8.00 5.00 5.00 5.00 5.00 5.00 5.00

Government capital investment, AEDbn 20.51 21.39 22.07 22.77 23.52 24.30 25.12 25.98 0.00 0.00 0.00

Government capital investment, US$bn 4.90 5.15 5.36 5.58 5.82 6.01 6.20 6.40 6.62 6.84 7.07

Government capital investment, % of total spending 10.44 10.06 9.78 9.53 9.29 9.12 8.97 8.82 8.68 8.54 8.41

Electricity, Gas and Water, AEDmn 14.22 12.08 13.39 15.19 17.07 18.48 19.04 19.70 20.62 21.43 22.80

Electricity, Gas and Water, US$mn 3.87 3.29 3.65 4.14 4.65 5.03 5.18 5.36 5.61 5.84 6.21

Electricity, gas and water, real growth, % y-o-y 2.37 -1.51 2.04 2.75 2.22 4.30 4.47 4.44 5.00 4.20 4.55

Electricity, gas and water, % of GDP 1.44 1.45 1.42 1.40 1.38 1.37 1.36 1.36 1.35 1.35 1.34

e=estimate, f=forecast. Sources: ILO, UNCTAD, Central Bank of UAE.



Business Environment

Middle East Infrastructure Business Environment Ratings

The Middle East region is fairly homogenous in terms of business environment with the one exception

being Yemen. Indeed, apart from that country, the ratings have a relatively limited spread of fewer than

20 points between the highest and the lowest scoring countries in the group.

The Middle East is defined for the most part by its oil and gas industry, with the majority of the

economies in the region dependent upon revenues from the sector. With the price of oil in decline

following global demand destruction for the commodity, oil revenues have declined significantly, thus

limiting the ability of the governments in the region to re-invest excess surplus in major infrastructure

works. Though most governments have pledged to continue with their planned investments in

infrastructure and indeed increase the budget allocations for such investment, they will be doing so from a

less comfortable position as far as availability of funds is concerned. As a result we have revised down

our industry value real growth forecasts for most states, as there will be less capital expenditure, and

therefore less infrastructure spending. This has had a knock-on effect on the business environment

ranking for those countries most dependent on oil windfalls for infrastructure expenditure.

Regional integration in the Middle East is quite strong, with the Gulf Corporation Council (GCC) linking

the UAE, Qatar, Oman, Saudi Arabia, Kuwait and Bahrain. The GCC is initially a trade bloc, with a

unified economic agreement between the countries, and plans for a joint currency. Their other common

characteristic (though certainly not restricted to the GCC states), is the regime structure, all based around

the royal families of the countries, which bodes well in terms of policy continuity, so long as their rule

remains unchallenged. As a result, all the six GCC states achieve a score in the 70s and 80s.

Transport

Transport infrastructure in the region is heavily reliant on roads. Rail is a fairly new addition to the modal

mixture and many countries still do not have any rail network to speak of. As a result, investment has

traditionally been in the road sector. However, rail is now receiving attention with plans under way to

develop the rail sector regionally and opportunities for international players to get involved. This is

predominantly through the proposed GCC pan-Gulf rail network. The 1,940km rail link will connect the

six GCC states, and possibly in the future Yemen. The project is estimated to cost in the region of

US$14.3bn and will be operational in 2016.

Turkey is also adding to its railway infrastructure. One example is the Marmaray project, now under

construction, which will run under the Bosporus, connecting via rail Asia and Europe. The second major

project also under construction is the high-speed railway between Ankara and Istanbul.



Energy And Utilities

With vast reserves of oil and gas, the region's power sector is well established. During 2007 a total of

692TWh of electricity was generated in the Middle East, according to the BP Statistical Review. The

largest power producers in the region are Saudi Arabia (27% of the total) and Iran (28%). Unsurprisingly,

the main source for electricity generation is gas, with oil also featuring prominently. The renewables

sector is in its infancy in the region, although there is vast potential for solar power, and BMI expects to

see the industry grow.

As in the distribution and transmission sector, the GCC countries are working to establish regional links

in the power sector. This involves the GCC electricity grid, estimated to cost US$1.2bn, which will allow

the transfer of electricity across the GCC states in order to divert excess supply and maximise efficiency.

The GCC South Grid, connecting the UAE and Oman, has already been completed as a side project, and

the first phase of the project, GCC North Grid, is due to be completed in May 2009 and involves

connecting Kuwait, Saudi Arabia and Qatar via subsea cables. The final phase will connect both the north

and south grids and is due to be completed in 2010.

Oil and gas pipelines also feature heavily on the region's infrastructure plans, with large-scale investments

in the pipeline. One of the largest projects currently at the planning stage is the construction of the

MedStream pipeline between Turkey and Israel, which will not only carry oil and gas, but also water and

optical fibres. Turkey itself is seeking to extend its role as a transit corridor in the Eurasian region. Major

energy pipelines such as the Baku-Tbilisi-Ceyhan and Blue Stream are currently in operation and the

government is considering various new projects including the Nabucco natural gas pipeline and an

expansion to the Blue Stream.

The supply of water is a growing issue, with reports that the Middle East and North Africa region will

likely face severe water shortages in the coming years. The region has only 1% of the world's ground

water resources but contains 5% of the world's population. As a result, the development of desalination

plants in the region has been championed of late. The majority of these are combined with power plants

and are tendered out to private companies as Independent Power and Water Projects (IWPPs). The

growing number of IWPPs in the region is presenting numerous opportunities for international majors to

get involved.

Business Environment Ratings

Following the update of the ratings table, based on the revised Business Environment indicators from

BMI's Country Risk team, as well as revised forecasts for the infrastructure sector, there have been some

changes in the table.

Qatar remains at the top of the table, achieving the highest score in the infrastructure sub-rating. Not only

will the country have the highest industry value growth in 2009 according to our forecasts, but natural gas



revenues will provide the government with the necessary funds to spend for new major projects.

However, this is where Qatar's only advantage lies. Oman, second in the table, scores better than Qatar in

terms of the County Structure (financial infrastructure and labour market), Market Risks (number of

players in the market and the transparency of the tendering process) and Country Risk (corruption, policy

continuity and structure of the economy).

Israel breaks the GCC continuity in the table, coming in at third place. The country's sophisticated

financial infrastructure, highly skilled work force and institutional infrastructure bolster the country's

business environment credentials. These offset the low score it receives for industry value real growth.

Yemen remains at the bottom of the table because of very poor scores in areas that result in limits to

potential returns for investors. The country structure is inferior, having a very poor financial infrastructure

and a contracting construction industry. Risks are also high, the legal framework and economic structure

are deficient and corruption is rife, cementing Yemen's position at the bottom of the table.

The other non-GCC countries, Turkey, Iran and Egypt, all fall in the latter half of the table, scoring in the

50s in part due to relatively high levels of country risk.

Table: Regional Infrastructure Business Environment Ratings

Limits of potential returns Risks to realisation of returns

Infrastructure

Market Country

Structure Limits Market

Risks Country

Risk Risks Infrastructure

BE Rating Regional Ranking

Qatar 67.5 54.8 63.0 75.0 75.0 75.0 66.6 1.0

Oman 55.0 68.5 59.7 82.5 78.3 80.0 65.8 2.0

Israel 55.0 73.1 61.3 75.0 71.0 72.6 64.7 3.0

Bahrain 47.5 70.6 55.6 77.5 73.5 75.1 61.4 4.0

Saudi Arabia 45.0 67.2 52.8 80.0 62.9 69.7 57.9 5.0

UAE 45.0 59.7 50.2 80.0 71.9 75.1 57.7 6.0

Kuwait 40.0 78.6 53.5 55.0 75.3 67.2 57.6 7.0

Egypt 50.0 57.8 52.7 75.0 59.8 65.9 56.7 8.0

Turkey 40.0 50.7 43.8 70.0 56.4 61.8 56.0 9.0

Iran 45.0 56.5 49.0 55.0 59.5 57.7 51.6 10.0

Yemen 25.0 27.0 25.7 55.0 42.4 47.5 32.2 11.0

Source: BMI. Scores out of 100, with 100 best. The Infrastructure BE Rating is the principal rating. It comprises two sub-ratings 'Limits of Potential Returns' and 'Risks to realisation of returns', which have a 70% and 30% weighting respectively. In turn, the 'Limits' Rating comprises Infrastructure Market and Country Structure, which have a 65% and 35% weighting respectively and are based upon growth/size of the Infrastructure industry (Market) and the broader economic/socio-demographic environment (Country). The 'Risks' rating comprises Market Risks and Country Risk,



which have a 40% and 60% weighting respectively and are based on a subjective evaluation of industry regulatory and competitive issues (Market) and the industry's broader Country Risk exposure (Country), which is based on BMI's proprietary Country Risk Ratings. The ratings structure is aligned across the 14 Industries for which BMI provides Business Environment Ratings methodology, and is designed to enable clients to consider each rating individually or as a composite, which the choice depending on their exposure to the industry in each particular state. For a list of the data/indicators used, please consult the appendix at the back of the report.

Limits Of Potential Returns

Infrastructure Market

The medium term outlook for both capital investments/gross fixed capital formation is relatively strong,

which bolsters the UAE’s infrastructure market score. Expectations that the industry value will register

stronger growth than initially anticipated, represent a risk to the upside for the UAE’s infrastructure

market score.

Country Structure

UAE’s performance is rather average in terms of its labour market and financial system. The construction

industry is currently facing a shortage of labourers due to the outbound movement of its illegal workers

under a government policy of amnesty. On the financial front, UAE provides good opportunities. There

are a large number of free zones, primarily located in Dubai, which offer tax holidays and relaxed

conditions on foreign ownership. However, the nation needs to strengthen its financial system to fully

leverage the opportunities presented by new projects and companies.

Risks To Realisation Of Returns

Market Risks

The UAE has one of the most open business environments in the region. It has actively supported foreign

investment in both the hydrocarbon and non-hydrocarbon sectors. The market is friendly to foreign

contractors and has no significant barriers to entry. However, foreign firms need to be represented by a

local partner.

Country Risk

The UAE has some of the best physical infrastructure in the Gulf region and combined with its relatively

open economy and low tariff regime, it has established itself as a major trade hub. The low levels of

corruption are highly conducive to a sound business environment.



Project Finance Ratings: Outlook For Middle East

BMI's Project Finance Rating (PFR) provides a globally comparative, numerically based assessment of

the risks facing the projected cash flows of major infrastructure projects in the energy and utilities,

transport, and commercial construction sectors. Specifically, it evaluates the degree of uncertainty facing

projects that are generally characterised by the following: long construction period, high construction

costs, difficulty in redeploying project assets (e.g. power station) to other uses, earnings generated only

after construction completed over a long period of time.

BMI's PFR is best used for evaluating the breadth and depth of risks a major infrastructure project may

face during its lifecycle, which will in turn affect the source, availability and cost of finance. Thus, in the

current environment, characterised by a limited pool of financial resources and growing demand from

competing projects coming to market, the PFR provides a leading indicator for the cost of financing major

projects and the pace at which infrastructure development will occur in each state.

We have created two different tables aiming to better identify, analyse and assess broad categories of

risks that sponsors and/or companies may encounter during the project's lifecycle. The two tables are

composed – very broadly – first of the design, engineering and construction phase, and second of the

commissioning and operation phase. The two final scores for each country are then combined to yield the

overall project finance rating.

We have revised the PFR methodology this quarter in an effort to provide a more comprehensive overall

score from the interplay of the different indicators used to yield the final results.

First, we have adjusted the weightings of each indicator and each group of indicators (inputs, regulatory,

market risks, etc.) to reflect their relative importance, and thus the relative risk level, they pose for

sponsors and equity holders. Whereas previously all indicators assumed the same relative importance for

the overall score, through the revised methodology, certain factors (or indicators) are given higher

importance, thus providing a more realistic final rating.

Second, we have added a new indicator on the level of security threats/risks facing a country. This

indicator has been imported to the PFR from BMI's Country Risk ratings and it will play a central role

henceforth in the PFR. Infrastructure assets (such as energy pipelines, bridges and transmission networks)

are highly vulnerable to security threats, as they are primary targets of non-state actions during an

insurgency campaign or terrorist hit, and militaries during wartime. Iraq and the Niger Delta are examples

of the former, while one need look no further than the Russo-Georgian war of August 2008 and the

devastation of Georgia's infrastructure to gauge the effects of military campaigns on infrastructure.



Design And Construction Phase

The design and construction table encompasses indicators such as inflation and long-term currency

volatility (henceforth referred to as inputs), which at this stage primarily affect the cost of raw materials.

Additionally, it includes legal and regulatory risks that the company or sponsors may encounter and that

can delay commencement of construction and pose regulatory (red tape) obstacles. Closely related to the

legal and regulatory risks are the risk factors within the wider political framework, encompassing political

risk indicators such as the level to which the rule of law is enforced and respected, internal and external

security threats, and the long-term policy continuity and consistency of government policies over the

years. Last but not least is the financial risk component, composed of domestic economic stability and the

international availability of finance.

The new PFR methodology, in addition to updates in BMI's County Risk Business Environment Ratings,

has affected the rankings of this table, compared with our last Middle East PFR analysis. While

previously all the dollar-pegged GCC states were at the top of the table, Kuwait has gained ground, while

Saudi Arabia and Qatar have fallen from fourth to fifth place and from fifth to sixth place respectively.

Kuwait's score has been bolstered by low levels of external or internal security risk and a perfect score in

terms of policy continuity, given the secure rule of the government.

For the sake of our analysis we can distinguish three broad groups of countries, or bands, in the design

and construction table. At the top of the table, achieving the highest score of 69.1, is Bahrain, whose

overall score in boosted by a perfect score in the inputs sub-rating. However, it has lost its top score in

Economic and Financial Risks. Instead, the UAE achieves the highest score in this section, which

encompasses the level of domestic economic stability and availability of finance, two pivotal factors that

determine the initial stages of project financing operations. We said previously that risks in this category

are to the downside as, due to declining oil prices – and consequently oil revenues – and illiquid global

capital markets, even the cash-rich GCC countries are tightening their purse strings. It should be noted

that the scores of all the Middle Eastern states have fallen from the previous mid-70s in this category to

the mid-50s, validating our expectations that the risks to the region's economic stability were to the

downside.

Although it achieves high scores for its legal, political and economic environment, Israel's score continues

to be weighed down by the inputs sub-ratings, especially in terms of the shekel's volatility ratings, which

are among the lowest in the region. An additional factor subtracting from Israel's score is the high security

risk facing the country. However, Israel certainly holds an advantage, as the country has a highly

sophisticated banking and financial sector, which facilitates project financing operations, which ease the

risks of the currency volatility.



At the bottom of the regional table we find Turkey. The country achieves above-average scores for its

regulatory sub-ratings, but the lira's volatility is strong, dragging its overall score down, thus giving

Turkey the riskiest profile for the initial stages of a project's lifecycle.

Table: Design And Construction Rating

Inputs Legal/regulatory

risks Political environment

and security risk Economic/

financial risks Total

Bahrain 100.0 62.7 67.7 56.0 69.1

Oman 83.2 61.1 72.3 56.5 66.7

UAE 64.0 61.9 71.3 57.8 63.2

Kuwait 62.4 61.3 71.3 56.8 62.5

Saudi Arabia 83.2 49.4 61.1 57.0 61.7

Qatar 52.0 63.7 70.5 57.3 60.8

Israel 56.0 60.8 69.0 55.8 60.2

Yemen 46.0 45.8 49.2 47.9 47.4

Egypt 40.0 37.9 54.2 51.8 47.3

Iran 32.0 50.5 43.6 50.2 45.0

Turkey 6.0 58.0 54.4 50.1 43.9

Scores out of 100, where 100 is best. Source: BMI Research

Commissioning And Operating Phase

The table that identifies potential factors that influence the levels of risk during the commissioning and

operation of a project has been broken down into three categories: transport, energy and utilities, and

commercial construction. The aim is to reflect the different levels of risk a power plant has from a toll

road or a stadium for instance during the operational phase of the project's lifecycle. The aim was to add a

degree of separation between sub-sectors in infrastructure, and although the sub-categories in the table are

similar for all three sectors, the scores are different for each country in each sector, which allows us to

gauge the different levels of potential risk and the potential breadth of the financial impact they may have.

The picture here is not much different from above, with Bahrain achieving the overall highest score,

though our fears of a downside risk to the score have been verified, with Bahrain's score slipping from the

previous 78.5 to 70.7. Egypt, Iran and Turkey are in the bottom half of the table, for different reasons

though. While Turkey's inflation potential and currency volatility present the biggest risks for the long-

term viability of the revenue stream of a project, Iran's opaque institutional infrastructure and potentially

arbitrary or politically driven intervention in operations of an infrastructure project present the highest



risks for the operating and decommissioning stage of a project's lifecycle. Egypt slipped to penultimate

position, with its score falling from 50.8 to 45.7.

Table: Commissioning And Operating Rating

Commercial/business

construction Energy and utilities Transport

Inputs Outputs Total Inputs Outputs Total Inputs Outputs Total

Saudi Arabia 86.6 59.1 67.3 89.1 59.1 68.1 88.8 59.1 68.0

Oman 71.6 64.3 66.5 89.1 64.8 72.1 88.8 64.8 72.0

Bahrain 80.0 60.5 66.4 97.5 62.3 72.8 100.0 61.1 72.8

Qatar 61.0 61.8 61.5 73.5 60.6 64.5 68.0 59.5 62.0

UAE 62.0 61.2 61.5 79.5 61.2 66.7 76.0 61.2 65.7

Kuwait 48.7 60.6 57.0 68.7 60.6 63.0 61.6 60.6 60.9

Iran 61.0 50.4 53.6 58.5 50.4 52.8 48.0 50.4 49.7

Yemen 53.0 51.8 52.2 70.5 53.5 58.6 64.0 52.9 56.3

Egypt 60.0 41.3 46.9 60.0 41.3 46.9 50.0 40.2 43.1

Israel 40.5 46.6 44.8 55.5 47.8 50.1 44.0 47.8 46.6

Turkey 28.0 37.0 34.3 25.5 37.0 33.5 4.0 37.5 27.5


Overall Project Finance Rating

Combining the scores of the two tables we have distilled the overall project finance rating, which thus

takes into account all of the above sectors and sub-categories.

For the six GCC states, safety lies in numbers, and we once again find them occupying the top six

positions at the table validating our previous expectations that even after future revisions to our ratings

the GCC states would continue to top be on top of the table. The counties of the Gulf Cooperation

Council mitigate risks to investors in infrastructure throughout a project's lifecycle through their peg to

the US dollar and a politically stable environment that promises policy continuity for the foreseeable

future, as the grip of the ruling families on power does not seem likely to abate.

What is more, the GCC common market, inaugurated in January 2008, is a strong foundation and safety

net for all six states, facilitating flows of capital and people throughout the region and creating a relatively

level playing field for investors. We believe that by belonging to this wider framework of the GCC

common market, and eventually adopting a common currency (without Oman, which decided to opt out



from the scheme), the states will have an advantage in terms of reduced risks to project financing

operations in the future.

Israel follows the six GCC states. Israel's infrastructure investments have heavily relied on the private

sector participation as a source of funding. Israel certainly holds an advantage, as the country has a highly

sophisticated banking and financial sector, which facilitates project financing operations. For this reason,

the design, finance, build and operate model has been gaining ground as a means to implement large-scale

infrastructure projects, which sets a strong precedent for the country and for the project finance of the

infrastructure industry, thus lowering potential risks.

However, although the ranking of the states in the overall project finance rating table did not change

dramatically, nor do we expect it to do so unless there are major structural adjustments in one or more

countries in the region, the effects of the financial crisis in the region is evident by the significantly lower

score all countries now achieve. This means that risks did in fact increase as the crisis deteriorated, and

there is scope for further drops in scores if the crisis deepens and spreads.

Turkey As Low As It Seems?

Notwithstanding significant challenges that remain in Turkey's business environment and potent risks

facing developers, sponsors and investors in infrastructure, we feel that the ratings table does not do

justice to Turkey's infrastructure sector potential, by placing emphasis on the long-term currency

volatility that is the main drag on the country's score, followed by high inflation expectations. Though

these are important considerations, with potentially devastating effects on the net operating revenues of

investors, BMI maintains its core view that Turkey's infrastructure sector remains one of the most

attractive in the region for investors, buoyed by a growing population that will sustain demand and a

government that is actively seeking private sector participation in infrastructure. The relative success of

the privatisations of the electricity distribution networks and the gas distribution network to consortiums

including foreign energy majors indicates that appetite to get involved in Turkey's infrastructure remains

high.



Table: Overall Project Finance Rating

Design and construction Commissioning and operating Overall

Bahrain 69.1 70.7 69.9

Oman 66.7 70.2 68.5

Saudi Arabia 61.7 67.8 64.8

UAE 63.2 64.6 63.9

Qatar 60.8 62.7 61.8

Kuwait 62.5 60.3 61.4

Israel 60.2 47.2 53.7

Yemen 47.4 55.7 51.6

Iran 45.0 52.0 48.5

Egypt 47.3 45.7 46.5

Turkey 43.9 31.7 37.8


Risks And Limitations To BMI's Project Finance Ratings

It should be noted that although we believe that the resultant scores are a reliable guide to project finance

risks, the PFR assesses broad industry risks through macro and micro proxies, rather than individual

projects. This has several implications. First, there will be instances where the risk profile – for example,

the supply of inputs – of particular projects is markedly different from the general risks prevailing in the

industry. Second, the PFR will not take into account measures by private sector project participants to

mitigate risk when structuring finance – for example, by securing a substantial equity involvement from

the sponsoring agency or government.

Foreign Direct Investment

The UAE's investment climate is becoming more clement for foreign direct investors: the federal

government, led by Abu Dhabi, has made significant headway in the past five years in increasing the role

of the private sector. Yet the overall legal framework continues to favour local over foreign investors – a

fact that partly reflects the benign macro environment in light of the country's substantial oil revenue

windfall. This has endowed local and regional Gulf investors with substantial liquidity, disincentivising

the search for new FDI sources from outside the region.

Change may be on the way. In June 2007, the government said a new companies' law would open some

areas within the services sector to full foreign ownership while also allowing greater foreign participation



in other areas – up to 100% – such as financial services. This is likely to be enacted in 2008.At present,

foreign shareholders may only hold up to a 49% equity interest in limited liability companies; indeed, all

companies established in the UAE are required to have a minimum of 51% national ownership, although

profits may be divided differently. In the insurance sector, companies must be 75% owned by a UAE

national or 100% by a UAE corporation.

Full foreign ownership is generally only allowed within economic free zones. In order to do business in

the UAE outside the free zones, a foreign business must usually have a UAE national sponsor, agent or

distributor, which once chosen, has exclusive rights. In order to bid for federal projects, a contractor must

be at least 51% owned by UAE nationals, and tenders must be accompanied by a bid bond – an

unconditional bank guarantee for 5% of the value of the bid. However, government tendering practices do

not live up to international standards and re-tendering is common.

On the positive side, the absence of income tax compensates for the restrictive investment environment.

FDI figures remain difficult to verify, though data from UNCTAD claims that FDI inflows totalled

US$8.4bn in 2006, with much of it attracted to the booming real estate and construction sectors. The UAE

is now the Gulf's second biggest FDI destination after Saudi Arabia. Perhaps even more impressive, given

the massive investments made by UAE firms and individuals outside the emirates, the country has more

inward FDI stock by foreigners than nationals' outward FDI stock in foreign countries. According to a

Dubai Chamber of Commerce & Industry report in 2007, during 1997-2006 the average net inward FDI

flows as percentage of gross fixed capital formation was 17% per cent for UAE.

Abu Dhabi is preparing to offer international oil companies access to its gas deposits for the first time. In

2007, Abu Dhabi National Oil Corporation announced plans to set up a new operating company in

partnership with IOCs to extract, process and supply some 3bn cubic feet a day (cf/d) of onshore sour gas.

Until now, the main destinations for FDI have been ICT and software, tourism and textiles. The main

sources of FDI are the UK, the US and India.

Labour Force

The total population exceeded 5mn in 2007. A census has been carried out which will determine the

actual size of the labour force, but estimates put it at about 60% of the total population.

Exact data on the number of foreign workers in the UAE is not available from the Federal government,

but it is estimated that more than 80% of the UAE workforce is expatriate, with as much as 98% of

private sector workers thought to be non-UAE nationals. Most UAE nationals seek employment

opportunities in the public sector, due to the higher salaries, greater benefits, shorter working hours and

job security on offer. The construction sector is a major employer of foreign labour, mainly from the

Indian sub-continent.



In recent years, the federal and emirate governments have implemented a number of measures to increase

the cost of hiring expatriate workers, as part of an effort to bring more UAE nationals into the private

sector. 'Emiratisation' of the UAE workforce is a government objective, though less rigorously enforced

than in other Gulf States. Compulsory hiring of nationals has been limited to sectors such as banking

(which has a 4% quota), insurance (5%) trade (2% for companies employing 50 workers or more). In

2006, the government added Emiratisation requirements that all secretaries and PR officers must also be

UAE nationals.

The government continues to try and regulate the labour market, granting in mid-2007 a three-month

amnesty to illegal expatriate workers and their employers to either adjust their status or leave the country

without incurring penalties. By mid-July, 74,800 people had applied for the amnesty. Calls for reform of

labour laws, including the right to create trade unions, are growing louder. The US insisted on this during

negotiations over its free trade agreement with the UAE. The current law does not specifically give

workers the right to engage in collective bargaining. Neither do labour laws cover government

employees, domestic servants, and agricultural workers.

Industrial unrest grew during 2007, particularly amongst construction workers, the vast majority of whom

come from the Indian subcontinent. In November 2007, nearly 40,000 labourers working for the country's

largest construction firm Arabtec went on strike, in a high-profile protest. However, protests have eased

since, and with unemployment likely to rise in 2009, we expect a net loss of foreign workers, particularly

those on short-term contracts, who will be unable to renew their residency permits without a firm offer of

employment from a UAE-based firm.

In the wake of those protests, the Labour Ministry drew up new laws, which came into force in early

2008. These include the mandatory use of electronic payment systems for unskilled workers, increased

fines for companies found to be employing illegal workers, and compulsory health cover, which is

already in place in Abu Dhabi but will be extended to the other emirates. The Ministry has also drawn up

a series of standards for worker accommodation to cover all industry sectors. It is unclear whether the

new rules will extend to domestic servants and agricultural workers. The former currently face

considerable difficulty in negotiating employment contracts because mandatory requirements in the

labour law do not apply to them.

Nevertheless, the Minister of Labour, Dr Ali bin Abdullah al-Ka'abi, has ruled out any possibility of

expatriates being awarded citizenship, no matter how long they have worked in the emirates or their level

of expertise in their field. Furthermore, the UAE is one of the main supporters of the 3+3 labour law that

will be discussed by the Gulf Cooperation Council (GCC) in 2008. The law proposes that expatriates'

term of residency within any GCC country be limited to three years, with a possible three-year extension.



Legal Framework

The UAE legal system is based on civil law concepts and common law principles – such as adopting

previous court judgments as legal precedent – are usually not recognised.

The legal system follows the federal structure of the UAE, but the constitution acknowledges the right of

individual emirates to opt out of the federal court system, which Dubai and Ras al-Khaimah have done.

These two emirates have their own court systems, which are not subject to the federal Supreme Court.

There are three main branches within the court structure: civil, criminal and Shari'a law. The court

structure comprises the following:

The Court of First Instance – which includes the Civil Court, the Criminal Court and the Shari'a Court.

This hears all claims, including commercial matters. Commercial disputes involving foreign parties tend

to come before the civil courts, although Shari'a law is applicable in all kinds of cases, involving both

Muslims and non-Muslims.

The Court of Appeal.

The Court of Cassation – whose judgement is final. Dubai has its own Court of Cassation.

The 1971 constitution established the independence of judiciary. However, in practice, independence is

minimal as all judges are appointed by the government. The five judges of the Federal Supreme Court, for

example, are appointed by the Supreme Council of Rulers, while other judges are appointed by the

Ministry of Justice. Furthermore, judges' decisions are subject to review by the executive, meaning that

any politically unpopular rulings can be overturned.

Commercial disputes involving foreign companies are usually heard before the federal civil courts, with a

panel of three judges presiding. All cases involving banks and financial institutions must be heard by civil

courts. In Abu Dhabi, all non-arbitration commercial disputes are first taken to the Abu Dhabi

Conciliation Department and if the parties cannot settle, they start legal proceedings in the court of first

instance.

With the UAE now firmly established as a regional business hub, arbitration is the preferred mode of

dispute resolution involving foreign companies. Yet dispute resolution can be an arduous and uncertain

process and enforcing arbitration judgments can be difficult since court certification is also required. The

judicial process can sometimes take years to conclude. Some companies are reportedly unwilling to resort

to arbitration out of concern that it could affect their future business opportunities in the UAE.

In 2006, the UAE ratified the 1958 New York Convention on the Recognition and Enforcement of

Foreign Arbitral Awards – one of the last countries in the region to become a signatory to the convention.



This enables UAE courts to enforce arbitration decisions made in a foreign country. However, the federal

Supreme Court says that a foreign arbitration clause in a registered commercial agency agreement is

invalid since the Commercial Agency Law states that UAE courts have jurisdiction over commercial

agency disputes. Nevertheless, smoother arbitration should ensure that disputes are handled faster than in

the court system.

Property Rights

Although investment laws and regulations are undergoing a period of evolution and becoming more

conducive to foreign investment, at present, the regulatory and legal framework still favours local over

foreign nationals. Foreign ownership of land and stocks is restricted, although specific rules vary between

emirates. Dubai and Abu Dhabi have opened up some areas for freehold and leasehold property

investments. Ras al-Khaimah also offers freehold land to offshore companies in designated areas. In Abu

Dhabi, non-GCC nationals can own buildings in certain investment areas but cannot own the land.

However, investors should be aware of impediments to the exercise of rights over property. In Dubai, for

example, foreign owners of 'freeholds' cannot register titles with the Dubai Land Department, which

would allow them access to the full range of legal protections and transactions that property ownership

requires. Freeholds are a new phenomenon in Dubai and very few court precedents exist, so there is still

considerable ambiguity concerning property rights and inheritance laws.



Macroeconomic Economic Activity

Downturn Raises Employment Questions

BMI View: We are forecasting recession for the UAE in 2009, with lower oil prices and reduced

investment spending two of the key culprits. The downturn will bring employment regulations to the fore,

as the government balances the need to encourage continued immigration while protecting the

employment of UAE citizens.

While recently released figures from the Ministry of Economy confirmed the UAE's strong economic

expansion in 2008, we believe that government bullishness regarding the effectiveness of its fiscal rescue

package is somewhat misplaced. We remain bearish regarding the country's growth prospects this year;

indeed we are now forecasting an outright recession, with the economy expected to contract by 1.7%. In

our view, government spending will limit the downside and stave off job losses in key sectors, but will

not be sufficient to fully counteract the contraction in trade volumes, the slowing of consumer spending

on the back of population losses, and the severe cutting back of investment plans.

Good Times Are Past

A recent statement by Sultan bin Saeed al-Mansouri, the UAE Minister of Economy, put real GDP

growth at 7.4% in 2008, slightly above our 6.9% estimate for the year. While we are still awaiting a full

breakdown of GDP by expenditure from the ministry or the central bank, the minister's statement

confirmed a number of key trends that we were following throughout the year. Most important of these

was the surge in oil revenues as prices peaked in the middle of the year. Overall, the contribution of the

oil sector to GDP rose from 35.9% in 2007 to 37.9% in 2008. The second trend was the sharp upswing in

investment spending, much of which was ploughed into real estate developments.

Both these trends have already witnessed a sharp reversal. On the oil front, we recently raised our forecast

average annual price to US$45.50/bbl for the OPEC Basket in 2009, up from our previous figure of

US$39.50/bbl. However, this is still less than half of the 2008 average of US$95.40/bbl. Oil prices are

likely to creep up again as global demand recovers in the second half of this year and from 2010 onwards,

but we a return to 2008 levels is unlikely in the foreseeable future. Even by 2012, we are forecasting an

average price of US$71.50/bbl, broadly on a par with 2007.

Lower oil prices, combined with stricter lending requirements by banks and greater caution among

investors whose fingers have been burned (or are still getting burnt) by the collapse in real estate prices

will also translate into less exuberant investment plans. We see real growth in gross fixed capital

formation (GFCF) remaining in single digits over the next two to three years, rather than the rates of 15-

20% (or likely even higher in 2008) seen over the past three, as plans for many real estate projects are



shelved, others are scaled back and the government begins to play a more central role in infrastructure

development.

Acknowledging The Problem

While the economy ministry is painting a bullish picture, comments from elsewhere in the ruling elite

suggest that the government does recognise the magnitude of the challenges facing the UAE economy this

year. In mid-March, the central bank governor, Sultan bin Nasser al-Suweidi, admitted that growth was

likely to slow to low single digits, or could even turn negative, this year. He promised interest rate cuts to

stimulate growth, although as is the case around the world, the real problem is translating central bank

cuts into lower market rates for consumers and businesses. At the time of writing, the UAE interbank

offered rate (AEIBOR) stood at 2.9188%, compared with a central bank repo rate of 1% .

Another key area where the government is sitting up and taking notice is population growth. We have

long argued that a steady expansion of the population is essential to the UAE's growth plans.

Immigration, by both highly skilled white collar workers and unskilled labourers, has fuelled the country's

recent boom. Highly skilled migrants have brought experience and expertise in key non-oil sectors such

as financial services and construction, while labourers from south Asia have provided the manpower for

the bulk of construction projects. On top of this, steady population expansion has driven increases in

consumer spending and fuelled demand for housing, particularly in Dubai, the first Emirate to allow

foreign ownership of property.

With many construction sites now lying untouched, large numbers of labourers have lost their jobs, and

redundancies have spread to office workers in the real estate and financial sectors. With most visas for

foreign workers tied to employment, those that lose their jobs often have only a few weeks in which to

find new employment before being forced to leave the country. The scale of recent emigration is

unknown; the ministry of labour has insisted that thousands of new work permits are still being issued,

although it is not clear what proportion of these are simply renewals of existing permits.

In 2009, we are currently forecasting a 1% contraction in the total population to 4.67mn. However, the

government is reportedly re-examining its immigration regulations, with a view to making it easier for

unemployed expatriates to remain in the country while they search for new jobs. Without changes to the

current system, Dubai – probably the Emirate most reliant on foreign labour – has little chance of

achieving its 3% workforce growth target in 2009 (even with these changes, we think this figure is

optimistic).

Employment Nationalism

But at the same time as it tries to retain foreign workers, the UAE is also keen to shield its native

population from the impact of the economic downturn. Dubai recently launched another 'Emiratisation'

drive, aimed this time at increasing the proportion of UAE citizens employed in the public sector



(previous initiatives have tended to focus on encouraging private firms to take on more local staff).

Recent research by the UAE University found that among over 120 private firms surveyed, less than 1%

of their employees were Emirati. Figures were much higher in the public sector, but still not high enough

according to Sheikh Mohammed bin Rashid, ruler of Dubai and the UAE's prime minister. Just 25% of

staff at federal authorities, and barely more than half of those employed in ministries, are UAE citizens.

The poverty that often accompanies unemployment is not such an issue in the UAE - the government has

always provided its citizens with a generous range of welfare benefits, ranging from free education and

healthcare to subsidised land and loans for house building. That said, with a young population, providing

enough jobs is still a concern, and job losses among Emirati staff will always be unpopular, particularly

when there are still large numbers of foreign workers still employed in the UAE. However, until now the

government has tried to tread carefully. Rules on emiratisation have not been strictly applied, as the state

recognised the trade off between boosting domestic employment levels and remaining competitive.

Table: United Arab Emirates – Economic Activity

2005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f

Nominal GDP, AEDbn 1 485.5 624.6 729.7 984.4 833.8 939.8 1085.4 1238.2 1351.9

Nominal GDP, US$bn 1 132.20 170.10 198.70 268.10 227.00 255.90 295.60 337.20 368.10

Real GDP growth, % change y-o-y 1 8.2 6.6 5.2 6.7 -1.7 3.9 4.8 3.9 5.3

GDP per capita, US$ 1 32,197 40,218 44,254 56,858 48,643 53,753 59,694 65,480 68,740

Population, mn 2 4.10 4.20 4.50 4.70 4.70 4.80 5.00 5.10 5.40

Notes: e BMI estimates. f BMI forecasts. Sources: 1 UAE Central Bank/BMI. 2 Ministry of Economy



Political Outlook

Domestic Politicals

Damage Control: Cushioning The Recession's Impact

BMI View: While public statements remain bullish, the UAE government appears to accept the severity

of the economic challenges facing the country. We anticipate an increase in measures to protect the local

population from the effects of the downturn, including greater demands for private firms to employ

Emirati staff.

Despite the traditional bullishness of the UAE authorities, we believe that the severity of the current

global downturn will bring about a more realistic appraisal of the economic situation facing the country.

Not that this will necessarily result in any major policy shift, particularly on the political front. Indeed, the

government appears as determined as ever to safeguard the living standards of Emirati citizens and shield

them from the impact of recession. As such, measures such as encouraging private firms to employ more

Emirati workers (and making it harder to fire them), are likely to multiply over the coming years. That

said, we do not expect the UAE to go as far as some Gulf states, namely Kuwait, and bail out individuals

who have lost money on private investments.

Traditional Optimists

The UAE is renowned for its optimism in the face of adversity. Indeed, Dubai in particular prides itself on

defying the pessimism of others and achieving the seemingly unachievable. Local authorities like to cite

its previous successes – building a city in the desert, creating a regional tourism hub and attracting major

sporting events to the Emirate – as evidence that Dubai can exceed foreign expectations.

Abu Dhabi and the eastern Emirates have been less ostentatious in their development, but state authorities

throughout the country have remained bullish as the global financial crisis has intensified. In defiance of

any predictions that government infrastructure spending would have to slow in the face of lower oil

prices, the Abu Dhabi government recently unveiled plans for a huge new government and economic

development, to be known as Capital City District, which officials have hailed as a 'once-in-a-lifetime

opportunity' to create a modern and sustainable Arab city.

Growing Realism

That said, we are seeing signs of greater caution and pragmatism among some sections of the

government. In Dubai, ruler Sheikh Mohammed recently announced that the worst of the financial crisis

was over and declared that talk of Dubai's demise was greatly exaggerated. Yet the fact that he felt

compelled to respond to rampant media speculation about the state of the Emirate's financial health –

Sheikh Mohammed rarely speaks directly to the media – suggests rising concern within the government

about recent damage to Dubai's image.



Furthermore, the language used in statements made on his website implied a tacit admission that the

Emirate did indeed face acute pressures. 'The measures we have undertaken so far have shifted the UAE

economy from crisis mode to solution mode,' he said, adding that action plans currently being

implemented by the state were designed to 'ensure recovery'. The ruler also admitted that economic

growth would be lower than in previous years.

There are also signs that the central bank is making a realistic appraisal of the economic outlook for 2009.

In mid-March, the central bank governor, Sultan bin Nasser al-Suweidi, set out the possibility that the

economy could contract during 2009. Although he maintained that the bank's core scenario was for low

single-digit growth, the fact that he even raised the possibility of recession is, in our view, significant

(although we do not believe that his realism goes far enough – we are forecasting a contraction of 1.7% in

real GDP this year). Officials have also sought to downplay the IMF's recently released bullish forecasts

for 2009 growth; the fund is projecting a 3.3% expansion this year.

Managing Expectations

The generally more downbeat tone struck by officials so far this year suggests an attempt to manage the

expectations of a population that has enjoyed a period of economic boom. Foreign workers will

undoubtedly feel the brunt of the current downturn, given their higher propensity to work in the private

sector (exposing them to a higher risk of redundancy), their more precarious legal situation (residency

permits are almost always linked to employment contracts) and their lack of access to any form of safety

net, such as unemployment benefits or free health care.

That said, there will certainly be some knock-on effect on the Emirati population. On the employment

front, the collapse of the property sector has led to job losses, among local workers as well as foreign

nationals, while reduced trade and slower demand for tourism services will also hurt employment in those

sectors, with many small, locally-owned firms expected to feel the pinch. The government has responded

by stepping up its 'emiratisation' agenda – a drive to prioritise employment of Emirati citizens over

foreign workers.

To date, rules on the proportion of Emirati employees that private firms are supposed to retain have not

been widely enforced, largely as a pragmatic move by the authorities to maintain the UAE's attractiveness

as an investment destination for foreign firms. As a result, the percentage of Emirati workers in most

private sector industries is very low – a reported 1% in the tourism sector for example. However, the state

now appears ready to enforce rules more vigorously, and a government-level conference on the issue is

planned for late April. In addition, it also appears likely that new employment regulations will be

implemented, making it harder for private firms to sack Emirati workers, in order to protect them from the

worst effects of the downturn.



Investments Collapsing

Aside from employment, the collapse of the housing and equities markets is likely to have a negative

impact on local incomes. True, the housing boom, particularly in Dubai, was largely driven by speculative

activity by foreign buyers. However, locals also got involved, buying properties in new developments off-

plan, as financial investments or to rent to foreign workers. A recent survey by property consultancy

Colliers International claimed that average property prices fell by 40% in Dubai in the six months to mid-

April, with rental prices falling by 20-40%. In the equities arena, both the Dubai and Abu Dhabi stock

markets have staged some recovery recently, but are still down 72.3% and 49.3% from their respective

peaks.

Risks To Outlook

Despite our fairly gloomy outlook for the economy, we are not anticipating a major upswing in political

risk in the UAE. The country still has one of the highest scores in the region in our short-term political

risk ratings (75.8) and there is no obvious challenge to the hegemony of the Emirates' various ruling

families. Rather, we expect the government to stick with its traditional policies - restricting the rights of

foreign workers in order to ensure a high standard of living for the native population, including free

education, healthcare, subsidised housing and preferential access to well-paid public sector jobs - in order

to maintain the social harmony that has proved so supportive to recent economic growth.



Company Monitor

Dutco Balfour Beatty Group

SWOT Analysis

Strengths

Local and international expertise allows Dutco to appeal both nationally and internationally

The company has a well-established reputation as a local company, but through Balfour Beatty it has the expertise and funding of an international company

Weaknesses

Dutco mostly operates within the Gulf region, with most projects in the UAE, which limits growth potential

Opportunities

The decline in raw material prices can help contractors re-adjust project cost estimates

The Gulf region is one of the fastest growing infrastructure markets, with a wealth of projects funded by oil rich economies. Therefore, Dutco, as a well-established company, is well located to benefit from this growth.

Threats

The economic downturn in Europe and the US could effect Balfour Beatty since most of its projects are located here, therefore threatening financing for Dutco

The finance climate may impact Dutco’s ability to gain funding for the large and expensive infrastructure projects on its books

The financial crisis hitting the UAE real estate and tourism market impacts the company because it relies on the sector for large-scale contracts

Overview

The Dudco Balfour Beatty Group was created in 2002 after the merger of

Dutco Balfour Beatty, Dutco Construction, Dutco Tunnelling, and BK Gulf. The

UK’s Balfour Beatty is a 49% shareholder and Dutco (the Dubai Transport

Company) owns 51%.

Strategy And Evaluation

Dutco claims to have a strategy of long-term investment in technology and

human resources, and put its success in the United Arab Emirates’

infrastructure sector down to these aspects. With its investment in technology,

the company has tried to ensure it is at the forefront of the infrastructure

industry, making it competitive. Furthermore, its investment in human

resources means the company has a large skill pool, having combined

international expertise with local knowledge.

Notably, Dutco has been involved in some of the largest and most prestigious

infrastructure projects in the UAE. The Mina Jebel Ali is perhps the company’s



flagship projects. Other more recent projects include the Burj mall, the Tiger

Woods Golf Complex and the Trump Tower (through BK Gulf), highlighting the

presence the company has in the region.

Over the past year Dutco has shown strong growth. According to the Dutco

website, 2007 revenue was US$578mn; according to Balfour Beatty the 2008

revenue will be more than US$1.26bn, therefore signalling an almost 50%

increase in revenue. Although Balfour Beatty noted that Dubai alone was a

key thrust behind growth in 2008, attributing to the emirate the 25% leap in

2008 half-year profits, the abrupt deterioration in the Dubai construction sector

prompted a statement by Balfour Beatty in March 2009, saying that the market

has slowed considerably and that revenues will be negatively affected from

that market in 2009.

The company’s strategy is to expand across the Gulf region, with Balfour

Beatty aiming to take Dutco from its existing base in the UAE to a major

regional business. This is undoubtedly to take advantage of the buoyant

infrastructure market in the region, and avoid falling foul of the international

downturn in infrastructure that is effecting many companies in the sector.

Balfour Beatty believes it will be shielded from the downturn as a result of its

many infrastructure projects for government and utilities companies, which

have a legal obligation to be carried out. With considerable growth already in

the first half of 2008, Dutco is hoping to continue on this success, and BMI

believes that the outlook is positive.

Recent Activity And Projects

August 2008

Dutco Balfour Beatty Group was awarded three major projects in the UAE.

Dutco Balfour Beatty wsa awarded a US$272mn road construction project for

two major interchanges by Nakheel. BK Gulf, Dutco’s electrical and

mechanical division, was awarded two contracts worth a total US$190mn for

the Marina Hotel in Abu Dhabi and the Trump International Hotel and Tower

project in Dubai.

March 2008

Dutco Balfour Beatty was awarded a contract to build a new Novotel complex

in Al Barsha, Dubai, worth US$229mn. The complex is due to be completed in

October 2010.

Company Data

Dutco Balfour Beatty had revenues of AED2.125bn (US$578mn) in 2007,

according to the company’s financial statement.

Balfour Beatty’s annual report listed revenue for the Middle and near East at

GBP247mn. The report categorises Dutco under Balfour Beatty’s civil and

specialist engineering sector, reporting a 2007 profit of GBP86mn (up from

GBP47mn in 2006), and 2008 half year pre-tax profit of GBP44mn, up 69%



over the same period in 2007.

According to the full year 2008 preliminary report, however, the Middle East is

going to weight negatively on growth for 2009 as Balfour Beatty expects a

significant slowdown in the market.

According to a report in the UAE daily The National, Dutco Balfour Beatty’s

order book was valued at AED2.5 billion (US$681 million) in May 2009, down

from AED4bn (US$1.089bn) a year ago.



Al Habtoor Leighton Group

SWOT Analysis

Strengths

The merger with Leighton Group transformed Al Habtoor into a major player in the Gulf region

Strong order backlog. According to the CEO total order book stood at AED26bn (US$7bn) in the end of May 2009

Weaknesses

Little diversification across the region. According to the company’s strategic plan, 80% of the 2010 revenues will come from the UAE, of which 70% will be from Abu Dhabi

Badly impacted by the downturn in Dubai, two of its flagship contracts have been aborted as a result

Opportunities

Infrastructure investment is expected to remain at high levels. The Dubai and Abu Dhabi governments are looking to expand spending on infrastructure to boost economic activity through demand

Spending on transport and water projects in the capital cities will provide a solid base for increased activity levels

Oil rich countries in the Gulf are spending their oil windfalls accumulated over the past few years to invest in infrastructure projects to sustain employment and demand

Threats

The financial crisis hitting the UAE real estate and tourism market impacts the company as it relies on the sector for larges-scale contracts

Overview

Al Habtoor Engineering is the founding member of the diverse Al Habtoor

Group and was founded in 1970. The company is involved in the construction

of airports, civil works, commercial and residential buildings, hospitals, hotels,

shopping malls, palaces and cinemas.

The company has a presence in Jordan, Lebanon, Egypt, Qatar and Bahrain

in the Middle East. One of its most prestigious projects is the Burj Al Arab,

which was completed as a joint venture with South African firm Murray &

Roberts.

The company is 45% owned by Australian contractor Leighton Holdings, and

since the acquisition the combined company has became one of the Gulf

region’s largest multi-discipline contractors. The Leighton Group is a division

of German construction giant Hochtief’s Asia Pacific operations.


The Al Habtoor Leighton Group identifies three key areas of growth. These



are: sustained growth in its three core markets, Abu Dhabi, Dubai and Qatar;

selective expansion into new Middle Eastern and North African regions; and

further development of associated business, including steel fabrication, piling,

M&E, interior fit out and services.

In May 2009, the company said in the context of a diversification initiative, that

it is waiting for contracts it has bid for in Kuwait during the past 18 months to

materialise by the end of 2009. The managing director, David Savage, also

said that Al Habtoor Leighton Group’s total order backlog stands at AED26bn

(US$7bn), which guarantees it work for the next two years.

A strategy of diversification in the wider MENA region has consistently been a

stated strategic priority of the company, though with the exception of

establishing a presence in Qatar, it has not been forcefully pursued. Most

attention has instead been focused on the UAE. The cancellation of the

US$790mn contract to build the Trump Towers commercial complex and the

cancellation of the contract to build the third concourse at Dubai’s airport seem

to have prompted the plans for geographic diversification to materialise.

In spite of the steps the company has taken to diversify abroad, the core of its

operations still lies in the UAE. However, though Dubai has been a sour point

lately, it is in fact Abu Dhabi that contributes most in terms of revenues.

According to Savage, 80% of revenues in 2010 will come from the UAE, of

which 70% will come from Abu Dhabi. This is good news for the company.

Though the real estate market in Dubai has imploded, Abu Dhabi has in place

several large-scale infrastructure projects to sustain the activity of the

infrastructure and construction sector of the UAE. Examples include the

transport master plan that encompasses projects including the metro, as well

as the Mafraq-Ghweifat highway, which is the first public private partnership

transport project in Abu Dhabi and if successful will pave the road for future

projects. And this is just the transport sector. The government is also looking

to channel funds towards social infrastructure projects, a sector that Al

Habtoor Leighton also has a presence in.

Al Habtoor Leighton was reportedly planning to sell up to 40% of its shares in

an IPO in May 2009, but no updates on this initiative have been released. The

company is reported as stating that the IPO will not be undertaken to raise

capital, but because ‘it would benefit from the structure and demands that

come with being a publicly traded company’.


In May 2009, managing director, David Savage, disclosed that the company is

seeking to become more actively involved in the infrastructure sector in Kuwait

and North Africa, Arabian Business quoted him saying.

The AED4.9bn (US$1.3bn) contract for construction of a new concourse at

Dubai International Airport was annulled in April 2009. The consortium of Al

Habtorr and Murray and Robers walked away from the agreement with the



Dubai Department of Civil Aviation citing failure to reach an agreement. The

contract was originally awarded in December 2008.

In early December that Nakheel implemented a 12-month delay in long-term

infrastructure work on some of its projects, including the Trump International

Tower and Hotel, which is being constructed by Australia's Leighton Holdings

for US$790mn.

In September 2008, a subsidiary of the company, Al Habtoor Engineering,

entered into an alliance contract worth approximately AED6.4bn for the

construction of a major mixed-use development in Abu Dhabi of Tameer

Towers.

In July 2008, Al Habtoor Engineering was awarded an AED2.25bn contract for

the Al Bustan mixed-use development in Abu Dhabi for the Al Hamid Group.

The project includes a four-star, 385-room business hotel; a 30,000m2 office

tower; a tower of 250 serviced apartments; and two residential towers with a

total of 450 apartments. It is expected to be completed in October 2010.

In the same month, Al Habtoor Leighton Group was awarded AED740mn

Olgana and Hilliana Towers in Dubai. Construction began in July 2008 and is

expected to complete by July 2010.

In May 2008 the group gained an AED1.55bn contract for the construction of a

major mixed-use development in Dubai for Muzoon Holdings, which was due

to start construction the following month. Completion was set for June 2011.

Financial Data

In September 2007, Leighton Holdings acquired a 45% stake in Al Habtoor for

US$750mn (40% cash) and merged its Gulf operations with Al Habtoor. The

combined company had work in hand of US$3.7bn at end-2007, of which

US$1.5bn was gained from Al Habtoor’s projects.



Veolia Water

SWOT Analysis

Strengths

JV with Abu Dhabi’s state investment company Mubadala Development strengthens the company’s position in the UAE market

Its branches in Abu Dhabi and Israel confirm Veolia as a long-term presence in the region

Veolia Environment is a diversified conglomerate, with companies operating water, waste, energy-optimisation and transportation activities worldwide. This broad base reduces dependence on a single sector

Weaknesses With just two branch offices across the Middle East (ME), the group’s local presence in the region is

immature Opportunities

Shortage of local sophistication in water engineering in the region presents significant opportunities for companies such as Veolia to export know-how and expertise

The ME’s economy is expanding, and the governments are calling for investment on a broad sector base.

Much of the ME still requires desalination technology, and demand is set to grow. By 2015 it is estimated that desalination capacity will have to double

New economic cities in desert land will require water technologies

The population in the ME is set to grow; in the Saudi Arabian city of Riyadh, for example, the population will grow at an estimated 4% very year

Already-present technical faults in the ME’s water system will require upgrading so as to prevent leaks, etc

Threats

A global slowdown or drop in oil prices will impact on the amount of investment in the ME.

This will also impact on the continued construction of new cities, and therefore on the growth of the population.

Overview

Veolia Water AMI (Africa, Middle East and Indian Subcontinent) provides

water, wastewater and electricity services to almost 9mn people and is a

subsidiary of Veolia Water, one of the world’s biggest water and wastewater

companies, whose parent company is French multinational Veolia

Environment.

In the Middle East, Veolia is present in Bahrain, Oman, Saudi Arabia and the

UAE. The company’s main subsidiaries are Moalajah FZD-Ajman (UAE),

Sharqiyah Desalination Company SAOC – SPC Sur (Oman), Bahwan Veolia

Water – O&M Sur (Oman), Seureca Overseas, and Metito (Saudi Arabia).

Strategy & Evaluation

Address

Veolia Water Middle East Al-Hamed Building # 7th floor - Al Fatah Street Abu Dhabi United Arab Emirates

Tel.: (+971) 2 64 27 550

www.veoliawater-middle-east.com



On March 30 2008, Veolia Water AMI opened a new branch office in Abu

Dhabi. BMI reported on the opening, which was Veolia’s second branch in the

Middle East after Israel. We saw this as a sign of Veolia’s strategy to cement

its presence in the region, following the winning of tenders and implementation

of major projects in Bahrain, Oman, Saudi Arabia and the UAE. With figures

that show nearly 10% of total turnover from ME and Africa, Veolia is acting to

continue expanding in the region, and more broadly, to achieve its aim for

global visibility.

In response to disappointing 2008 yearly results, Veolia Environment SA, the

parent of Veolia Water, said that it will decrease investments by 44% in 2009,

or by EUR1.6bn, and increase asset sales. Reuters reports that this marks a

U-turn on the company’s aggressive strategy of acquisitions over the past

three years. The Middle East may be a source of growth for 2009 as demand

in developed markets declines.

Our view is consolidated by forecasting that that demand for water will

increase in the Middle East, leading to a necessity for an increase in

desalination capacity. According to MEED, desalination capacity in the region

will have to double by 2015 in order to meet need. According to a report by

Metito, Veolia's subsidiary in Saudi Arabia, water and wastewater investment

in the region is expected to reach AED441bn (US$120bn) over the next

decade; this figure underlines the potential opportunities.

Veolia Environment’s figures show that the group’s water business grew by

14.8% from 2007 to 2008, and from that, business accumulated in the Middle

East and Africa expanded by 14.1% at constant exchange rates.

The Middle East remains a target region for Veolia. Its positive demographic

outlook and booming construction sector fuel the need for desalination

technologies. Forbes reports that Veolia plans to invest at least EUR5bn in

2008, and BMI would not be surprised if growth continued to come from the

ME. Veolia also emphasises the value of sustainable water solutions, as well

as research into and the development of new technologies. In BMI’s view, this

long-term outlook will guarantee the company’s long-term presence in the

region.


May 2009: The company singed a contract with the Doha municipal

government for the operation and maintenance of two waste water treatment

plants for sever years. The activities are estimated to yield EUR40mn over the

course of the contracted period.

October 2008: Veolia Water finalised a JV with the Abu Dhabi’s state

investment company Mubadala Development. The new jointly owned company

will focus on water production and waste water collection and treatment in the

markets of the Middle East and North Africa. Veolia Water will own a 51%

stake, and Mubadala the other 49%. The company will seek to get involved in



municipal concessions and public-private partnerships.

July 2008: Veolia Water signed a contract with the Abu Dhabi Water and

Electricity Authority (ADWEA) for the financing, design, construction and

operation of two new wastewater treatment plants in the cities of Abu Dhabi

and Al Ain. This is the biggest contract to date signed for wastewater in the

Middle East.

The project covers a 25-year period, and will contribute an estimated

EUR364mn to consolidated revenue After the initial construction period, which

will take two and a half years, Veolia Water will operate the two wastewater

treatment plants for 22 and a half years.

April 2008: The company won Saudi Arabia's first ever outsourced

performance contract in the water sector for water production and distribution

and wastewater collection in the capital, Riyadh. Under the six-year contract,

Veolia Water will gain a total estimated cumulative revenue of EUR40mn

(US$60mn) on the basis of an incentive system linked to performance and

savings achieved.

March 2008: Veolia opened a new branch office in Abu Dhabi, UAE.

January 2008: The company won two contracts in Dubai for wastewater and

brackish water treatment and recycling installations, worth a total of

EUR22.4mn. The contracts were awarded for the Palm Jumeirah Island and

the Burj Dubai Tower.

Company Data

Veolia saw its 2008 net income fall by 56% to reach EUR405mn. In response,

Veolia said that it will decrease investments by 44% in 2009, or by EUR1.6bn,

and increase asset sales. Reuters reports that this marks a U-turn on the

company’s aggressive strategy of acquisitions over the past three years.

In 2007 Veolia AMI gained revenues of EUR739mn.



Emaar

SWOT Analysis

Strengths

Emaar has experienced rapid growth over the past decade, and as such is able to rely on the reputation of the brand in order to continue to grow. Large press-worthy projects, such as the construction of the Burj Dubai, also support this aim

The company diversifies its projects, which include industrial, commercial, residential, retail and financial builds. Responsible for the massive King Abdullah Economic City in Saudi Arabia

Emaar diversifies its sector base, expecting, for example, its Islamic banking and finance branch to profit from the Middle East’s wealth

Weaknesses

The company’s international focus means that it is vulnerable to global trends

Costs are therefore dependent on currency fluctuations

Still, 80% of its projects in Dubai that is severely hit by the financial crisis

Opportunities

The company places extra emphasis in the domination of two main markets, Saudi Arabia and India, where economic expansion fuels demand for construction

Windfalls from oil have prompted Saudi Arabia to reinvest in other sectors in order to develop their economic base. This increases demand for infrastructure projects

Threats

Fears of a slowdown in the construction industry have already impacted Emaar’s share prices as confidence levels fall

Financial crisis presents an obstacle to the company’s financing operations

Overview

Dubai-based Emaar Properties has developed into one of the largest real

estate and property development companies in the world. The company has

an international portfolio with their main business in real estate and tourism

(hotels and resorts), but has been expanding into industrial construction,

infrastructure, education and healthcare. It is a Dubai-based Public Joint Stock

Company and the Dubai government owns 32.5% of the company.


The company’s strategy, called Vision 2010, is two-tier: first, geographical

expansion, and second, business segmentation and diversification. Hitherto,

both aims seem clearly within reach for Emaar. The company has grown and

expanded outside the UAE and has operations in 17 markets with total

investments worth US$65bn. Furthermore, it has created six different business

segments, with a total of 60 active companies, in its efforts to venture into new

business sectors. Reuters states that Emaar has US$100bn worth of projects



under construction.

The obvious risk of its strategy is the deterioration in the financial and credit

market, which Emaar is dependent upon to finance its rapid growth. In

addition, with the exception of the fourth quarter of 2008, raw material prices in

the UAE – and the wider Middle East region where Emaar has a presence –

reached record highs, inflating estimated costs and eating into company

revenues and profits making 2008 a difficult year.

The company’s financial results for the first nine months of 2008 reflected the

latter point. Revenues declined by 1.6% y-o-y to AED12.52bn for the nine

months that ended in September 2008 and by 4.5% y-o-y to AED4.32bn for

Q308. Profits for the first nine months were marginally higher ( 0.4%) y-o-y

reaching AED4.84bn for the first nine months of 2008, while they have

declined by -2.2% y-o-y to AED1.51bn in Q308. According to analyst

consensus estimates, the company can still make the 3.5% profit growth for

2008. The losses in third quarter profits were due to an AED750mn write-down

in its US home-building subsidiary, John Laing Homes.

The outlook for 2009 is not as promising, according to financial analysts. Most

recent developments suggest further signs of stagnation. The company’s

share price declined 94% between 27 January 2008 and 25 January 2009,

highlighting the loss of investor confidence in the sector and consequently the

major players in Dubai. However, this trend is industry-wide, with a global loss

of confidence in the construction boom. Other Gulf companies have also

experienced slowing growth. Due to Emaar’s broad international portfolio in

particular, the deceleration in growth and share price value is to be expected.

The company’s chairman said in October 2008 that he believes that

fundamentals in MENA and South East Asia will remain strong, thus re-

affirming Emaar’s internationalisation strategy.

Outside the UAE, Emaar’s subsidiary in India, Emaar MGF Land Ltd.,

postponed its planned February US$1.64bn IPO, due to instability in the Indian

stock market and poor investor demand.


The Burj Dubai Tower in Dubai, which is going to be the world’s tallest

building, is due to open in September 2009. The tower will primarily be a

residential and commercial development, but also comprise hotels and act as

a tourist attraction. According to financial analysts, its opening will boost

Emaar’s annual revenues.

Emaar is also the main developer of the King Abdullah Economic city in Saudi

Arabia. Building the new city in Saudi Arabia is perhaps the main project that

the company has undertaken, as the city incorporates all aspects of an urban

infrastructure, including a residential area, business district and an industrial

zone, which is the largest part of the city. The total cost is estimated close to



US$27bn.

In April 2008 Emaar Education announced it is expanding its presence in

China after the company signed a MoU with a Chinese company. It is now

exploring opportunities in Shanghai and Beijing in the fields of healthcare,

education and real estate. The company had previously announced in January

2008 that it has earmarked US$1bn to build between 20 and 30 schools in the

Middle East and South Asia.

It was announced in January 2008 that Emaar plans to develop four projects in

Algeria worth an estimated US$5.5bn. The projects are for the construction of

an education city, a healthcare city, a tourist resort and a mixed-used

waterfront development in the capital Algiers.

In October 2007 Emaar and Bawadi, a subsidiary of Tatweer, announced a

joint venture through which the companies will develop a mixed-used

commercial, business and tourism project, on 60mn sq ft of land. The

investment needed is US$16.3bn. Emaar will invest US$1.05bn

Company Data

The company incurred a net loss of AED1.77bn (US$481mn), compared with

a net profit of AED1.74bn (US$473mn), in the fourth quarter of 2008.

According to the median estimate of four analysts surveyed by Bloomberg, the

company was expected to earn a profit of AED1.31bn (US$356mn) during the

quarter. The company has incurred losses due to writedowns at its US unit

and the drop in property prices.

For the first nine months of 2008 revenues declined by 1.6% y-o-y to

AED12.52bn for the nine months that ended in September 2008 and by 4.5%

y-o-y to AED4.32bn for Q308. Profits for the first nine months were marginally

higher (0.4% y-o-y reaching AED4.84bn) for the first nine months of 2008,

while they have declined by -2.2% y-o-y to AED1.51bn in Q308. According to

analyst consensus estimates the company can still make the 3.5% profit

growth for 2008.



Nakheel

SWOT Analysis

Strengths

The company operates across many sectors, including marinas, hotels, retail and asset management

The projects that it is building are internationally recognised, boosting the company’s international reputation

Weaknesses

Nakheel mainly operates in Dubai, and although it has set targets to operate internationally, it has not achieved major advances in this

Very exposed to the Dubai real estate market that is set to witness a major contraction, especially as the credit squeeze intensifies and oil revenues decline with lower oil prices

Opportunities

The company is well placed to take advantage of the major boom in developments in Dubai, especially residential and commercial buildings in which Nakheel specialises

Threats

Financial crisis presents an obstacle to the company’s financing operations

The international downturn may present obstacles to Nakheel’s growth, as many of the residential projects are sold as second homes to European, especially British, customers, who may no longer be able to afford them

Overview

Nakheel is a private commercial enterprise owned by Dubai World, the Dubai

government’s sovereign wealth fund. The company is based in Dubai and is

one of the world’s largest. It has developed many internationally recognisable

projects in Dubai, including the Palm trilogy, three man-made palm shaped

islands: Palm Jameirah, Palm Jebel Ali and Palm Deira, and The World – 300

islands in the shape of a world map.


Nakheel is leading development in Dubai and will undertake 50% of all

development in the emirate over the next 10 years. The company’s name is

attached to many of the projects that are shaping the development, and

indeed the geography, of the emirate. The company’s Waterfront City

development will provide residential accommodation for more than 92,000

people, with the Waterfront Development as a whole providing office space

and accommodation for 1.5mn people.

Although currently focused in Dubai, 10 months ago Nakheel developed a 10-



year strategy to expand internationally, with a target of 65% of assets in Dubai

and 35% internationally, according to the Australia Business News. Over the

past year, the company has followed up on this strategy to an extent, investing

in 50% stakes in hotel resorts in Miami and Mexico. However, the company’s

assets are still predominantly in Dubai.

The downturn in global financial markets and the construction and real estate

sector in the UAE and particularly in Dubai have forced the company to re-

evaluate projects. Nakheel surprised investors and analysts in December

when it announced that it is delaying some flagship projects. Because of the

size of the company and its portfolio, it acts as a bellwether of current market

trends. That announcement, coupled by a declining share price, revealed the

true scale of the deterioration of Dubai’s once dynamic market. This

contraction in the market also compromises the company’s long-term growth

strategy.


March 2009

Nakheel announced that it will suspend construction on the Nakheel Tower for

one year.

December 2008

In early December, Nakheel announced a 12-month delay in long-term

infrastructure work on some of its projects including the Trump International

Tower and Hotel, which is being constructed by Australia's Leighton Holdings

for US$790mn. Other projects include Frond N villas and Gateway Towers.

November 2008

The company cut 15% of its workforce.

August 2008

Nakheel entered a partnership with US speciality food retailer Balducci’s to

open its first stores in the Middle East. The first store will be located in the

Dubai mall, with further locations in Dubai and the rest of the Middle East to

follow.

July 2008

Nakheel formed a joint venture company called HyperCorp LLC with French

company Auchan. HyperCorp will develop five hypermarkets across Dubai

located in Nakheel’s developments.

June 2008

Nakheel and Dubai Islamic Bank formed a joint venture company called

Tashyed LLC. In total AED2bn has been invested in Tashyed, which will

undertake real estate developments. The first two projects will be in

International city and Jumeirah Heights in Dubai.

Nakheel signed an agreement with Arabtec Construction LLC to build 1,500

homes at its Al Furjan development in Dubai. The deal for AED3bn is to build



villas and terrace houses starting in August 2008, to be completed by the third

quarter of 2010.

April 2008

Nakheel invested US$537mn with Fontaineblueau Resorts LLC for a 50%

stake in the Fontainebleau Miami Beach Resort. The resort will undergo a

US$500mn renovation.

Nakheel announced a plan to develop five shopping malls in Dubai by 2012, at

a cost of more than US$3bn.



Mubadala Development

Overview

The Abu Dhabi-based Mubadala Development is an investment vehicle of the

Abu Dhabi government, mandated to invest in the establishment of new

companies and the acquisition of strategic holdings in companies in the UAE

and abroad, to promote the economic well-being of the emirate in a financially

sound manner. The company was formed in 2002 and has been active in

energy and utilities, healthcare, property and real estate, aerospace and

infrastructure investments. Mubadala acts both as a developer and investor.

The company’s infrastructure and services unit is subdivided into three

investment categories: first, capital developments, which include the provision

of facilities and operational solutions such as universities, schools, military

bases and hospitals; second, transport developments, particularly in the

aviation and maritime fields; and third, services, such as defence solutions,

fleet management and leasing and aviation training capabilities. Based on the

company’s project history, the focus of the group has been on the services

and capital developments segments, with a variety of projects in education.

Mubadala owns 100% of Abu Dhabi Terminals, the operating arm of the Abu

Dhabi Ports Company, which manages the operations in Port Zayed.

The company is the sole owner of Abu Dhabi Future Energy Company and

Abu Dhabi Terminals, in transport and utilities, and owns a 40% stake in Abu

Dhabi Ship Building and a 47.5% in Barka Power Plant.

Some of the company’s recent investments include an agreement between

Mubadala’s wholly owned subsidiary Liwa Energy and Royal Dutch Shell

Algeria, for Liwa to buy a 20% stake in the company’s exploration and

production projects.

In January 2008, a joint venture between Mubadala and Dubai Aluminium

Company Limited signed a MoU with Emaar Economic City, the developer of

King Abdullah Economic City in Saudi Arabia, for the construction of an

aluminium smelter complex in the economic city. The cost is US$5bn and the

factory will have capacity to produce 700,000 tonnes of aluminium per year.

Mubadala and Dubai Aluminium have co-operated in several projects in

developing aluminium smelter production facilities. A month earlier, in

December 2007 the two companies announced another such project in

Algeria, in partnership with Algerian Sonatrach.

In August 2007, it was reported by Gulf News that Mubadala was leading a

consortium that was to develop and integrate international city development in

Malaysia’s Iskandar Development Region. The initial phase of the project is

estimated to cost US$1.2bn and it will be developed over 20 years.

Address

12th Floor, ADNIC Building Khalifa Street Abu Dhabi, UAE

Tel: +971 (2) 616 0099

Fax: +971 (2) 616 0098

Web: www.mubadala.ae

Key Statistics

No. of Employees: 250

Key Personnel

CEO and managing director: Khaldoon Khalifa Al Mubarak



In May 2007, Dubai Aluminium, Mubadala and BHP Billiton signed a joint

venture to set up an aluminium production facility in Guinea, worth US$3bn.



BMI Forecast Modelling

How We Generate Our Industry Forecasts BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling and

causal/econometric regression modelling. The precise form of model we use varies from industry to

industry, in each case being determined, as per standard practice, by the prevailing features of the industry

data being examined. BMI mainly uses OLS estimators and in order to avoid relying on subjective views

and encourage the use of objective views, uses a ‘general-to-specific’ method. BMI mainly uses a linear

model, but simple non-linear models, such as the log-linear model, are used when necessary. During

periods of ‘industry shock’, for example a deep industry recession, dummy variables are used to

determine the level of impact.

Effective forecasting depends on appropriately selected regression models. BMI selects the best model

according to various different criteria and tests, including, but not exclusive to:

R2 tests explanatory power; Adjusted R2 takes degree of freedom into account

Testing the directional movement and magnitude of coefficients

Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value)

All results are assessed to alleviate issues related to auto-correlation and multi-collinearity

BMI uses the selected best model to perform forecasting.

It must be remembered that human intervention plays a necessary and desirable role in all of BMI’s

industry forecasting. Experience, expertise and knowledge of industry data and trends ensures that

analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely

mechanical forecasting process would not.

Within the infrastructure industry, this intervention might include, but is not exclusive to, new

investments across sectors, or projects getting cancelled; general investment climate and business

environment changes; domestic or regional trends changing; macroeconomic indicators; and regulatory

changes.

Example of Construction Value Model:

(Construction Value)t = β0 + β1*(Gross Fixed Capital Formation)t + β2*(Lending Rate)t + β3*(Percentage

Change in Government Expenditure)t + β4* (Inflation)t + β5*(Percentage Change in Population)t +

β6*(Construction Value)t-1 + εt



Construction Industry

A number of principal criteria drive our forecasts for each construction and engineering variable:

Construction GDP And Infrastructure Spending

Figures for construction GDP and infrastructure spending are based, where possible, on national accounts

as published by the relevant central banks, as well as primary government/ministry sources and official

data. Where these are unavailable, construction GDP estimates are based on a range of variables

including:

Stated infrastructure and development programmes

Likely increases owing to related urban or industrial sector developments

Political factors (such as an electorally motivated public works programmes)

Construction as a percentage of GDP is calculated using BMI’s own macroeconomic and demographic

forecasts.

Employment Within The Construction Industry

These figures are forecast based on:

The growth or otherwise of the real gross fixed capital formation

Company results and expansion plans

Sources Sources used in construction reports include UN statistics, national accounts, housing and economy

ministries, officially released company results and figures, trade bodies and associations and international

and national news agencies.



Business Environment Ratings BMI’s Infrastructure Business Environment Ratings (IBER) provide a numerically-based evaluation of

prospects for the infrastructure sector in each state that we cover. BMI has revised the methodology of its

Infrastructure Business Environment Ratings. Our approach has been threefold. Firstly, we have redefined

the risks rated in order more accurately to capture the operational dangers to companies operating in this

industry globally. Secondly, we have attempted, where possible, to identify objective indicators that may

serve as proxies for indicators that were previously evaluated on a subjective basis. Finally, we have used

BMI’s proprietary Country Risk Ratings (CRR) in a more nuanced manner in order to ensure that only

the aspects most relevant to the industry have been included. Overall, the new ratings system – which is

now integrated with those of all 16 industries covered by BMI – offers an industry-leading insight into

the prospects and risks for companies across the globe.

Ratings Overview Conceptually, the new ratings system is divided into two distinct areas:

Limits of Potential Returns: An evaluation of sector’s size and growth potential in each state and also

broader industry/state characteristics that may inhibit its development.

Risks to Realisation of those Returns: An evaluation of Industry-specific dangers and those emanating

from the state’s political/economic profile that call into question the likelihood of anticipated returns

being realised over the assessed time period.

For each category and sub-category, each state is scored out of 100 – 100 being the best, with the overall

IBER a weighted average of the total score. Importantly, as most of the territories that are evaluated are

considered by BMI to be ‘emerging markets’, our IBER will be revised on a quarterly basis. This will

ensure that the IBER draws upon the latest information and data from across our broad range of sources

and the expertise of our analysts.



Table: Infrastructure Business Environment Indicators

Indicator Rationale

Limits to potential returns

Market structure

Construction expenditure, US$bn

Objective measure of size of sector – the larger the sector, the greater the opportunities available.

Sector growth, % y-o-y Objective measure of growth potential – rapid growth will result in increased future opportunities.

Capital investment, % of GDP Used as a proxy for the extent the economy is already oriented towards the sector

Government spending, % of GDP

Proxy for extent to which structure of economy is favourable to infrastructure/construction sector.

Country structure

Labour market infrastructure Rating from BMI’s CRR to denote availability/cost of labour. High costs/low quality will hinder company operations.

Financial infrastructure Rating from BMI’s CRR to denote ease of obtaining investment finance. Poor availability of finance will hinder company operations across the economy.

Access to electricity Rating from BMI’s CRR. Low electricity coverage is proxy for pre-existing limits to infrastructure coverage.

Risks to potential returns

Market risk

No. of companies Subjective evaluation against BMI-defined criteria. This indicator evaluates barriers to entry.

Transparency of tendering process

Subjective evaluation against BMI-defined criteria. This indicator evaluates predictability of operating environment.

Country risk

Structure of economy Rating from BMI’s CRR, to denote health of underlying economic structure, including seven indicators such as volatility of growth; reliance on commodity imports, reliance on single sector for exports.

External risk Rating from BMI’s CRR, to denote vulnerability to external shock – principal cause of economic crises.

Policy continuity Subjective rating from BMI’s CRR, to denote predictability of policy over successive governments.

Legal framework Rating from BMI’s CRR, to denote strength of legal institutions in each state – security of investment can be a key risk in some EM.

Corruption Rating from BMI’s CRR, to denote risk of additional illegal costs/possibility of opacity in tendering/business operations affecting companies’ ability to compete.

Source: BMI

Project Finance Ratings Methodology



The PFR

BMI’s Project Finance Rating (PFR) provides a globally-comparative, numerically-based assessment of

the risks facing major infrastructure projects in the Power, Transport, and Commercial Construction

sectors. Specifically, it evaluates the degree of uncertainty facing projects that are generally characterised

by the following: long construction period; high construction costs; difficulty in redeploying project

assets (e.g. power station) to other uses; earnings generated only after construction completed.

The PFR draws on BMI’s broad analytical expertise. Indeed, the methodology incorporates our industry-

leading Country Risk Ratings, thereby drawing on our 24-year expertise in assessing political, economic

and business operational risk, as well as our in-depth knowledge of the infrastructure industry globally.

However, while we believe that the resultant scores are a reliable guide to project finance risks, it should

be emphasised that the PFR assesses broad industry risks, rather than individual projects. This has several

implications. First, there will be instances where the risk profile – for example, the supply of inputs – of

particular projects is markedly different from the general risks prevailing in the industry. Second, the PFR

will not take into account measures by private sector project participants to mitigate risk when structuring

finance – for example, by securing a substantial equity involvement from the sponsoring agency or

government.

Consequently, the PFR is best used for evaluating the breadth and depth of risks facing major

infrastructure projects, which will in turn affect the source, availability and cost of finance. Thus, in an

environment of limited global finance for such projects, it provides a leading indicator for the cost of

financing major projects and the pace at which infrastructure development will occur in each state.

Ratings Overview

To fully reflect the life-cycle of infrastructure projects, the PFR is conceptually divided into two distinct

sub-ratings:

Design and Construction Risks: This evaluates risks within the broad assumptions underpinning

construction cost projections. Specifically, it assesses uncertainty within the political, economic and

regulatory environment, and also input cost volatility.

Sector Operational Risk: This evaluates risks within revenue projections during the operational period of

any project. Specifically, it assesses uncertainty regarding the supply and cost of inputs, and sale of

outputs – including the regulatory, market and political environment.



Ratings Components

The following indicators have been used. Overall, the rating uses 10 subjectively-measured indicators,

and around 40 separate indicators/datasets.

We have revised the PFR methodology this quarter (Q309), in an effort to provide a more comprehensive

overall score from the interplay of the different indicators used to yield the final results.

Accordingly, we have adjusted the weighting of each indicator and each group of indicators (inputs,

regulatory, market risks, etc), to reflect their relative importance, and thus relative risk level, that they

pose for sponsors and equity holders. Whereas previously all indicators assumed the same relative

importance for the overall score, through the revised methodology, certain factors (or indicators) are

given higher importance and thus providing a more realistic final rating. The relative influence of each

indicator and each group of ratings to the final score can be found in the columns below. The score next

to the Group indicates how much the group influences the final rating, whereas the score next to each

indicator, shows each indicator’s influence in the group.

Design & Construction Phase

Indicator Definition Rationale Weightings

Inputs 20% (Group)

Domestic – Inflation

Ave. consumer inflation 2002-2009 adjusted for its

standard deviation

High, and uncertain, inflation increases risks to

input cost projections 60%

International – Long Term Currency Volatility

The standard deviation of the moving average of the

past 12 months of data on a monthly basis, plus the

standard deviation of the moving average.

Currency volatility increases risks to cost projections of

imported goods 40%

Political Environment 25% (Group)

Market Orientation

Measure of government intervention in economy,

using data for govt. expenditure; govt. revenue

from state-owned enterprises; ave. trade tariff

rates; tax levels; trade bureaucracy and history of

FDI flows.

Governments with strong commitment to free markets

are likely to refrain from sudden changes to the

investment/trade regime 20%

Security Risk

Measure of the level of security threat; external and

internal, facing a country.

The higher the security risk the higher the risks to

infrastructure assets, in terms of physical security (as they tend to become targets) and in terms of 20%



Design & Construction Phase


potential levels of insurance premiums which rise along

with security risk levels, increasing the costs to

sponsors.

Long Term Policy Continuity

BMI evaluation of level of broad governmental policy

consistency over past decade

Strong policy continuity between elites (within same

party or across parties) minimises risks that new

legislation will alter the business operating

environment 20%

Characteristics of Polity

BMI evaluation of system of government and

constitutional framework against ideal type

Democratic governments with strong, independent

institutions are less prone to sudden policy shifts 20%

Rule of Law

Evaluation of breadth and depth of government’s

ability to protect individuals and property

Strong rule of law reduces direct threats to assets

during construction 20%

Legal/Regulatory Risks 20% (Group)

Corruption Subjective measure of level

of corruption

Transparency is essential to predictable planning of

input delivery and cost and the predictability of officials’

decisions 50%

Contract enforceability

World Bank Index of cost, procedures and time taken

to recover a bad debt

Confidence in the legally binding nature of contracts

is essential to minimising domestic counterparty risk 50%

Economic/Financial Risks 35% (Group)

Domestic:

Economic stability

BMI’s Long Term Economic Rating, which incorporates 20 indicators to assess risk

of an economic crisis

Economic stability reduces risks to project activity (e.g.

via financial problems at suppliers) 30%

International: Availability of finance

US and Eurozone ave. interest rates, adjusted for

Chicago BOE VIX index

Project finance is principally raised internationally, so price and availability will

depend on US and Eurozone interest rates and

investor risk appetite (proxied by VIX). This is a

global, rather than country-specific, indicator. 70%



Commissioning and Operating Phase- Commercial Construction


Inputs 30% (Group)

Domestic

Inflation, % Ave. inflation 2002-2009

and its standard deviation

High, and uncertain, inflation increases risks to

input cost projections 30%

Power, imports as % of consumption

As stated; power used as proxy for all utilities

Supply of utilities are essential to functioning of

asset and revenue generation per se 25%

International

Long Term Currency Volatility





imported goods 45%

Sale of Outputs

Regulatory 20% (Group)

Supply Risk

BMI subjective view of the transparency of

government planning policy

Clarity regarding future market supply is essential to forecasting demand for

asset 20%

Price Risk


government policy regarding price of service

related to asset

Clarity over policy/regulations covering

price are essential to projecting income 20%






Market Risks 30% (Group)

Economic stability


of economic crisis

An economic crisis would cut – potentially

substantially – projected demand

Long term currency stability




Sharp currency movements introduces risks to value of

income in international currency 50%

Political Risks 20% (Group)

Market orientation




are likely to refrain from sudden changes to the 10%



Commissioning and Operating Phase- Commercial Construction




FDI flows.

investment/trade regime

Security Risk




infrastructure assets, in terms of physical security (as they tend to become targets) and in terms of



sponsors. 40%

Policy continuity

BMI evaluation of level of policy consistency over

past decade




environment 10%

Rule of Law



Strong rule of law reduces direct threats to assets 40%



Commissioning and Operating Phase - Energy and Utilities


Inputs* 30% (Group)

Inflation Ave. inflation 2002-2009


Volatile inflation will risk unanticipated cost

increases that it may not be possible to pass on to asset

users 30%

Crude price costs

BMI Brent crude forecasts for next five years, adjusted

for standard deviation of prices over past 3 years.

Gas and other fuel prices correlate closely with oil.

Price stability is desirable, as are expected future

trends. This is a global, rather than country-specific

risk. 25%





Currency volatility increases risks to cost projections of imported goods or goods bought in US dollars (i.e.

fuel feedstock) 45%

Sale of Outputs


Demand Risk

BMI subjective view of government energy policies

and their implications for industry demand

Transparency regarding government energy policies

is essential for evaluating demand 20%

Price Risk


government policy regarding power prices









Economic stability


of economic crisis


substantially – projected demand 50%








Market orientation Measure of government

intervention in economy, Governments with strong

commitment to free markets 10%



Commissioning and Operating Phase - Energy and Utilities





FDI flows.

internally and internationally are likely to refrain from sudden changes to the

investment/trade regime

Security Risk







sponsors. 40%

Policy continuity


past decade




environment 10%

Rule of Law




* no distinction between internal and domestic risks. This reflects BMI’s view that all projects would have fuel feedstock contracts in place prior to construction.



Commissioning and Operating Phase –Transport


Inputs 30% (Group)

Domestic

Inflation Ave. inflation 2002-2009


Volatile inflation will risk unanticipated cost

increases that it may not be possible to pass on to asset

users 40%

International






imported goods 60%

Sale of Outputs


Demand Risk

BMI subjective view of government regulation and

its record in supporting substitutes etc.

Transparency regarding government policy is

essential for evaluating demand 20%

Price Risk


government policy regarding price of service

related to asset



Contract enforcibility






Economic stability


of economic crisis


substantially – projected demand 50%








Market orientation



from state-owned


are likely to refrain from sudden changes to the

investment/trade regime 10%



Commissioning and Operating Phase –Transport


enterprises; ave. trade tariff rates; tax levels; trade

bureaucracy and history of FDI flows.

Security Risk







sponsors. 40%

Policy continuity


past decade




environment 10%

Rule of Law




united arab emirates infrastructure report q3 2009

Documents

information storage

year industry forecasts

representation of warranty

time of publishing

puddle docklondon ec4v

express written consent

ds uktel

means graphic