Global Firms Still Dealing With Impacts of North Africa Turmoil
Construction in key energy, transportation, water and sanitation sectors was hit hard during the recent political unrest in North Africa, with numerous projects halted or destroyed, assets seized, and developers and contractors unsure of payments and financial liability, particularly in Libya.
But even as that country's new Libyan National Transition Council is moving to open dialogue with foreign firms to revive in-country work, project developers in other African nations with ties to the former Gadhafi dictatorship are still facing a tough time.
Global oil company Tamoil Group is set to lose a major oil pipeline project in East Africa after a contract held, since 2006, by its subsidiary, Tamoil East Africa, expired in March, and executing countries have ignored pleas to extend it.
Tamoil Group, a Dutch firm whose African businesses were taken over six years ago by the former Libyan government as an investment vehicle in sub-Saharan Africa, now is in limbo. Kenya, Uganda and Rwanda have called for a review of a $300-million contract to build a 320-kilometer pipeline between Eldoret in Kenya and Uganda’s capital, Kampala.
The pipeline also was to be extended from Kampala to Kigali, Rwanda’s capital, but Rwanda moved last August to terminate the project over the Tamoil unit's alleged failure to meet contract terms.
In early May, Patrick Nyoike, Kenya’s permanent secretary in its energy ministry, said the country would terminate the Eldoret-Kampala pipeline contract to pave the way for new bids with other participants.
“The governments of both Kenya and Uganda are of the view that Tamoil cannot do the job. The two governments are in the process of terminating the contract with the aim of bringing on board another contractor,” Nyoike said.
Meanwhile, contractors in Libya, Egypt and Tunisia whose projects were caught up as regimes changed dramatically last year are seeking reparations for delays and damage.
Turkish construction firms want payment of over $1.4 billion for projects they had completed for the Gadhafi government but were never compensated. They note construction equipment seized or destroyed during the fighting and a total of $100 million still being held by Libyan banks.
The Turkish Contractors Association says Turkish contractors were involved in some 370 projects valued at more than $18.5 billion before Gadhafi was toppled and killed in October 2011.
Zafer Caglayan, Libya’s new economy minister, agrees with the Turkish contractors, stating, “The companies should ascertain their losses and share these with the Libyan government.”
Also hit hard were Chinese construction firms, which had an estimated 36,000 workers involved in Libyan infrastructure and oil-sector projects.
China State Construction Engineering Corp, one of the 13 state-owned firms with projects in Libya, is said to have amassed projects worth $2.67 billion—50% of them incomplete—in Libya at the time Gadhafi’s regime tumbled.
“The unfinished projects have been suspended, and their future development remains uncertain,” the company said in a statement late last year.
The company was the lead contractor in the West Benghazi 20,000-unit housing project, in which U.S. project management firm AECOM acted as project adviser.
China Railway Construction Corp. had won contracts worth $4.24 billion in Libya. Those projects included a $2.5-billion contract to build a 353-km rail link between Al Khums and Sirte and a $802-million award for 172 km of rail network between Tripoli and the Tunisian border at Ras Ejder. Both projects were set for completion next year, but their fate now is unknown.
Canada’s SNC-Lavalin, now at the center of corruption allegations over $56 million in illegal payments linked to Libya work now halted, had recorded 7% of its backlog from in-country projects.
In 2010, the firm was awarded a $450-million water-supply contract related to Libya’s Great Man-Made River project. Under the contract, the contractor was to install collector pipelines and pumps in 300 deep wells as well as power supply and a communications system by the end of 2015.
But analysts point to more positive signs related to project investors elsewhere in North Africa. “As for existing investors in the region, they're staying put,” said Hamid Biglari, vice chairman and head of emerging markets and content at Citigroup in remarks at a recent World Bank conference on investment prospects in the wake of the Arab Spring. “They're either reducing their exposure, but they're not getting out, or they are being extra cautious in terms of expanding their exposure.”
Biglari said there are an estimated 400 multinational companies still remaining in Egypt with the hope that the new government will restore a business-friendly environment.
A report by the German Marshall Fund of the United States, a non-partisan public-policy and grant-making institution, notes the trade impacts in the region but speculates on a brighter economic outlook, fueled by big investments from multinational banks in infrastructure and other areas.
According to the World Bank, the political changes experienced in North Africa will allow affected countries "the opportunity to put into place competitiveness-enhancing measures."