September 2014

Saudi Mega Transport & Infrastructure

Riyadh, KSA

Saudi Arabia’s Infrastructure Sector

Said A. Al Shaikh

Group Chief Economist

National Commercial Bank

Contents

Infrastructure Investment Determinants

Budgetary Capital Allocation

Economic Growth

Population Growth

Saudi Infrastructure Projects Market

Non-residential Capital Formation

Transport, Storage and Communication Sector

Awarded Infrastructure Projects

Financing Schemes

Bank Credit

Capital Market (Debt & IPOs)

Project Finance

Public Private Partnerships

Sector Outlook

Continued expansionary policies, driven by strong oil revenues, are maintaining

the capital expenditure momentum

Sources: MOF, NCB Estimates

Official Budget vs. Actual Spending

(in SAR billion, unless otherwise stated)

2012 2013 2014

Actual Actual Budgeted NCB Est.

Revenue 1,247 1,156 855 1,086

Oil 1,145 1,035 752 965

Non-oil 103 121 103 121

Expenditure 873 976 855 1,005

Current 612 664 607 754

Capital 262 312 248 251

Balance 374 180 0 80

596 654 827 873 925 953

180 199

276 262

278 238

0

200

400

600

800

1,000

1,200

1,400

2009 2010 2011 2012 2013P 2014F

(SAR billion)

Capital Expenditure

Current Expenditure

Capital expenditure has been growing rapidly in recent years, averaging 30% of

the total in order to accelerate economic growth in the medium-term, but likely

to ease in the near-term.

Budgeted transport expenditure rose by 3% in 2014, and received the third

largest allocation after education & manpower and health & social affairs

•Expenditures of SAR210 billion

•New construction of 465 schools

•Renovation of 1,500 schools

Education & Manpower

•Expenditures of SAR108 billion

•Construction of 11 new hospitals

•Completion of 132 hospitals and social centers

Health & Social Affairs

•Expenditures of SAR39 billion

•Construction of inner-city roads, intersections and bridges

Municipality Services

•Expenditures of SAR67 billion

•Construction of 3,500 km of roads

•Expansion of ports, railways and postal services

Transportation & Infrastructure

•Expenditures of SAR61 billion

•Appropriations to enhance water resources

•Improve water and sewage networks

Water, Agriculture &

Manufacturing

2014 Allocation of Budgeted Expenditures

Education & Manpower

25%

Health & Social Affairs13%

Municipality Services

4%Transportation & Infrastructure

8%

Water, Agriculture &

Manufacturing7%

Others43%

Sources: SAMA, MOF, and NCB Estimates

With oil sector stagnating, Saudi’s economic growth is expected to

rebound to 4.3% in real terms, underpinned by government spending

and a vibrant non-oil private sector

7.5%

8.6%

5.8%

4.0% 4.3%

3.8%

-2%

0%

2%

4%

6%

8%

10%

2010 2011 2012 2013P 2014F 2015F

Oil Non-oil Public Non-oil Private Real GDP

Young and growing population during the past two

decades has created significant demand for physical and

social infrastructure services

Population trends

27.1 million residents (2010 census) Saudis aged 30 and younger represent the highest growth segment and is estimated to

account for 57% of the population

Demand for improved infrastructure Increasing demand for desalinated water, electricity, affordable housing and improved

transportation (roads, rail, air)

(2.00) (1.00) - 1.00 2.00

0-45-9

10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-79

80+

Population in Millions

Males Females

Saudi Population Pyramid (2013)

Saudi Infrastructure Projects Market

After a dip in non residential gross capital formation in 2009, investments

rebounded in 2010 and has steadily been increasing as waves of mega-projects

are being awarded, with a focus on the infrastructure sector.

0%

4%

8%

12%

16%

20%

0

70,000

140,000

210,000

280,000

350,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Non-Residential GFCF % of GDPSAR millions

Sources: CDSI, NCB Estimates

Sources: CDSI

The transport, storage & communications sector witnessed sharp growth in the

period between 2005-08, though moderating since then. It is still recording

double digit growth, and maintaining nearly 9% share of non-oil GDP

0%

6%

12%

18%

24%

30%

0

30,000

60,000

90,000

120,000

150,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Transport, Storage & Communication % of Non-Oil GDP Growth Rate %

SAR millions

Approximately SAR904 billion worth of contracts have been awarded

in the infrastructure sector between 2008-2014. The level of

investments are expected to keep this pace into the medium-term.

Awarded contracts within Infrastructure (SAR millions)

*Through H1’14

Source: NCB, Various Sources

0

35,000

70,000

105,000

140,000

175,000

210,000

245,000

2008 2009 2010 2011 2012 2013 2014*

Power Water Residential Real Estate Transportation Roads Education Urban Development Healthcare Sewage Others

91,665

132,948

82,350

157,361

130,900

232,339

76,585

The value of contracts being executed in the infrastructure sector

amounts to more than SAR600 billion. A significant amount of

contracts that were awarded in the last few years are expected to be

completed in 2014

0

100,000

200,000

300,000

400,000

500,000

Cancelled Complete Execution On Hold Operation

Status of Infrastructure Projects (SAR millions)

0

50,000

100,000

150,000

200,000

250,000

Value of Projects to be Completed (SAR millions)

Source: MEED Projects

Source: MEED Projects

Share of Value of Awarded Contracts by Owner in 2013

The value of awarded contracts in the transportation sector reached

SAR177 billion between 2008-13. The majority of the contracts were

awarded by Arriyadh Dev. Auth, Saudi Railway Company, and GACA

•Value of awarded contracts dramatically

grew in 2013 largely due to the Riyadh

Metro project, which was valued more

than SAR80 billion.

•Local contractors partnered with foreign

contractors were selected to construct the

Riyadh Metro, such as Bechtel & Mabani,

Ansaldo & Nesma.

•Of the SAR53 billion in awarded

contracts during 2011, approximately

SAR47 billion was awarded for the

development of the Haramain Railway

Project

Value of Awarded Contracts in the Transportation Sector

0

25,000

50,000

75,000

100,000

95%

2%2% 2%

Arriyadh Development Authority Saudi Railway Company

GACA Saudi Aramco

Saudi Infrastructure

Financing Schemes

Bank credit to infrastructure related sectors have witnessed a

significant surge over the last five years, growing by a CAGR of

11.5%, while long-term credit grew by a CAGR of 15.7%

Source: SAMA

0%

6%

12%

18%

24%

30%

0

60,000

120,000

180,000

240,000

300,000

2009 2010 2011 2012 2013

Electricity, Water, Gas & Health Services Building & Construction

Transport & Communications Government & Quasi Government

Share of Long-Term Bank Credit by Maturity

SAR millions

192,349

234,872

263,011305,249

170,117

Funding for infrastructure projects has diversified over the last 10

years beyond bank lending. A total of SAR98 billion in Sukuks and

SAR56 billion in IPOs have been issued over the last ten years.

* King Abdullah Economic City & Knowledge Economic City

Source: Zawya, NCB Estimates

Power53%

Real Estate14%

Transportation31%

Telecommunications2%

Sukuk Issuance Distribution by Value

Education0.3%

Healthcare5.6%

Real Estate21.8%

Telecommunications59.5%

Transportation6.4%

Economic Cities*6.4%

IPO Issuance Distribution by Value

The infrastructure sector has benefited from a significant

amount of investments, attracting local and international

players alike. Various financing structures have been used

ECA/Bank/Sukuk/Government Financing:

•Maaden’s USD6.1 billion desalination plant at Ras Alkhair

•International bank lending worth USD495 million

•Saudi Banks lending worth USD1.2 billion

•Export credit debt worth USD2.5 billion from Japan Bank for International

Cooperation

•GACA Guaranteed Senior Sukuk

•SAR15.2 billion Murabaha structure

•10 year tenor

•Used to fund King Abdulaziz International Airport in Jeddah

•Saudi Railways Organization ECA Covered Bond

•SAR3.04 billion

•Spanish Export Credit Agency (CESCE)

•5 year tenor

•Used to partially finance the Haramain high speed rail line

The importance of finance has increased the use of project

financing and public private partnerships (PPP) within the

infrastructure sector

Project Finance:

•Use of project finance on the rise and is rebounding following the global financial

crises

•Approximately 50% of project finance deals in the GCC are in Saudi Arabia

•Rise in contractor financing

•Provides contractors with working capital during projects

•Saudi Binladen took on USD2.3 billion in contractor finance to assist in

funding the construction of King Abdulaziz International Airport

PPPs:

•Government is overburdened with many infrastructure projects

•PPPs are a favorable option for financing companies as the private sector shares

the benefits and risks of a project, while performing part of a government function

•SEC has been active in independent power projects (IPP) where 30-40% of future

generation will be implemented on basis of BOO

•Rabigh power plant worth USD2.4 billion

•Riyadh power plant worth USD1.5 billion

Sector Outlook

The transportation and power sectors garner the largest share of projects being

executed through 2035. Projects in the healthcare and education sectors have

been gaining momentum.

Top 10 Mega Projects

Project

Contract Value

(SAR million) Delivery Date

1 Riyadh Light Rail Transit Lines 1-

6 87,045 2018

2 2nd Phase Haramain High-Speed

Rail Network 31,485 2016

3

1st Phase of Additional Terminal

at King Abdulaziz International

Airport 27,105 2014

4 2nd Phase of Saudi National

Guard Housing Development 13,500 2016

5 Rabigh Power Plant Extension 12,750 2014

6 Security Forces Medical Complex

in Riyadh 12,562.5 2017

7 Security Forces Medical Complex

in Jeddah 12,562.5 2017

8 Shuqaiq Steam Power Plant 12,375 2017

9 Jeddah South Thermal Power

Plant 11,700 2017

10 Terminals Upgrade at King Khalid

International Airport 10,875 2017

0 100 200 300 400 500

Transportation

Power

Education

Residential Real Estate

Healthcare

Water

Governmental

Social and Cultural

Telecom Future Projects by Sector

Source: NCB, MEED Projects

• Future railway projects are valued

at SAR118,530 million.

• 37% of upcoming/ under-execution

projects belong to the

transportation sector, while 21%

and 19% belong to the power

sector and education sector

respectively.

• The residential real estate sector

has witnessed a recent surge in

projects as a result of the royal

decree in 2011. The private sector

has also been active as we have

seen with the Cordoba project in

Riyadh

Thank You

Saudi Market Dynamics Between Owners and

Contractors in the Transport Sector

The transportation sector’s value of awarded contracts dramatically grew in 2013. Arriyadh

Development Authority’s awarding of the Riyadh Metro Project contributed to the spike for

2013. Railways controlled the majority of the type of projects that were awarded followed

by aviation. The majority of contract were awarded to consortiums and JV’s given the sheer

size of those projects.

HIGH

LOW

Valu

e o

f A

ward

ed C

ontr

acts

LOW HIGH

Frequency of Awarded Contracts

Arriyadh/GACA/Aramco Distribution of Awarded Contracts During 2013

0

SAR20 B

SAR40 B

Bechtel/Si

emens/Ma

bani

1 contract

SAR35.4

Ansaldo/im

pregilo/Ne

sma

1 contract

SAR22.3

FCC/Freyss

inet/Samsu

ng

1 contract

SAR29.3

Alarrab/TAV

1 contract

SAR1.5

2

China

Harbour

1 contract

SAR1.5

4