Road costs rocket as blacktop blues set in

Road tendering risks rise as soaring asphalt prices slash contractor profits across the region

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By  Angela Giuffrida Published  September 9, 2006

Rocketing asphalt prices could deter contractors from bidding for road contracts worth billions of dollars throughout the Middle East. Many firms are already being stung by the massive increase in the price of blacktop, which has risen by as much as 50% in the last year. The cost of asphalt has risen by up to US $80 (AED294) per tonne, to stand at around $247 today, according to Riyaz Muljiani, general manager, Richmond Mercantile, an asphalt trading group. Asphalt prices have surged as the cost of oil – a key component of the paving material – reached a high of $78.40 a barrel. The hikes come as road projects worth more than US $4 billion go out to tender in the UAE and Qatar alone. “The price of asphalt is going up all the time – in line with rising fuel prices,” said Ivan Warnes, commercial manager, Dutco Balfour Beatty Construction Group. “But the first quarter increase was the largest I’ve seen in a long time. The cost of production went up by 15%, meaning that the selling price of asphalt also went up by 15%. This is compared to 18% over the whole of 2005.” As the price increases take hold, contractors are counting the cost of taking on road projects, particularly those that are negotiated without taking price escalation into consideration. In May this year, Brazilian contractor, Odebrecht, won a $272 million deal in partnership with local firm, Al Jaber Grinaker, to build a second, 4,100m runway at Abu Dhabi International Airport. “We are using one million tonnes of asphalt on this project and of course the price increase is going to have a huge impact – I have no doubt about that,” said Mariano Domingues, project director, Odebrecht. “It’s an equipment-intensive job, so diesel and asphalt are two materials that will have a big impact. Prices are probably going to increase and we have a lump sum fixed contract. I’m not prepared to give precise numbers right now, we’re assessing that, but there will definitely be a negative financial impact.” In Dubai alone, spending on road projects this year is expected to reach $1 billion, while Qatar’s Public Works Authority recently announced $2.2 billion worth of contracts on a number of major highway projects in the country – one of the largest road packages ever tendered in the Middle East. Sharjah is also investing $27 million on improving its road network over the next three years, while Abu Dhabi has pledged $1 billion this year on road infrastructure projects. The price increases will also have a massive impact on the major airport runway projects due to start in the region, including the massive Dubai World Central project planned for Jebel Ali in Dubai.

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