Korean builders desperate for oil money

Minister of Land, Infrastructure and Transport Won Hee-ryong, sixth from left, poses with the CEOs of construction firms doing business in other countries at the Korea Chamber of Commerce and Industry building in Seoul, Wednesday. Newsis

President vows to support construction projects in Middle East

By Park Jae-hyuk

Korean construction companies have ramped up efforts to win more large-scale infrastructure orders from oil-rich Middle Eastern countries, including nuclear power plants, in a bid to achieve earnings recoveries and growth momentum abroad.

The move comes as the government has vowed to expand support for construction projects in foreign markets, particularly Middle Eastern countries, such as Saudi Arabia, Kuwait and the United Arab Emirates (UAE), which have been viewed as lucrative sources of income for Korean builders.

President Yoon Suk-yeol also urged the Ministry of Land, Infrastructure and Transport to make efforts to create a second construction boom in the Middle East, saying that Yoon himself will support domestic builders by holding summits with the leaders of oil-rich countries.

The president made the remarks when Land Minister Won Hee-ryong briefed him last month about the ministry's goal of enabling local builders over the next five years to win overseas construction contracts collectively worth $50 billion each year.

"We will take a leap forward in overseas construction through what we have termed, 'K-Smart Infrastructure,' set to be announced next month," Won said at that time.

Earlier this month, the minister met with the ambassadors of Saudi Arabia, Kuwait, UAE, Qatar and Oman to ask them to help Korean builders win orders for construction projects in their countries.

"Korean builders have won more than half of their overseas construction contracts in the Middle East," Won said at the meeting. "We hope Korean companies' excellent infrastructure technologies will be used for major projects, such as Saudi Arabia's NEOM City construction, UAE's gas field development, Kuwait's airport terminal management and Qatar's desalination plant construction."

He also met with top executives from Samsung C&T, Hyundai E&C, GS E&C, Doosan Enerbility, Hyundai Engineering and Samsung Engineering on Aug. 10 to discuss ways to revitalize their construction works in other countries.

There is speculation that Saudi Arabia's Crown Prince Mohammed bin Salman will visit Seoul in November to talk with Yoon about hiring Korean builders for the construction of infrastructures in the NEOM smart city near the Red Sea. Some observers even expect the crown prince to ask Korean companies to build nuclear power plants in his country.

"The rising oil prices will lead to Middle Eastern countries announcing additional construction projects during the second half of this year," a construction industry insider said. "There will be continuous construction projects in oil-producing countries during the post-pandemic era."

Data compiled by the International Contractors Association of Korea (ICAK) showed that the size of overseas construction orders won by domestic builders has shown signs of a recovery this year, as they collectively won orders worth $17.4 billion as of Aug. 8, up 12 percent from the previous year.

Although the size of their orders in the Middle East stood at $3.6 billion from January to August 8 of this year, falling short of $4.1 billion achieved during the same period of 2021, Korean builders are set to increase their earnings in the region.

Last month, Hyundai E&C and Samsung Engineering were chosen as partners for Aramco's long-term growth projects, which have the exclusive rights to win orders from the Saudi Arabian state-run petroleum company. Doosan Enerbility also said earlier this month that it has won an 840-billion-won ($640 million) order for the construction of a desalination plant in Saudi Arabia.

"Starting from Saudi Arabia, we will solidify our leading status in the Middle Eastern construction market, winning more orders in foreign markets," a Hyundai E&C official said.

Samsung Engineering vowed to enhance the company's competitiveness in the Middle East.

Hyundai E&C CEO Yoon Young-joon, left, poses with Aramco Vice President Abdulkarim Al-Ghamdi during a signing ceremony at the Aramco headquarters in Dhahran, Saudi Arabia, July 5. Courtesy of Hyundai E&C

Obstacles to expansion plans

However, it is still unclear whether Korean firms will be able to succeed in creating this envisioned second construction boom in the Middle East.

According to industry officials, Korean builders have faced fierce competition in the Middle Eastern market with their Chinese and Turkish rivals offering much lower prices.

In order to support their construction projects overseas, Korean builders have continuously demanded that the government exclude them from companies subject to the 52-hour cap on the workweek that is mandated by Korea's Labor Standards Act and the Serious Accidents Punishment Act, which could send a company's CEO to jail if a fatal industrial accident occurs at the company's workplace.

The number of Korean workers at overseas construction sites has declined sharply over the past few years also because of laborers avoiding poor working conditions.

According to ICAK, the number of Korean workers at overseas construction sites last year fell below 10,000 for the first time since 2008, raising concerns about the competitiveness of domestic builders in foreign markets.