[Neom City Contract Battle]① 650 Trillion Won Mega Infrastructure Contract Battle Begins... K-Construction Leads

The current order volume accounts for only 2.6% of the total budget amount

A bird's-eye view of 'Trojena,' the tourism complex of Saudi Arabia's 'NEOM City' project. [Image=NEOM]

[Asia Economy Reporter Cha Wanyong] The bidding war for infrastructure construction contracts in the ‘NEOM City’ project, which plans to build a future city covering 26,500 km²?44 times the size of Seoul?near the Red Sea in northwestern Saudi Arabia, is approaching. It has been a full five years since the first development announcement in 2017. Although the schedule was somewhat delayed due to changes in plans and designs as well as the COVID-19 pandemic, significant orders have started to be placed this year, indicating that the project is gaining momentum.

Orders Just Beginning... Samsung C&T and Hyundai Engineering & Construction Shine

The NEOM City project is led by Saudi Arabia’s de facto ruler Crown Prince Mohammed bin Salman. The total construction cost is estimated at $500 billion (approximately 650 trillion KRW). It consists of ‘The Line,’ a 170 km long self-sufficient linear city; ‘Oxagon,’ an octagonal advanced industrial complex floating on the sea; and ‘Trojena,’ a large-scale eco-friendly mountain tourism complex. Plans also include twin towers with the world’s largest width and a height of 500 meters. The first phase is targeted for completion in 2025, and large-scale infrastructure tenders for housing, ports, railways, and energy facilities necessary for the city are currently underway.

According to MEED Projects, a Middle East project market information source, the current tender volume for the NEOM project is about $13 billion, which is only 2.6% of the total budget. Most of these are small-scale projects under $100 million. There are 13 projects over $100 million, and only three projects exceed $1 billion.

Site image of the Neom City development area in Saudi Arabia.

Although it is still early days, Korean companies are demonstrating their capabilities. Samsung C&T and Hyundai Engineering & Construction secured one of the three billion-dollar projects. In June, the two companies formed a consortium with Greece’s Archirodon and participated in the bidding, competing against Spain’s Acciona, India’s Larsen & Toubro, Spain’s FCC Construction, and China’s state-owned construction companies, ultimately being selected as the contractors. This project involves tunneling a total of 28 km underground for high-speed and freight rail services beneath The Line, the self-sufficient linear city. The project cost amounts to $1.85 billion.

In June last year, HanmiGlobal, a domestic project management (PM) company, signed a contract worth $2.3 million related to The Line’s master plan. Over two years until May 2023, they are responsible for establishing project management and operation structures, managing project resources, internal management related to development and design, timely supervision of client directives, and establishing project data storage and management plans. Following the delivery of the plan, additional orders for numerous projects expected to be tendered are anticipated.

Several other Korean companies are also actively moving to participate in the NEOM City project. First, SeAH Changwon Special Steel, an affiliate of the steel wire processing company SeAH Group, established a joint venture called SeAH Gulf Special Steel Industries (SGSI) with Saudi Industrial Investment Company under Saudi Aramco. SGSI has invested $266.3 million to secure a steel pipe factory site (177,845 m²) in Saudi Arabia, where it plans to produce 20,000 tons per year of stainless seamless steel pipes. Based on this, they plan to actively participate in securing contracts for the NEOM City project.

SM Entertainment’s involvement is also anticipated. In June, Lee Soo-man, the executive producer, met with Saudi Minister of Culture Badr bin Abdullah bin Farhan Al Saud to discuss cultural industry projects. Lee also participated as an Asian advisor in the Saudi entertainment city construction project, the Qiddiya Project, in 2019. SM Entertainment is expected to play a role in the entertainment dome city and metaverse ecosystem construction within the Trojena tourism complex project.

Full Government Support... Movements at Samsung and Hyundai Motor Group Levels

The government is also actively providing policy and diplomatic support to secure contracts for the NEOM City project. First, the Export-Import Bank of Korea has expanded financial support by additionally establishing a ‘PIS Fund’ (Plant, Infrastructure, Smart City Fund) worth 400 billion KRW to support eco-friendly projects. Furthermore, the capital of the Overseas Infrastructure Support Corporation was increased from 500 billion KRW to 2 trillion KRW, and the support scale of the Export-Import Bank of Korea was planned to be raised to over 50 trillion KRW.

Minister of Land, Infrastructure and Transport Won Hee-ryong has been working behind the scenes, holding private meetings with Manar Al-Moneef, Saudi NEOM City Chief Investment Officer (CIO), and Princess Haifa bint Mohammed Al Saud of Saudi Arabia. Samsung C&T, Hyundai Engineering & Construction, and HanmiGlobal representatives who won the NEOM City tunnel construction contract also attended the meeting with CIO Al-Moneef. At this meeting, Minister Won listened to explanations about NEOM City and requested enhanced communication and cooperation to provide opportunities for domestic companies to enter the market.

The roles of business groups such as Samsung Group and Hyundai Motor Group are also expected. In particular, it is known that Samsung Electronics Vice Chairman Lee Jae-yong has a close relationship with Crown Prince Mohammed bin Salman, leading to expectations that Korean companies, including Samsung Group, will benefit in future bidding wars. In fact, when Crown Prince Mohammed bin Salman visited Korea in 2019, he had a private meeting with Lee and arranged meetings with other major group heads.

Samsung C&T is expected to secure contracts for numerous housing and plant projects, including the ultra-high-rise buildings to be constructed in the NEOM City project. Samsung Electronics is also likely to benefit in AI, semiconductor, and home appliance businesses integrated into the smart city.

Hyundai Motor Group Chairman Chung Eui-sun is also expected to be actively involved. Since the group is focusing on smart city businesses such as urban air mobility, robotics, and autonomous driving as future growth engines, it is known to be actively participating in the NEOM City project at the group level. Saudi Arabia is also promoting a project to become the ‘world’s largest hydrogen exporter’ by producing green hydrogen using seawater in NEOM City, and Hyundai Motor is exploring entry into hydrogen fuel cells and hydrogen vehicles.

Meanwhile, the government reportedly attempted to hold a summit between Korea and Saudi Arabia in November after the Korean Embassy in Saudi Arabia received a visit request from Crown Prince Mohammed bin Salman in August, but the plan was recently canceled. Although the exact reasons are unknown, it is highly likely that recent international developments, such as conflicts between the U.S. and Saudi Arabia following Saudi Arabia’s announcement of oil production cuts, influenced the decision.