Riyadh – Mubasher: The value of awarded construction contracts declined 58.8% to SAR 48.2 billion in the first half of 2016 from SAR 116.9 billion in the year-ago period, National Commercial Bank (NCB) reported.

The sharp drop in contract awards in H1 followed the collapse of oil prices, as the government tightened spending and postponed its spending plans, according to the report.

The value of awarded contracts also fell 27% to SAR 20.3 billion in the second quarter of 2016 from SAR 27.9 billion in Q1-16.

“The decrease was mainly attributed to the reduction in awarding of mega-projects, as a result of the fiscal restructuring by the government. However, there was a significant increase in the number of smaller contracts that focused on strengthening the Kingdom’s infrastructure capabilities,” the report said.

The bank noted that the contracts that will be awarded during the second half of 2016 or in 2017 will depend on the government’s current plan of scaling down and prioritization of projects.

It added that an upward trend in oil prices will ease the situation, otherwise further decline in contract awards would be the most likely outcome.

“The decision to halt expansion of the Prophet’s Mosque is indicative that spending on metro projects would be scaled back or even delayed,” NCB said.

The report highlighted that contracts continued to be awarded in the oil and gas, petrochemical and power sectors, which contributed with a significant share of the awarded contracts’ value in H1-16.

The bank expected that over the medium to long term, the projects market will increasingly rely on the private sector.

“The progress as anticipated will take some time as new legislation and regulations will need to be adopted,” the report stated.