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Qatar: A Country Transforming

Construction, Infrastructure and the Legal Climate of Qatar

As the title suggests, to live in Qatar at the moment is to witness one of, if not the, most rapid stages of national infrastructure development on the planet. The current development agenda is, quite simply, staggering. From a nation with humble origins, the discovery of oil and gas assets in 1942 set Qatar its first major industrial challenge. On its North East coast, it answered that challenge with the Qatar Petroleum’s multi-billion dollar Ras Laffan Industrial City built to harness the country’s natural reserves. By achieving 77 million tons per annum production capacity, Qatar is now the world’s leading exporter of LNG, and Ras Laffan has helped it get there. It now boasts the world’s largest LNG port terminal (with six LNG berths, of which four have QMax capability). Aside from its well developed hydrocarbon economy, Qatar is now focussing on its national infrastructure (not only as part of its FIFA 2022 World Cup plans, but as part of a greater 2030 National Vision).

Planes, Trains and Automobiles...and Ships

Everywhere you look in Doha, there are not just projects, but megaprojects on the go. To demonstrate the extent of this, there are several multi-billion dollar projects that there is
simply not space to mention in an article this size. 

Qatar Railways Company is developing a 318km integrated rail system to include an overland passenger and freight system (appr4oximately 325km), a light urban rail system and an impressive four line metro (with 100km underground). The project value is estimated in excess of $35 billion. The landmark station at Msheireb is expected to require more steel than the Eiffel Tower and the Burj Khalifa together. At this time of writing, new station sites are popping all over the city and 2014 will see the deployment of the first tunnelling machines.

Local newspapers have just reported that the new airport (New Doha International Airport / Hamad International Airport) is expected to open in a “phased opening” which will occur “by mid 2014”, based on announcement from the Chairman of the NDIA Steering Committee. The total project expenditure is expected to remain below $16 billion. The airport will feature two of the world’s longest runways with A380 capacity and when fully complete, it will be three times the size of its older counterpart with annual capacity of 50 million passengers and 2 million tonnes of cargo. To put things in perspective, when the first phase opens, the airport will have an annual capacity of 24 million passengers which is almost twelve times the current population of the country.

On the roads, Qatar’s Public Works Authority, Ashghal, is working on a series of road projects, with its focus split into primarily into two project types: local roads/drainage projects and major highways projects. The local roads/drainage projects is expected to incur a front-end spend of $14.6 billion on over 220 projects across the country. The major highways projects are estimated to cost $8.1 billion and a focus on alleviating traffic congestion (including the implementation of a series of dual four-lane highways across the country). Any current resident of Qatar will appreciate just how welcome this news is!

With these and so many other projects underway, the need for supply is increasing by the day. Responding to this the New Port Project Steering Committee is running a tight ship. The $7.4 billion project covers the construction of a new port at Mesaieed (approximately 50km South East of Doha), a new naval base and a 26.5 km2 economic zone (Qatar Economic Zone 3). The port project is divided into three phases (with Phases 2 & 3 scheduled for after 2022). Phase 1 is the current focus is expected to complete in 2016, reaching an initial capacity of two million TEUs (twenty-foot equivalent units) per annum.

Transforming the urban landscape

It’s not just the infrastructure where Qatar is thinking big. Urban redevelopment and other megaprojects are in progress. Lusail City is a real estate scheme being developed North of Doha which is planned to cover an area of 38,000 km2 to include four islands and 19 multi-purpose districts (and house a FIFA World Cup stadium). At a $45 billion cost its developers are predicting its total population to eventually reach 450,000 people. On Doha’s western border, Education City is a $7.5billion Qatar Foundation development project. The project encompasses Doha Science and Technology Park, Sidra Medical and Research Centre and several international university campuses. In the old town, the Msheireb project is a $5.5 billion urban regeneration project covering 750,000 m2. It’s not only humans who will be getting new housing. The Doha zoo project is underway and when finished will cover 75 hectares becoming seven times the size of the previous zoo and the largest in the region.

Transforming the legal landscape from a construction perspective

With this volume of activity, the legislators, lawyers, legal departments, engineers and contract teams, of the construction and projects industry have been, and still are, working frantically to put tenders in place, approve them, administer construction contracts and launch or defend claims.

On the front-end side of construction law, certain trends are beginning to emerge. As has happened in the UAE, the developers and employers are pooling their knowledge with the result that the same types of contractual provisions are showing up across different project’s procurement suites. Not uncommon with its neighbours, the Qatari market shows a bias of preference for the FIDIC suite of contracts, but rarely are any used in their original form. With the knowledge pooling that is occurring, we may yet see an informally standardised FIDIC adaption as a central contract form for Qatari procurement, or perhaps it may go further, like Abu Dhabi did, and enact legislation that prescribes the form of contract used for government procurement.

On the disputes side, the current volume of construction disputes is still relatively small but with many of the megaprojects now picking up pace, market spectators are expecting drastic increases in disputes activity. In many ways however, the practitioners of the construction industry in Qatar share the same grievances as their colleagues elsewhere in the region. If a survey was done today on the problems faced by contractors in Qatar, a confident guess can be made that payment delay issues would top the poll. In a notably visionary move, the Qatar International Court and Dispute Resolution Centre is the later stages of developing an adjudication dispute resolution process for Qatar. With adjudication traditionally best used for fast resolution of payment issues, which leads to cash flow preservation considered by many as the key catalyst to timely project delivery. It will be interesting to watch the level of market adoption of the scheme. Some commentators are sceptical about the level of buy-in from the employer entities, however even without such participation, if it is adopted in the lower contracting tiers, better delivery results can surely be expected.

Many engineering companies who come to the Middle East are quickly surprised by the administrative burden of work. Given the current scale of activity, and the lack of readily available information, such as building standards and approval requirements, the authorities in Qatar have their work cut out for them in facilitating these projects. In some cases, the legislator directly intervenes enacting project-specific legislation. In all cases however, tenderers would do well to take account of approval delays when building their schedules, and look to the contract provisions for relief. In the old maxim, risk should be allocated to the party best able to manage it, contractors should be wary of taking on all approval risk, as the cost consequences of late delivery (in a legal climate where penalty clauses are enforceable) can frequently exceed the prices-in value of such risk.

Transforming the legal landscape from a procurement perspective

In general, where development and infrastructure projects are procured by the public sector, there is often significant private sector involvement. For example, when the public sector requires private sector funding and expertise to deliver and maintain a certain asset then a traditional public private partnership (PPP) arrangement is typically considered. Alternatively, when the public sector seeks to subsidise the cost of a project by deriving capital or revenue receipts from the private sector, this can be achieved by granting certain rights to enable private development within or proximate to the project. Finally, the public sector may need to consider 'project legacy' issues, eg in relation to the involvement of the private sector after the project has fulfilled its initial requirements.

Given the strength of Qatar's balance sheet, there has not up until now been a need for traditional PPP structures to be considered. However, as the level of infrastructure development continues to grow, there is a significant chance we may see a greater degree of participation from the private sector, particularly on large-scale projects. In some circumstances, this could lead to the development of traditional PPP structures.

A key legal issue in the implementation of a PPP regime is the nature and extent of the land rights that can be granted by the public sector. If the Qatari public sector looks to the private sector for involvement in projects, it must be able to grant and secure certain land rights for private sector entities, which may include granting land ownership interests (eg a freehold or long leasehold title). In many cases, the public sector entity responsible for the project has been “gifted' the relevant land for the purposes of the project, and this in turn makes it difficult for that entity to transfer an ownership interest to the desired private sector participant. As a result, the private sector entity’s project risk profile will rise considerably and project finance options may become unavailable. It is difficult to see a way past this issue without an overhaul of legal regime in relation to land rights.

Clearly, the pace of Qatar's development has been rapid and impressive and as indicated above this looks set to continue for the foreseeable future. By this development, Qatar is also teaching us the lesson that if a country is rapidly developing its infrastructure, there is often a need for its legal infrastructure to keep pace.

This article was written by Owen Delaney.

For more information, please contact Simon Green on +974 40 316610 or simon.green@crsblaw.com