$70 billion in Middle East project finance this year

Five years ago the Middle East was hardly on the radar screens for most international banks but this situation has changed dramatically and in 2006 around half the project finance deals in the world will be in this region, worth more than $70 billion.

'But regional banks are being crowded out by the international banks,' Gulf International Bank's head of syndication Rajan Malik told the MEED Project Finance conference in Doha. 'The international banks accept longer tenors and decreasing yields.'

Low-cost finance

Indeed, the question asked by many attending this successful conference was: how low could rates go in project finance. For a combination of abundant global liquidity and a reduction in the perceived risk of project financing in the Middle East has significantly reduced the cost of project finance in the past couple of years.

'This is seen as a very safe place to do business which is why the international banks are more active,' added Mr.Malik. 'Since the Taweelah A power station financing in 2001 the Saudi banks have pretty much withdrawn from the market.'

It is perhaps true in project finance as with personal credit that those who have money have no trouble in borrowing it. And awash with oil revenues, everyone is keen to lend to the Middle East these days.

The MEED Project Finance event was held in Doha, which is appropriate enough as Qatar is going to be the biggest single source of project finance mandates in the next few years, second only to Saudi Arabia. Indeed, the Qatar Financial Centre has just been launched as a one-stop shop for the licensing, regulation and enabling of international banks.

Qatar's Minister of Economy and Commerce Shiekh Mohamed bin Ahmed bin Jassim al-Thani told the conference that Qatar would spend $130 billion on major projects over the next decade.

Saudi Aramco invests big

From Saudi Aramco director of new business evaluation, Azzam Y. Shalabi noted that his group's $66 billion investment programme was the largest energy investment programme in history but would be mainly self-funded. However, private sector petrochemical ventures in Saudi Arabia will require project finance.

Anand Iyer, Vice President-Finance from Project Management & Development Company said Saudi Arabia would need $20-23 billion in new project finance with $10-12 billion for petrochemicals.

These are huge capital requirements and enough to place the Middle East second only to China as a focus for project finance over the next few years. And this investment in energy infrastructure is going to help ensure that the world's supply of oil, gas and petrochemicals expands to meet some of the demand which forecasters predict.