China Railway Construction Corp (CRCC) could make a CNY 4.15 billion (US$ 623 million) loss on its contract to build the Mecca Light Railway project in Saudi Arabia. The company lays the blame for the cost overruns with the client, which it says changed requirements once contracts were signed and was late with land expropriations.
CRCC won the engineering procurement construction plus operating & maintenance (EPC+O&M) contract to build the scheme in February 2009 with an agreed price of SAR 6.65 billion (US$ 1.77 million). However, it now says its costs have escalated to from an estimate of CNY 12.4 billion (US$ 1.85 billion) as of December 2009 to CNY 16.1 billion (US$ 2.41 billion).
A statement from CRCC said the reason for the cost increases included changes to the design by the owner - the Saudi government's Ministry of Municipality and Rural Affairs - in the second half of this year. These included a substantial increase in the passenger capacity of the line. In addition, the company says there were delays in land expropriations and that the owner was responsible for, which led to delays in the construction timetable.
In order to overcome these and keep the project on schedule, CRCC said it had to increase capital and human resources on the scheme.
Although CRCC says it is in negotiations with the project owner to recoup these additional costs, it is yet to win approvals for them. The negotiations are on going, but CRCC said it is obliged to announce the potential losses due to these variations as they will have a material impact on its profits for the third quarter of the year.
The scheme is due for completion in November, after which CRCC will operate and maintain it for three years. The scheme is designed to provide a fast, high-volume transport system to cater for the huge crowds that visit Mecca during the Hajj pilgrimage.
It is part of a larger scheme, the 'Holy Sites' light railway system, to connect other key locations including Mina and the Hill of Arafat. CRCC is also involved in this project, and it was only last week that 16 of its workers were dismissed, jailed and deported following riots and vandalism at protest against poor pay and conditions on the project.