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SNC-Lavalin to design Algerian city

Pierre Duhaime, president and CEO of SNC-Lavalin

Paul Chiasson

Canadian engineering giant SNC-Lavalin Group Inc. has won one of the largest services contracts in its history with a $508-million deal to design and oversee the construction of Algeria's largest modern city focused on the oil and gas sector.

The contract awarded in recent days is expected to be signed within a few weeks, a company spokeswoman said Thursday.

"We're delighted about the announcement," Gillian MacCormack said in an interview. "We will be signing the actual contract within a few weeks and will have plenty of details to provide at that point."

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Montreal-based SNC-Lavalin secured the contract to help build the city of Hassi Messaoud over eight years in a tendering process, beating four competitors. It bid 31.2 billion dinars, or $508.3-million, for the deal, according to , a French-language news site in Algeria. Ms. MacCormack wouldn't confirm this figure.

Bids were also submitted by an Algerian-Tunisian consortium and companies from South Korea, Spain and France.

The bidding process was restarted last October after U.S. company Aecom Technology Corp. complained to an Algerian government agency that its Canadian rival didn't follow the tender guidelines. Aecom didn't submit a new bid.

Ms. MacCormack said the contract is one of the largest services contracts in SNC's history.

The 98-year-old engineering firm, with 21,300 employees, is one of Canada's most international companies, with operations in North America, Europe, Africa, Asia and Latin America.

The company is also a major owner of infrastructure such as power plants and pipelines and has been cashing in on the boom in growth in Algeria's energy sector, where new oil and natural gas fields have been discovered in recent years.

Hassi Messaoud in east-central Algeria is in the centre of the largest oil field in the African country. Production there is being expanded sharply with each new oil and gas discovery, with energy exports destined for markets in Italy, Germany and France.

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Algeria's oil sector has been open to foreign investors in partnership with Sonatrach, Algeria's state-owned oil and gas company, since the mid-1990s, and foreign companies now own a sizable chunk of crude oil production in the country.

Services contracts are the least risky and most profitable projects, typically garnering margins of between 25 and 30 per cent, said Desjardins Securities analyst Pierre Lacroix. "It's a big deal," he said in an interview.

The contract represents one-third of the company's existing $1.5-billion backlog. Unlike lower-margin construction contracts, services deals don't carry the risk of having to absorb cost overruns. That was the case with SNC-Lavalin's involvement the Goreway thermal power project in Ontario when a subcontractor went bankrupt.

While details are still to be disclosed, Mr. Lacroix said SNC-Lavalin will likely design the city of 4,483 hectares for 80,000 people including infrastructure, roads, urban lands and probably some buildings. It would also oversee procurement and manage construction.

"The bottom line with SNC is their prospect list is very deep and this is another example of how busy this company is."

The entire project is expected to cost $6-billion (U.S.). Services contracts typically represent about 10 per cent of that amount, he said.

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Besides offering a low bid, SNC-Lavalin has worked for more than 40 years in the North African country, and built the famed Martyr's Tower in Algiers. It was recently awarded a $1.2-billion contract from Algeria's national oil company.

The natural gas infrastructure contract was announced last month by Algeria's energy minister and confirmed by the company on June 15.

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