South Korea’s construction sector, already grappling with a sluggish domestic market, is facing mounting challenges in its overseas operations. Major construction firms are encountering delays and cancellations of promising international contracts, while disputes over escalating costs and increasing outstanding payments are further straining their efforts. Rising construction expenses, fueled by the COVID-19 pandemic and the ongoing Russia-Ukraine war, have intensified budget disputes with global clients. Industry insiders have highlighted the growing difficulties in securing new overseas projects, compounded by complications in managing existing ones.
An industry expert noted, “With the domestic housing market in decline, overseas projects should serve as a critical lifeline. However, the reality is that securing contracts is increasingly challenging, and even maintaining ongoing projects without issues has become an uphill battle.”
On Nov. 4, Samsung E&A announced the termination of a 1.9 trillion won ($13.4 billion) refinery project contract with Algeria’s state-owned oil company Sonatrach. The design-and-build contract, secured in Jan. 2020 just before the pandemic, was scrapped nearly five years later due to cost disputes. A Samsung E&A representative stated, “We requested a renegotiation of the contract terms to reflect rising construction costs, but discussions fell through. Minimal financial loss was incurred, as little progress had been made during the pandemic.
Other major players have also faced setbacks. Hyundai Engineering and Daewoo Engineering & Construction (Daewoo E&C) have encountered obstacles in Turkmenistan, where they aimed to expand their footprint in Central Asia. In Oct. 2022, Daewoo E&C signed two memorandums of understanding (MOUs) with the Turkmenistan government for fertilizer plant construction. However, only one project—the ammonia-urea plant—proceeded after its value was reduced from over 3 trillion won ($2.2 billion) to 1 trillion won ($746 million) due to cost disagreements. Similarly, Hyundai Engineering’s MOU for a gas desulfurization facility with Turkmenistan’s state-owned gas company, signed in Jun. 2023, remains stalled over cost disputes of nearly 1 trillion won ($766 million).
Hyundai Engineering & Construction (Hyundai E&C) has also experienced contract reductions. The value of its Amiral petrochemical plant project in Saudi Arabia was cut by 200 billion won ($141 million), reducing the total to 3.0777 trillion won ($2.17 billion) after Saudi Aramco excluded certain facilities from the scope
Adding to the strain, delayed payments for completed projects are rising. Data from the Ministry of Land, Infrastructure, and Transport, provided by Rep. Park Yong-kab of the Democratic Party of Korea, revealed that unpaid overseas construction payments from 2021 to 2023 amounted to $3.918 billion (5.54 trillion won). Outstanding payments increased from $1.2 billion in 2021 to $1.361 billion in 2023, signaling a troubling trend.
New overseas orders have been lackluster this year. According to the International Contractors Association of Korea, South Korean builders had secured $28.5 billion (40.3 trillion won) in overseas orders as of late October—only 71% of the government’s $40 billion annual target. Large-scale contracts have been scarce since Samsung E&A and GS Engineering & Construction (GS E&C) secured $6.08 billion and $1.23 billion, respectively, in April for the Fadhili Gas Gas Increment Program in Saudi Arabia. Additionally, expectations for Saudi Arabia’s NEOM project have dimmed after the resignation of CEO Nadmi Al-Nasr last month disrupted progress.
An official from the International Contractors Association of Korea commented, “Prolonged geopolitical instability in regions like the Middle East and Ukraine, coupled with high interest rates and inflation, has created an uncertain global market. Under these circumstances, South Korean construction companies are finding it increasingly difficult to aggressively pursue new overseas contracts.”
