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The Middle East business conglomerate the Bin Ladin Group has Saudi Arabian infrastructure projects on offer worth some $4 billion that could be won by Indonesia’s state construction firms, a senior official said on Tuesday. However, he warned of the potential hazards involved in doing business in the Middle East.

“Investing in the Middle East and North Africa is enticing but it comes with significant risks attached,” said Muchayat, the deputy for the construction sector at the State Enterprises Ministry. “They have a different culture regarding the technical aspects [of projects] that could cause problems for our companies.”

As an example, he said, Arab investors frequently decided to change the design or specifications of projects midway through their completion, causing serious difficulties for contractors.

So far, Muchayat said, two state construction companies, PT Pembangunan Perumahan and PT Waskita Karya, have signed agreements with the Bin Ladin Group for work on several major construction projects in Saudi Arabia. These include an extension to the famous Haram Mosque in Mecca and the construction of a number of expressways near the mosque, worth a total of Rp 1.5 trillion ($150 million).

“The MoUs were signed last week,” Muchayat said.

He did not give any details of the other $3.85 billion worth of projects put on the table by the Bin Ladin Group.

Given the risks involved, the government is requiring all state companies planning to work on Saudi projects to demand cost-plus-fee contracts, whereby the contractor is paid for all of its allowable expenses up to a set limit, plus an additional payment to provide it with a profit, Muchayat said.

Giving another example of what he termed “Arab culture,” Muchayat said PT Adhi Karya, the country’s second-biggest construction company, was expecting a loss on work it performed as a subcontractor on a housing development in Oman worth Rp 577 billion for that country’s ruler, Sultan Qaboos.

“Adhi may lose up to Rp 200 billion alone due to changes to the project design midway through the development, which have brought construction of the project to a halt,” he said.

However, when contacted by the Jakarta Globe, Indrajaya Manopol, Adhi Karya’s finance director, denied the company was facing losses, although he acknowledged that completion of the project had been moved back from late 2009 to early 2010.

“The project isn’t finished yet, so there are no losses currently. We will finish the project next year,” Indrajaya said.

“We are also considering taking another project in Oman worth Rp 700 billion to build hotels, apartments and malls after the first project is completed.”

Indrajaya acknowledged that Adhi Karya had been invited by the Bin Ladin Group to participate in projects in Saudi Arabia, but wanted to complete the project in Oman first.

Adhi Karya has established a subsidiary in Oman, Adhi Oman, which is 70 percent owned by the Jakarta parent and 30 percent by a local partner.

In February, the Bin Ladin Group pulled out of a massive $4.3 billion investment to develop rice estates in Papua and Sulawesi.

Executives of the group could not be contacted by the Jakarta Globe on Tuesday.