Renaissance Services SAOG (RNSS) Earnings Call Transcript
May 17, 2023
Earnings Call Speaker Segments
A very good afternoon, everyone, and welcome to our quarterly Investors and Analyst Meeting for Renaissance Services SAOG. On behalf of our whole team, we have Raashid, the CFO; and myself, Stephen, the CEO, here to answer your questions. You have seen our results published, obviously, for the first quarter. We see the comparison, as we implemented to you last time, we expected to stay on the same kind of level as Q4 of last year, which we've largely managed during and definitely have money to do when you take out the one-offs in Q4. This is because as we told you, we're going into the year with a hiatus year, a transition year in our occupancy levels at Renaissance Village Duqm that is following our expectation, as we described to you last time. We've averaged around 7,500 during the first quarter, that compares with 12,500 in the previous year. But where things are holding up well through our other areas of business, whilst a slight tailing off of occupancy in the oil and gas fields in our packs Renaissance Villages in the oil and gas fields, fell to 87%. This is a temporary transition between 1 major contract and another in 1 of the major locations. And as we've explained to you, we've won the opportunity to expand those facilities with some temporary accommodation over 5 years, while the principal client that PDM develops its financial project opportunity in which we'll be participating. And the other big issue that's having a very positive impact in this year is, of course, the fact as we've explained before, we've been to a full cycle of retendering and rebidding, which was extremely successful in both contract retention and contract gains last year, which enabled us to recalibrate the rates to absorb increased cost of doing business that everyone understands what has happened in the last few years with the -- originally the oil price crash before it bounced back and COVID and other things that have been impacted. So we come into this -- our second quarter really full of confidence in terms of what lies ahead in this year because whilst it will be that hiatus period for Duqm, there will be start to see improvement in the last 4 months of the year in occupancy. There, we have some specific one-offs as well as some new occupancy coming in, and we expect a full rebound to very high levels in 2024. So we have lots of things to be positive about and it means that we're able to open up the questioning to yourselves with a degree of happiness and confidence in what is coming. Thank you very much.
I think Sameer has a question.
I have a couple of questions. Could you remind me on the RSVD's current occupancy? And are you still expecting full year to be -- remain weak in that 40% level?
So the current occupancy at RSVD stands at just about 6,000, and we see an uplift coming through starting from June. Having said that, I think we mentioned that we were following an operational excellence program, 6-point program at Duqm to make sure we get more efficient and agile and running operations. And these efficiencies will be taken forward as occupancy growth. And we see that we'll be far more profitable going forward as the occupancy grows at Renaissance Villages in Duqm.
Okay. So to be clear, so currently, you are in the 38%, 38%, 40% range, right? So at what percentage level are you expecting to reach maybe by end of this year with the current scenario like the new contracts or improvements you are seeing?
So we've been at around 7,500 in the first quarter. We've come down to that sort of 5,500 to 6,000 level at the moment. And then there's coming back in the second half of the year back above 7,500. And then we have some one-offs of some large influx, some of it short term, but substantially for enough weeks to make an impact in the year. So once we can't give an exact percentage, we expect the overall percentage to be back around that 40%, 45% over the course of the year.
Sorry. And Sameer, just to answer your question, we remain extremely bullish on Duqm. This is a short-term timing issue between demobilization and mobilizing of very large contracts, some of which you must have read in the public domain. And that mobilization will take us to a very, very good level of occupancy as we can foresee.
There are specific projects coming down the line, which is what Raashid is referring to that particularly will impact us in 2024. I mean some of these might delay slightly or whatever, that is the nature of these things. But there are genuinely 3 steel projects that apparently are complementary, not sort of mutually exclusive and competitive. There are 2 cement projects, one of which is -- seems very likely to go ahead in the short term, and 1 of those steel projects within this year will start up. The big 1 for us is Pecan. At the moment, the talk is sort of further announcements around National Day and sort of first movements halfway through next year, but we'll wait for the absolute clarity on that, but that's another project that will require 20,000 people. So we then got some of our anchor tenants who are also in a growth mode. We have Oman Dry Dock, which is a very valued anchor the high numbers, and we see their continued success and how they're growing. Their floating dock has arrived is to be manned up now. So we'll start seeing their occupancy around that coming in. So there's a range of issues as to why we're confident on the supply side. The other issue that we have is, if you recall, we were struggling, and we put in our Chairman and put in a few of his statements overtime, where we were seeing not everyone complying with the SEZAD standard of the combination to meet that new international labor organization and indeed, Oman zone standards that the government wishes to see. And the -- that is something that where some employees chose to behave differently. We've had significant verbal support from the Chairman of OPAZ from SEZAD in terms of preparing for these new projects coming in, a real commitment that they will be directing all projects to us not approving camps and so on. Because what they appreciate is to attract the international financing. This is a minimum standard. This is not excessive. This is meeting the basic human dignity, human rights and [ work well ] their requirements that we expect and I think all good employers expect to see applied. And they also appreciate that because they don't want Duqm or Oman not to be competitive. So it's about doing it at affordable rates, which is what Renaissance Village Duqm delivers because it's economies of scale over a long period of time. And that they are also seeing the intangible benefits that one gets from that in terms of better safety performance, better international reputation, lower downtime for sickness, lower attrition rates, attracting more Omanis into the remote locations as they're developed and so on. So there's a huge commitment behind us. So what we experienced in achieving problems, if you like, of our first major project round, those issues are being dealt with in advance. So again, it boosts our confidence as to what kind of numbers we'll be getting when these projects come to fruition.
That's very clear. Also, I have question on the PDO. You mentioned about the new contract. Could you give me more clarity on that?
So Sameer, it's the same contract. So we have our PAC contracts. And just to give its ballpark numbers, if you look at the whole oil field, there's about 30,000 people living there. It will go up or down slightly depending on sort of major projects happening. But that's a rough working number. Now of those 50% of them, 15,000 maybe permanent accommodation for contractors. So our Renaissance Village brand because we have 5 of the 9 permanent accommodations because wherever you were allowed to win 1 on its own we won and wherever you're allowed to win 1 of 2, we won 1 of those 2. So we've got the maximum contract gains that we could have. So we actually supply over 50% of that 15,000, about 8,500 beds, and so we are being asked to expand our facilities by 2,654 beds. So that is happening now. And what that is, is the modular expansion because it is intended to be that for 5 years. And so the -- it fits into our financial model that clients understand that we'll be looking to recover capital investment with high levels of occupancy and so on in that expansion. And so that's what is giving us growth over these 5 years. Now during those 5 years, we will have the opportunity to compete for the full 15,000 delta because everyone in the oil field is going to be moving into a permanent accommodation other than the obvious mobile and hoist crews and seismic crews, et cetera, which by their very nature, have to be mobile out in the field. So this is a significant growth in our existing business: a, on a temporary basis with what I've just described; and b, for us to be a competitor in which, as our track record shows, we expect to be a serious contender as those opportunities come through in the years ahead. But it's good to have this boost that will -- we've got the -- an increased accommodation in different areas coming on in June, July and August. So we're going to see that effect coming through quite quickly.
Okay. One more follow-up on that it because how is it different from that earlier Manazil project because that was the one which earlier we discussed a lot, then they put it on hold. So how is it different from this current?
How is it different, Sameer, is that what is being decided is that where existing packs are, where we have 5 existing permanent accommodation for contractors, but these shall be required through the concession period. And so for us, the current concession period means until 2044. So that's very good news for us, which is why we are explaining to you last time, we are actually investing a AED 1.8 million program in upgrade and sustainable investment to actually drive down our carbon footprint, improve our water and energy usage and other such initiatives, which we couldn't make that kind of investment without the assurance that we would have that kind of long-term period behind it. So Manazil is looking at that and putting out tender to create permanent accommodation to rebuild existing client accommodation where some of the assets have become old and need to be upgraded and new. And wherever that other 15,000 are living in nonpermanent accommodation, it would become Manazil, the new permanent accommodation. Now that has been put on a back burner. It's not gone away. What has been decided is to get as many of those as possible where PACs exist at the moment to put in a temporary solution of expansion because what that does is: a, it will be a good, high-quality modular building that meets all the fire safety and other requirements that meets the minimum 4 square meters per person in the living space, et cetera. So it is an upgrade from some of the conditions that people are living in at the moment. And at the same time, give some access to all the essential elements of Worker Welfare, the medical backup, the recreation facilities, the good connections home, all of the good nutritious food and menu content that is a requirement of the PAC contracts and so on. So this is about getting as many people into that as possible while revisiting Manazil. Now I actually have a meeting this week, so it's actually tomorrow with the Manazil team because they're taking the time to look at other models, for example, the Renaissance Village Duqm model to see what lessons can be learned so that as Manazil comes out, it is producing a really optimum spec to make that expansion competitive and worthwhile. So it's not gone away. A big chunk of it is coming in temporarily, and the rest of it will follow as the Manazil tender is developed. I think on a time line, this is not of 2024, if you -- we might see something coming out in 2025, which we'll compete for. But in the meantime, we've got the growth that we've just described. Thank you.
I had a couple of questions. You mentioned the low occupancy and the reasons for the same at Duqm demobilization and sort of slowdown or lower than expected mobilization. I wanted to check in terms of margins on the existing capacity that you have over your utilization of 6,000, are EBITDA margins same as what you had sort of projected earlier on the 40% range?
I'll take that question. What we've done is I think Steve spoke about our operational excellence program that we are running at Renaissance Village Duqm, and I touched upon it in our call last quarter. So we've gone ahead and rationalized and make the operation a lot more efficient. So our breakeven levels on EBITDA have come down to an occupancy of 5,000 and below. And we are PAC positive at an occupancy of 6,000. As I said, we continue to streamline our operations and contract compliance across the business to remain ahead of the curve in terms of service delivery to both by internal customers as well as our external customers. And we continually are monitoring each and every aspect of the income statement to make sure there are no surprises, and we can forecast our revenues, EBITDAs and at the PAC level, a lot more level of reliability and certainty across the business, not just Renaissance Village Duqm.
Okay. I'm glad -- please go ahead.
I wanted to just state that the answer in a different direction, not specific to your question, with is to explain the hiatus. What is this outcome, we've got this gap? And is this something that we're going to have to expect in the future, the sort of cycles of boom and bust there. And it's not us because we've managed the downturn very nicely as Raashid has eloquently described. When you look at our business model or the business model for any new industrial development, which Duqm is, it's got heavy industry development. It then has light industry development that will feed off the back of that. It's got tourist sector development along that fabulous piece of coast there. It's got Smart City development to come in and around all of those things that's much more than just the industrial siting development that one would see historically in [indiscernible], all of which is still rolling on and accommodation wise, 40 and 50 years after they started. The nature of it is that your first project, usually a refinery, as is the case in Duqm, automatically begets the downstream projects one at a time that adds value to the output of that refinery. And only we end up was the model here and petchem is supposed to have finesse in as we now are seeing the downturn of the refinery, one would normally expect the build up of the petchhem. And the reason the model works that way is the ultimate client, in this case, Oman and its partners now in petchem, both the Kuwaitis and the Saudis would be benefiting from the mobilized EPC contractor force that is then able to bring that mobilization competitively into the tension of the bid. So that's how the model normally works. Now what happened? Two things happened in a perfect storm. One was the crash in the oil price and the other well, which then have knock on effects to the prices of output products from refineries and also COVID. And with those 2 things, the FEED project for Petchem was put on hold, it was put on ice. And that has led to this hiatus. Now the good news, we've all seen the announcement, it's coming, it's happening. And what we should then see going forward is not peak and mini trough, peak and mini trough. That is what is the evidence of all such industrial developments around the world and certainly in the region, and we expect Duqm to get back on track with that -- with the new projects coming down the line.
Excellent. Now the next question is with regards to the operating cost. We've witnessed the sort of increase in operating costs during COVID and hats-off to Renaissance for the role it played in supporting the economy and whatever it did in COVID. Post that, those costs would have gone away and you've been working extremely hard to trip down cost. Could you put a dollar value in terms of the savings that you anticipate on a normalized year in the operating expenses based on all the initiatives that you've taken? Or at least give us some sense as to what savings we're looking at?
So the savings we're looking at is not just on people, as you have mentioned, the savings across the board. It's more, I would term it as operational efficiencies that we're driving across the organization. In terms of administrative costs, we are beating up our C-suite. So we've got a new Chief People Officer, a new commercial -- Chief Commercial Officer, Chief Communications and Marketing Officer, Chief Facility Management Officer. While we become efficient, we are also improving our ability to cross-sell within the businesses that we cater to. So the dollar value as such, I would not allude to it because it's future-looking. But we can rest assure you that you will see the benefits of that coming in the next 3 quarters. There are several initiatives that we are driving across the organization, and at the same time, investing in heavy hitters and senior people to beef up the organization to be ready for future growth and cross-selling opportunities firstly within the people and the clients that we cater to and look at outside opportunities where we are not present at the moment.
Yes. And to add to that, Bishen, there's a danger when we sit here as members of the management to say, look, we found these savings and we've reduced this, and we've reduced that, it almost begs the question, well, what were you doing before. Now the reality is that there is always a continuous improvement drive and finding better ways to do things. Now we've also, in addition to the new colleagues who have come on to our team and that, as you can just see from the list of what they're doing that Raashid described, that is a growth agenda. And we've also still got a big focus on the efficiency agenda. Now for that, we've also brought in external consultants who are working with us on the operational excellence program, doing time and motion studies, what are best practices? I mean a whole thing of our Renaissance 2.0 is not just making sure that we're up to date and competitive with the rest of the world in what we're doing, but also what is happening in the future. So a lot of this look at future focused innovation, looking at AI, looking at robotics, looking at automation. One of those things that are going to make the jobs more interesting, but as does the experience better for our customers, maintain that market leadership for ourselves. All of that is part of 2.0. So it is difficult to just put a dollar number on it and I know that, that was your essential question, but it is actually it's not a finite thing. This is a continuous improvement thing. Some of it will, in the end, as we get more competitive, goes back to our new clients because it makes us more competitive on new opportunities that arise. And those new opportunities as well are in different sectors now. We've really diversified in terms of our waste management and utilities. We've just -- we're currently participating in a huge utility opportunity in this -- in Oman, in our home base country. And these are things that have different margins, that just slightly different businesses. It's still owned within our single word of services or our 2 words of services solution, but they're all great opportunities. And so the dollar differential will be different depending on the actual spread of the different businesses that we're in because the EBITDA levels are slightly different in all of them.
Understood. If I may then just ask a slightly different question if you could answer that. Raashid, you mentioned that the operational breakeven is 5,000 in terms of occupancy and PAT would be at 6,000. If you were to compare this 12 months, 6,000 is PAT positive and 5,000 is breakeven level, correct?
EBITDA positive.
EBITDAs positive at 5000. If you could compare this with 12 months ago, what was -- what was the occupancy number 12 months ago compared to 5,000?
So if I were to just -- they could guess that would be at 8,000 PAT and approximately 7,300 on the EBITDA level.
That's an apple-to-apple comparison, great, fantastic. Last question, sorry for taking so much time, on the waste management services, if you could just give us an update on how that's progressing?
So -- I'm sorry, please don't apologize taking too much time, Bishen, your questions are always great, and it's great to have you on the call with us. So the waste management is, remember it, we have sort of 3 elements to it of what we want. The -- in the privatization of waste collection in the country, which is managed by our client [indiscernible], there were 7 major contracts. We only became successful in the 7, we, and so we broke into that, and we still don't have that 7% to 8% of that market, but they're too good contracts. The SEZAD area, which is home town to us in Duqm, and it's the [indiscernible] area, which is a really tough one because this -- everything is so spread out apart, it's just nomadic and spread over a large geography. But I'm very pleased to say that our client is delighted with our KPIs and how we're performing on that. And we're just about to see the cycle restart of some of the waste collection contracts coming back out to tender. There are others head of myself, there are some existing contracts where the clients are looking at renewing with the incumbent where, as I've just described, those companies that are hitting very high KPI performance, which we're in that category, I'm happy to say. Now the other thing that we won is the PDO concession area, although on our ICV side, we outsource a lot of the collection there to local community contractors although they come under our auspices and cover to protection of our safety systems and so on. But what we're self-performing in that and has been where you saw they boost exactly this quarter last year was when we did the dump site clearance finished the project at ]. And we're going around doing all the dump sites, and we're getting rid of all the old hazardous waste recycling as much of it as we can. And you're seeing a real transformation as you go around the different PDO dump sites. Now at the moment, we are the only company providing that service in Oman because that's the only contract of that nature. And that's where there's going to be more opportunities going forward. As the waste management sector starts to put out more existing landfill site clearance and recycling, put in more whole sort of recycling projects and opportunities, waste treatment project opportunities. Now there's no clarity at the moment as to when these opportunities will come to market. They're working on it. It's part of the privatization program. It's part of the program of the country's own goals to get to net 0. So there's a huge growth opportunity here because it's not in the market at the moment. And we stand ready to compete for that. Having really learned our trade well in this smaller piece that we've won in the waste collection and as I said, dumpsite clearance. So that's where our waste management is at the moment. Good performance with a small market share with significantly increasing opportunity coming down the track in the coming years.
Just a quick one. I was looking at the Renaissance sort of revenue breakup that you used to share, I think, in 2021. I think from '22, you stopped sort of giving segment breakup. So now the problem area seems to be Duqm right? In terms of -- when I say problem area, I mean that you were at a 13,000 occupancy, I think a couple of years ago, that seemed to have been a peak occupancy and that's that time you're expanding capacity. Now that's falling to like 4,500, 5,000 right now. Now in the past, you -- I was actually thinking about the Chairman's statement in many, many reports and Steve, you alluded to it today, where you said that one of the challenges was that even when things were okay in Duqm, they were sort of subpar accommodation that people are going to. Now when you speak about these big projects sort of coming in, have you become more comparative when it comes to day rate? Or you're just hoping that at some level, the government is going to do the heavy lifting and encourage and force these guys to sort of be out of the market? And so what makes you confident that occupancy levels would go up if it's because it didn't really help in the past, right? These guys are still providing some product combination. So I'm just trying to figure out because we've been in this situation in the past. And we were at 13,000 occupancy. And I remember many times that the Chairman spoke about this. So what's different this time?
So thanks, Abbas. I really appreciate the question. The -- so -- and I just want to correct 1 thing, we're not at 4,500 to 5,000 occupancy, we're at 5,500 to 6,000, just make sure you don't sharpen your pencil too much when you're doing that one. What is different this time? So one thing that has never been different is you cannot find anybody in Oman's government in the different authorities, and there's lots of authorities responsible for making sure that compliance is there for good work and welfare standard, which is what the government wants to see from cabinet down across all the responsible organizations, whether it's the Royal Oman Police, the good fire safety, whether it's the municipalities and public health officials, in terms of good food hygiene and safe food practices and so on, the environmentalists. There are so many different authorities involved in this and getting this right. Through to the Ministry of Labor who wants to see people properly looked after, through when we talk with the migrant workforces, the embassies of those individual supply countries, et cetera, wanted to see their people properly cared for. So that you cannot find anyone to disagree with the solution that we've put. Everyone is delighted with that solution in Duqm. Now your question was how can we be sure that we could be more competitive this time? Now our premise is different from that. Our premise is that we are already super competitive if you apply the standard. So if you apply United Nations minimum work as standard as adjudicated by International Labor Organization which when you look at SEZAD standards, they're very much aligned with that, there might be 1 or 2 slightly higher, but they're pretty much the same, when you look at major companies like OQ and so on, look at their standards, very much the same. You get [indiscernible] differentials that the company might still have the 4 square meters per person or the ratio of 1 to 10 on the pollution. But -- and the requirement of medical and recreation and so on. But they might say, we have a limit of 4 per room or 6 per room, et cetera, those kind of things will be individual authorities and companies launching slightly different thing, but using all the same measures. And what was proven is that our point price at Duqm is cheaper than building a temporary facility for the duration of the project that has to be set up, you have to put your CapEx out to do it, and you have to remove it and put the site as it was and hand it back at the end of the project. Because we actually provide those kind of services elsewhere. Well, there are no permanent accommodation solutions. So we were able to bid when we were building Renaissance Village Duqm, we were able to bid to the EPC contractors but their alternative of having their own compliance high-level international control that meeting that standard, et cetera. And that was more expensive. And that's why only EPC contractors signed up and stayed with us, indeed is still with us now. One of them is just extending with a few hundred people. It's not a huge number for 18 months because they've got additional work to do at the refinery. And they are choosing the state Renaissance Village Duqm because the standard is higher and the prices competitive and cheaper than the alternative of setting up your own. Our problem was that we found ourselves competing with the people are were not applying the standards. You ended up with -- and it happened there was some food camps that were reasonable, reasonable conditions, but not meeting the standard, not having the recreation, not having the medical backup and so on. So that you can't compete, with that I you. It has to be a level playing field. And when it's a level playing field, we are more competitive in the alternative. If people choose to cram workers into 4 bedroom villas with 100 people getting off 3 or 4 buses every night, we can't compete with that. I accept that. And therefore, it's a double edged competition. One is winning the argument with the employers that actually this is good for you, this is good for your business and it's good for your people, and it's good for your reputation, okay and it's affordable. And the second is we don't have to win the argument with the authority straight force, look because they all agree with us. And this is what they want. But what we do have to do is to align those miscellaneous authorities as a unit to ensure enforcement. And I think that's the difference because nobody amongst those authorities wanted what happened before to happen. It did. And once something is out of the bag, it's difficult to get it back in that everyone is aligned this time to make sure that, that doesn't happen again, and we have to be vigilant with that. We've got a lot of support from the authorities this time. We've got a lot of support from the principal owners of the projects that are coming down the line that yes, we want to ensure that, that doesn't happen again. So that's one part of it. And so my answer to you about is we're already competitive. And what is required is that the standard is enforced.
And Abbas, I think I'd like to correct, Duqm is not a problem for us. It's going to be the biggest opportunity.
So actually, my second question was going to be about the Duqm opportunity. Because when I look at your minority interest, I'm looking at AED 111,000. Now this is the profit contribution from Duqm to -- largely is that the Duqm contribution to minority holders in RSVD. Is that fair?
I'll explain that the contribution to the total revenue of the company, as you can see with the occupancy declining has had an impact on that contribution, which you can see in the minority interest.
Correct. So because I was looking at the minority because I don't have segment for Duqm. I don't have a segment breakup. So I was trying to figure out what sort of total profitability is Duqm at, right? Just is on this minority number because -- so now you, Raashid, you and Steve spoke about the various cost-cutting measures that you've gone through, not just in Duqm, across the company. But if we just address Duqm for now, and if I just go back in the past and look at the minority interest, Duqm was generating close to AED 4 million to AED 4.5 million, is my estimation approximately. At a time when you were -- at peak, Renaissance occupancy was around 13,000 in Duqm, is what I remember. So now given the sort of progress you've made on the cost-cutting side, if occupancy were to go up to the same similar 13,000 mark, what sort of profitability are we looking at from the company?
Well, Abbas, you please can you tell us your -- clearly you are way ahead of the game, but you're absolutely right with your judgment. That is the place to look to get those guidelines. And you can see the fact that you've pointed out that Duqm is still profitable. As we sat here a year ago, telling you what the breakeven numbers were as the occupancy is expected to tail off at the end of this, we were not expecting to be profitable at this level of occupancy, and we are. So you can definitely do your pro rata calculation back up again and you can get a rough idea what was already a significant contribution where we were at the higher levels of occupancy will be even more significant this time around. And the second piece of that because of the discussion we've just had about, we didn't get the full occupancy that could have been there, this time around, we are anticipating that we were. So you can see why we are positive about Duqm and expect it to make a significant contribution. And once Duqm gets into its stride of project against project. And remember, each project means behind the residual permanent workforce, usually smaller than the workforce required to build it. But nevertheless, adding to our permanent base that you see that we have around 5,000-odd people permanently at the moment. Then you will really see Duqm on a regular and consistent, sustainable contribution that will be significant. And now we're seeing that we're about to grow what is already our contribution from the PDO and oil and gas fields as well. And then the next piece is how do we turn the success we've had in recalibrating our services business into more growth as well as we drive down cost through operational excellence, cost through future-focused innovation and so on, and cost down and standards up is what we're constantly trying to do it. It's not a mutually exclusive equation.
And Abbas, I've already told you, the measures around efficiencies that we are taking is making us stay ahead of the curve while providing the best service to our customers, both externally as well as internally. And you will see the profitability levels actually deliver as occupancy grows and which is why I said don't call it a problem, call it an opportunity.
It's quite a bit of problem for us, investors, actually . I take your point. If I just reflect on your -- if I just reflect on your balance sheet, I've seen a lot of good movement on the loans. Obviously, you've paid down AED [ 13-odd ] million, I think, in the last year, and you continue paying down loans. So what sort of sustainable leverage view? Because Renaissance is one of the companies that actually knows what efficient capital allocation is. So leverage is not a bad thing. What sort of leverage do you feel you'll go and stabilize that? Because the reason I'm asking that at some point, these cash flows can come to shareholders, right, at some point when you feel like you reach optimal leverage. So I'm just trying to figure out that.
You'll see as a part of management, what we do is we strategically evaluate the excess cash flows, whether they can be reinvested to provide better returns to shareholders. And if a suitable opportunity exists, then great, if not, then deleveraging would be our next best option. And why we do that is to be future-ready should we get a massive opportunity, we can again leverage our assets and raise capital not to miss any opportunity. So at the moment, since it was COVID, and it was [indiscernible], we have decided to go ahead and pay down AED 16.6 million in terms of loans and bring our leverage down in order to be future ready. And that is our policy across as we go. And like we have the opportunity of investing in the temporary accommodation we are building out for PDO, we've decided to do that with internal accruals because that gives us a better return, which we can give to the shareholders.
In terms of that sort of war chest that Raashid is describing in terms of being ready, future ready for opportunities as they occur, we -- as we've demonstrated at Duqm is we are very open and now experienced in terms of sharing the ownership of the assets with fellow shareholders. In that case, the sovereign wealth fund, a pension fund, the financial institution and local community investors. And so we feel that we're getting a really great balance of -- and they have been fantastic partners with us. And even though we're sorry to see obviously with this hiatus year, they're also seeing the effort that we're putting in to make sure that we're not going into losses in this year. We keep staying above the line and one other part of our business that take up the slack. And -- but it means we're open to opportunities where others invest in the property or coinvest in the property as well. And whilst having the firepower to be the front investor or have to sit in the game at whatever level is required. For example, and when I talk about projects that we're looking at, it doesn't mean that we will definitely win them, et cetera, but we'll always try and be as competitive as possible. At the moment, we're looking at a PPP project in Oman. Now in this particular case, the co-investor is more interested in being the -- providing the CapEx for the project. But to be able to win the project with the capability of 25 years of operation coming from Renaissance. And so we've joined in a partnership. Then -- and we're -- we will share the benefit of that operational period if successful with our partners there. But in that instance, we're not having to come up with capital, although absolutely prepared to do so on marriage if the numbers were right for us and require [indiscernible]. We have a similar opportunity that we're looking at in Iraq at the moment where the partner wants to own the facility but wants us to be their long-term IFM partner in providing the services. And those, of course, are great additions for us. When we get a pure service play that isn't just a typical tender of 2 or 3 years that you're going to have to come back to market and compete of, but with clients who are looking at that long-term integrated facilities management partnership where you can drive KPIs that are around sustainability, that are around positive local impact and so on. And that's quite interesting where those projects are going. And at the same time, would we be prepared to invest in the CapEx side of it, yes. And as Raashid just described what we're ready with that, with what's being done in the treasury management.
Okay. And if you just exclude Duqm for now because I mean a lot of the conversation has been around Duqm. But if we exclude that, you gave us some color on the PDO PACs, and that's been where you're growing this. On the contract services side, all your major renewals are done, right? There's nothing big that's coming up for tender that we need to be nervous about. You guys are good. You've got a good sort of order book visibility or backlog visibility now?
I was just going to touch on that. The order book -- 1 thing we worked on is to build our order book. And our order book and the order backlog is looking really, really good. Whilst we do not discuss individual contract metrics, we can assure you that every contract that has been renegotiated and retendered and re-won, is a win-win for both the clients and ourselves. The contract book -- the contract order book looks great. I don't think it's looked as good for a few years. So I can give you that confidence that we have a lot more confidence in the reliability and certainty of the revenues that are coming through.
And to answer the specific question, Abbas, I'd like you to rephrase it because you said, what do we need to be nervous about. No need to be nervous, but we do have 1 contract, which has been extended in each of the last preceding years. It's an oil and gas field contract, but it comes up for a full tender this year, which we will be competing for. And in that particular instance, as is often the case in this market because we need the market here, we are the incumbent. Now the good thing about that is we have incumbency advantage. And when we do have incumbency advantage, I don't like to talk too much about like tenders, it certainly is not like yet, but when it is, is we're very fair to our clients to make sure that whatever can be passed on, but whilst keeping ourselves competitive for the new term of project will be done. So there's one of those. Similarly, there's another opportunity that cannot come around cyclically for a while that we're not incumbent on, but we're also going to compete for. Now in that particular instance, we have a competitor who has that same incumbency advantage that I'm describing in us. So -- but we hope to be aggressive and that's what we have to bring in sort of newfound competitiveness as we drive down cost and drive up standards in our other operations bring that to bearing new tender opportunities. So there's one that's after everything else is secure. And there's another bigger opportunity to go after as well. Whilst we're never complacent and we don't assume that we will automatically deal with it, we don't feel you need to be nervous about it.
My last question, Steve, is on the treasury shares. I mean, we've held it for a while. Is there any sort of plan on this? Or I mean, can we see someone buying it on AED 1?
As I stated in the past on treasury shares, there they are either used for M&A opportunities. It could be used for placement, it could be used for anything, but this is there. We can use [indiscernible] connections. So that's our backup plans and something very large. It doesn't come up and surprising that you ask that there could be any opportunities where it could be used -- they could be used. So I hope that answers your question.
And also without that as we always say, we don't manage share price, and that is a matter for the market. And we will let follow that and respect that. Well, as Raashid said, we have no plans to dispose of treasury share or anything at the moment. We are of the opinion that this would not be a good time to do that when we say what is coming down the track. And so the answer is we don't have plans now, and we don't envisage having plans in the coming time because we are expecting whatever the market decides on our share price, performance is what we can see. And on that front, we are expecting good things. And that usually equates into how the market values us.
I have only 1 question. I heard recently, you have participated in this new contract, which is floated by [indiscernible]. Your participation in tender -- so can you put some light on the same, what is the progress? And how it will be a benefit to the group? What is like possibility of getting the award?
Yes. So [indiscernible], I really have to be very careful. We both have to be very careful in commenting on a live tender. But let me tell you what I think is already in the public domain. And then you can sort of work the rest out yourself. So first of all, this is a significant tender that requires the rollout of 1.4 million smart meters. And the tender is for 8 years, plus 2. So it's likely to be 10 years and if that has a 5-year option after that. But the initial period is an 8 plus 2 and sort of an automatic plus 2 before we negotiated plus 5. And so it's a significant opportunity. And the tender is broken into 4 zones. Zone 1 is the Muscat capital area zone, which itself has 3 zones. And then you may recall over time, we started with 1 of those 3 zones, where we first diversified into this, and that was in about build delivery collection and so on and -- as well as troubleshooting and reconnection services and so on. And that then became a second phase standard, which was the smart metering, which we won. Only this time, again, the client was extremely happy that we had met the highest KPI performance in their portfolio. And for this reason, they gave us as well as our competitors in the tender, all 3 zones. So we are now 100% that zone 1 of Muscat. So we're the incumbent there, which has some advantage to gain in this particular opportunity, although there's a significant additional amount of work and new skills required as well as new training and upskilling of the Omani workforce across not just that zone, but all 4 of them. And the other thing I can tell you is that there were 23 bids -- sorry bidders, not bid, excuse me. 23 bidders in the field, many international and so on. The -- as we see it now, there are 3 bidders left standing. And I'm proud to tell you, we're 1 of them, and we respect our competition, and we respect our clients, and they will be doing their evaluations and so on. The other thing that I could tell you is that we have partners in this tender for the -- and I'll just mention the main one, although we have telecom partners and so on the local, but we've got significant local content in us because this is a Renaissance-lead and own bid. But our technical partner is Tata Power out of India. And so they will be there in terms of technical solution, in terms of supporting the training and upskilling projects for our Omani team who will be working on this, and it's a live bid right now. And so the rest, we have to leave unspoken, but it is of significant scale. It is reasonable to expect that the client may wish to apportion it between more than 1 winner, 1, 2 or 3. But we stand ready. We're capable as my colleague who did describe with the financing for it because this is an OpEx model where we would be financing it over time over the 4 years. But you saw the income starts coming in as you finance and go along. So we're ready. We stand ready if successful to do all 4 zones, it's 100%, but would expect that it might not come in that way. It might come as 2 zones or 1 zone depending on the way it goes. We are very happy with the technical bid that we've put in. That's the bid being evaluated at the moment. They're not opening the financial package until they have done the technical assessment. We are quietly confident that we will be coming through the technical assessment and then we're in the competition on finance. I think is really interested in going to the office. So... That so much as I can say people. I'm sorry, I can't tell you more. It will be greater next quarter. We give you all sorts of numbers surrounding it, but let's see.
Abbas, you have another question? Abbas, I think you are muted.
Yes. I was wondering if there's any update about the PPP school project because I remember last year, I think somewhere in July, you guys were 1 of the 10 qualified bidders that would go on to the next round. So is there any update on that? And are you going to sort of do it alone? Are you going to partner with someone? Because the construction side of things, is -- does it make sense to sort of do it with someone else? And if there's anything else we can expect or when can we expect something?
Yes, it does, Abbas. And so when I say this is a live tender, it is a live opportunity. The physical tender hasn't come out. That's coming now in July. But the -- we are already aligned. We are aligned with a very strong investment partner that has success. This is 42 schools, 40,000 students. And we have aligned with a Saudi partner, who is an investor, who has already successfully won 1 and invested in very similar school PPP projects in the Kingdom of Saudi Arabia, and they're very keen to do that here. We have another partner who is a local leading construction company who will do the EPC, and we have ourselves. So in terms of the share of that, we will be 45% shareholder. The Saudi partner will be 30% and the delta of 15% will be with the other partner, with the EPC partner. We will, in that, have full control over the operation, which is for 25 years for those 40,000 students. And the, I have to say, 40,000 and growing because it will grow with the demographics of the country. But let's call it 40,000. Because of our physical control over that piece of the operation, so the SPV that we're forming in those percentages with those partners for the operation, we will be allowed to consolidate. So we will be the lead partner in the SPV for the operation whilst the lead partner and sole investor will be the Saudi partner for the actual CapEx, the revenue will come back in those proportions. So we would expect to have our share of that for the 25 years if successful. So that's where it's at. So what is very clear is we feel we've got a great coalition, and we're definitely going to compete. So then more next time when the bid has gone in and we get any other information back. That's probably as much as I can say about it at the moment without giving away competitive information.
I think we could add another question.
Okay. My next question is very small related to the exclusivity for Renaissance Duqm. I heard that there is exclusivity which is provided by SEZAD. It is still there or something changed?
So this exclusivity originally -- let me come to the end. This exclusivity runs to 2027. So it has another 4 years to run. And what is it for? Originally, it was until 2024. But because of the -- what happened in the sort of issues of -- not everyone of [indiscernible] are not being able to ensure the enforcement. The Board of SEZAD felt it appropriate that they should extend it for us to 2027 to give us some kind of recompense for what has happened. And which we appreciate. Now that exclusivity is as follows. It is that no one else should build, own and operate accommodation on a competitive basis for workforces. So recognizing that the AED 100 million that our shareholders put into Duqm was significant. It is not called the PPP project by name, but it's by any other definition, that's what it is. The private sector investing for the public good as a key enabler for the entire Duqm project that, that should be rewarded with a minimum period of exclusivity to together start, and that was for 10 years. So that 10 years has been extended. And it is that no one else should build competitively. Now we've had problems of enforcement on that because when we had that were approved but didn't meet the standards, we found that those accounts, although the lease is very clear that they can only use it for themselves and cannot sublet, subletting. So there's been some leakage, if you like, or people actually having commercial interest in workforce accommodation, which is not meant to be the case. Now again, we recognize what's happened. What's done is done, but we're really tightening up on this. Again the authorities OPAZ, SEZAD assuring us that those camps are being removed at the end of the project period, asked for the agreement for these agreements, and they want to be coming back. Thank you. Well, everyone, we don't see any further hands up, although so I believe someone else has already covered your questions. And as always, we try and to be respectful of your time. We've gone a little over this time, but I think it was worthwhile with the quality of the questions. And we thank you all, as always, for your interest in our company. And we enjoy these sessions with you each quarter, and we look forward to talk to you again next time. Have a very safe day for the rest of today. Thank you all very much indeed.
Thank you all.
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