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Saudi Arabia embarking on new mega projects

JEDDAH -- Saudi Arabia is embarking on a number of new mega projects covering a wide range of industries, a bulk of them focusing on those sectors of the economy in which the Kingdom has comparative advantages such as oil and petrochemical industries.

According to the recently released Samba Financial Group's mid-year report about the Saudi economy, the total cost of projects currently under way or in advanced planning for execution over the next several years is about SR1.06 trillion ($283 billion). The oil and gas industry alone accounts for SR259b ($69b), or one fourth, of the total.

The group's General Manager and Chief Economist Brad Bourland explained that as against the previous periods of intense infrastructure and project activity, much of the current development is financed and owned by the private sector.

Defence and security purchases projects amount to SR183b ($48.8 billion), or 17 per cent of the total. Large real estate developments capture about SR150 billion ($40 billion), or 14 per cent of the total investments, followed by mining and minerals development with SR44.63 billion ($11.9 billion) of the total. Other small projects include public utility projects such as electricity, water, and transportation.

According to the Samba estimate out of the SR1.06 trillion in total project costs, some SR322 billion ($85.8 billion) or 30.3 per cent of the required funding will come from the general government budget. Aramco 's project bill amounts to SR304 billion ($81 billion) or 28.6 per cent, but some of this is in joint venture with private companies.

Petrochemicals giant Saudi Basic Industries Corp. (SABIC) needs about SR102.37 billion ($27.3 billion) to fund its current and future mega projects through 2010.

Three mega projects initiated by the Saudi Arabian General Investment Authoprity (SAGIA ), including SR100 billion ($26.7 billion) for King Abdullah Economic City in addition to two other private projects (an aluminum smelter and an oil export refinery) total SR180 billion ($48 billion).

The Royal Commission of Jubail and Yanbu will require about SR150 billion ($40 billion) through 2010, much from private sector investment, mainly for new projects and for the expansion of the existing infrastructure at Jubail Industrial City-1 and Jubail Industrial City-II. Some of the mega projects include the King Abdullah Economic City in Rabigh (SR100 billion), the Aramco -Sumitomo Chemical refining and petrochemical joint venture called Petro-Rabigh, located with the King Abdullah Economic City (SR10 billion), the Aramco - Total export refinery (SR37.5 billion), and the SR22.5 billion Aramco - ConocoPhillips export refinery, SABIC's Saudi Kayan Petrochemicals Company (Kayan) , Maaden's Ras Al-Zour Mining Industrial City and the Saudi Landbridge project, aimed at connecting various parts of the Kingdom by rail.

The largest private sector investment in Saudi Arabia will be the King Abdullah Economic City, which will be developed by Dubai-based Emaar Properties in collaboration with Aseer and Binladen Group of Saudi Arabia in a joint venture called Emaar the Economic City.

The two similar projects recently announced include the Prince Abdulaziz bin Musaed Economic City in Hail and the Knowledge City in Madinah.

Work continues on Aramco 's $20-billion Crude Oil Expansion Programme, which aims at raising Saudi oil production capacity from the current 11.3 million bpd to 12.5 million bpd by 2009. This is the most costly expansion by Aramco in many years.

The Samba report said work on the Gas Initiative has also made progress. This involves exploration for gas in Aramco 's joint ventures with several foreign oil and gas companies, with the intention of supplying gas for local industrial use and power generation, eventually freeing up more crude oil for export. Companies involved in the development include Shell , Total , Russia's Lukoil , China's Sinopec, and Repsol of Spain. The total cost of the Gas Initiative is currently estimated by Aramco to be SR41.25 billion ($11 billion).

Recently, Aramco signed joint venture agreements with Total of France and ConocoPhillips of the US to set up two export refineries, one on each coast that would cost SR22.5 billion ($6 billion) each.

Both refineries, which will produce mainly gasoline for export, will use the Kingdom's heavy crude oil, which is less sought after by international buyers. Terms of the two preliminary agreements are almost identical. Each of the joint venture partners will hold a 35 per cent equity stake and the remaining 30 per cent will be offered for public subscription. Aramco will supply crude, and the foreign partner will market the refined products. Locations of the two refineries are Jubail on the east coast for the Aramco - Total Export Refinery and Yanbu on the west coast for the Aramco - ConocoPhillips export refinery.

FROM OUR CORRESPONDENT

© Khaleej Times 2006