17 August 2014
MUSCAT -- A major petrochemicals project currently in the early stages of implementation in Dhofar Governorate is in danger of being scrapped altogether following a decision by Oman's power sector authorities to cancel electricity allocations to the venture.
Officials of Saltic LLC FZC say they were ready to launch into construction late in 2013, having already awarded a construction contract to South Korea's Hanwha Engineering & Construction in Q3 2012 to establish the $550 million chlor alkali and ethylene dichloride scheme within Salalah Free Zone, when they received notice of the termination of the power supply allocation.
"We are obviously stunned by this decision, which came without warning from Oman Power and Water Procurement Company SAOC (OPWP) as instructed by the Authority for Electricity Regulation (AER), Oman," said a high-ranking representative of Saltic FZC. "The action puts into serious doubt the ongoing implementation of the project, which will remain in limbo until a decision is taken to restore the allocation of 150 megawatts earmarked for the project," the executive added.
Speaking to the Observer, the official said the power authorities' decision to pull the plug on the project came at a critical juncture in its development. "Saltic has already expended a considerable amount of time, money and resources in advancing the project to this stage. With contracts already in place for the engineering and construction of the project, as well as supply of raw material and offtake of output, among a host of other commitments including land allocation in Salalah Free Zone and Salalah Port Area, we now find ourselves in a huge quandary," the executive said.
Work on the Saltic project, once touted for its potential to generate hundreds of jobs in Dhofar Governorate, as well as spawn the growth of small and medium enterprises, has since ground to a halt at a 35-hectare site within the free zone.
Conceived as a world-scale plant, Saltic was expected to create around 1,000 direct and indirect jobs, as well as catalyse investment in a substantial downstream petrochemicals industry. The consequences for the local and national economy in the form of lost employment opportunities and other socioeconomic payoffs will be significant, according to the executive.
Saltic alleges that the decision by power sector authorities to revoke electricity commitments to the project amounts to a "breach" of agreement concluded with Dhofar Power Company (DPC) in October 2011. The agreement obliges DPC to provide up to 150 MW of electricity to Saltic's facilities in the free zone. The power allocation of 150MW was considered a reasonable demand by OPWP prior to signing of the Terms of Supply (power purchase agreement), according to the company.
In cancelling the power allocation, authorities are reported to have cited the "limited progress" achieved by Saltic since the application for supply, a claim the company disputes. "In fact, by then, Saltic had completed the first phase of site works, signed a binding Term Sheet with the anchor Omani equity investor and were also ready to mobilise the engineering-procurement-construction (EPC) contractor, Hanwha Engineering & Construction of South Korea," the company executive insisted.
"We had requested Dhofar Power Company (DPC), via several correspondences, to confirm allocation of two 132kV feeders in the SFZ substation for connection of power, which never happened, citing concerns the power authorities were not ready to supply the necessary construction power by late last year in the event Hanwha did mobilise to site.
Following the cancellation of the power supply allocation, both OPWP and DPC have since advised us to reapply for power supply. But we know this is unlikely to guarantee us the required electricity in time for the project's planned launch in 2016," he noted.
The immediate objective for Saltic is to salvage the project before it completely unravels, says the executive. Early casualties have been the anchor investor representing one of Oman's largest business groups. According to the representative, the investor in question was already on board with a commitment to taking 75 per cent of the project equity, while the balance 25 per cent equity was taken up by a large multi-billion dollar Indian group.
"There was also significant interest in writing from various Omani pension funds to take up additional equity also. But understandably, the anchor and other equity investors' investment condition was subject to confirmation of power supply."
While acknowledging some lag in the implementation of the project, Saltic insists that the delay did not warrant a response as drastic as the cancellation of power allocation by the power authorities. According to the executive, all of the key contractual agreements necessary to execute and operate the project had already been in place at the time of the cancellation order. By then, South Korea's Hanwha Engineering & Construction had already been selected to implement the project on an engineering-procurement-construction (EPC) basis. Also in place were contracts for the supply of salt via Rio Tinto Group (Australia), ethylene via Marubeni of Japan, and the offtake of caustic soda via Tricon Energy of the United States.
MUSCAT -- A major petrochemicals project currently in the early stages of implementation in Dhofar Governorate is in danger of being scrapped altogether following a decision by Oman's power sector authorities to cancel electricity allocations to the venture.
Officials of Saltic LLC FZC say they were ready to launch into construction late in 2013, having already awarded a construction contract to South Korea's Hanwha Engineering & Construction in Q3 2012 to establish the $550 million chlor alkali and ethylene dichloride scheme within Salalah Free Zone, when they received notice of the termination of the power supply allocation.
"We are obviously stunned by this decision, which came without warning from Oman Power and Water Procurement Company SAOC (OPWP) as instructed by the Authority for Electricity Regulation (AER), Oman," said a high-ranking representative of Saltic FZC. "The action puts into serious doubt the ongoing implementation of the project, which will remain in limbo until a decision is taken to restore the allocation of 150 megawatts earmarked for the project," the executive added.
Speaking to the Observer, the official said the power authorities' decision to pull the plug on the project came at a critical juncture in its development. "Saltic has already expended a considerable amount of time, money and resources in advancing the project to this stage. With contracts already in place for the engineering and construction of the project, as well as supply of raw material and offtake of output, among a host of other commitments including land allocation in Salalah Free Zone and Salalah Port Area, we now find ourselves in a huge quandary," the executive said.
Work on the Saltic project, once touted for its potential to generate hundreds of jobs in Dhofar Governorate, as well as spawn the growth of small and medium enterprises, has since ground to a halt at a 35-hectare site within the free zone.
Conceived as a world-scale plant, Saltic was expected to create around 1,000 direct and indirect jobs, as well as catalyse investment in a substantial downstream petrochemicals industry. The consequences for the local and national economy in the form of lost employment opportunities and other socioeconomic payoffs will be significant, according to the executive.
Saltic alleges that the decision by power sector authorities to revoke electricity commitments to the project amounts to a "breach" of agreement concluded with Dhofar Power Company (DPC) in October 2011. The agreement obliges DPC to provide up to 150 MW of electricity to Saltic's facilities in the free zone. The power allocation of 150MW was considered a reasonable demand by OPWP prior to signing of the Terms of Supply (power purchase agreement), according to the company.
In cancelling the power allocation, authorities are reported to have cited the "limited progress" achieved by Saltic since the application for supply, a claim the company disputes. "In fact, by then, Saltic had completed the first phase of site works, signed a binding Term Sheet with the anchor Omani equity investor and were also ready to mobilise the engineering-procurement-construction (EPC) contractor, Hanwha Engineering & Construction of South Korea," the company executive insisted.
"We had requested Dhofar Power Company (DPC), via several correspondences, to confirm allocation of two 132kV feeders in the SFZ substation for connection of power, which never happened, citing concerns the power authorities were not ready to supply the necessary construction power by late last year in the event Hanwha did mobilise to site.
Following the cancellation of the power supply allocation, both OPWP and DPC have since advised us to reapply for power supply. But we know this is unlikely to guarantee us the required electricity in time for the project's planned launch in 2016," he noted.
The immediate objective for Saltic is to salvage the project before it completely unravels, says the executive. Early casualties have been the anchor investor representing one of Oman's largest business groups. According to the representative, the investor in question was already on board with a commitment to taking 75 per cent of the project equity, while the balance 25 per cent equity was taken up by a large multi-billion dollar Indian group.
"There was also significant interest in writing from various Omani pension funds to take up additional equity also. But understandably, the anchor and other equity investors' investment condition was subject to confirmation of power supply."
While acknowledging some lag in the implementation of the project, Saltic insists that the delay did not warrant a response as drastic as the cancellation of power allocation by the power authorities. According to the executive, all of the key contractual agreements necessary to execute and operate the project had already been in place at the time of the cancellation order. By then, South Korea's Hanwha Engineering & Construction had already been selected to implement the project on an engineering-procurement-construction (EPC) basis. Also in place were contracts for the supply of salt via Rio Tinto Group (Australia), ethylene via Marubeni of Japan, and the offtake of caustic soda via Tricon Energy of the United States.
© Oman Daily Observer 2014
