Al-Kayan Petrochemical Project On Track, Despite Amines EPC Glitch

Saudi Arabias giant $10bn Al-Kayan petrochemical project in al-Jubail is proceeding on track, despite a glitch in award of the engineering, procurement and construction (EPC) contract for the amines portion of the complex.

Reports last week that Saudi Kayan Petrochemical Company had axed the tender after failing to reach an agreement with bidders Aker Kvaerner and Techint were incorrect, and MEES learns that the company is re-tendering the contract with these two bidders. It anticipates making an award by the end of April. The other EPC packages have been signed, with the exception of one for the high density polyethylene (HDPE) facility, which has seen some timetable slip. But this is expected to be awarded at the end of June, MEES further learns.

Doubts over Kayans amines tender raised a red flag because production of these organic derivatives of ammonia was part of the rationale for constructing the complex. Before Saudi Basic Industries Corporation (SABIC) became involved in the project, the company secured approvals from the government entities SAGIA and the Royal Commission primarily due to the amines component, said one petrochemical expert. This product is not made anywhere in the Middle East, let alone Saudi Arabia.

While setting up amines production (facilities will be installed for the production of methylamines, ethanolamines, ethoxylates and choline chloride) is an important step for the kingdoms petrochemical industry, it is one part of an integrated complex which will have a production capacity in excess of 4mn tons/year of petrochemicals and chemical products. Delays in the amines and or HDPE awards are not a great concern because these facilities, while important, are a small part of the project, and they take less time to construct than the cracker, for example, said a source with knowledge of the project. And because they are at the end of the production chain, they will not hold up other operations.

For the amines segment, the involvement of the two original bidders gives the process the appearance of a best and final offer rather than a re-tender senso stricto , said another source close to the project. In the current EPC climate wrinkles in the tender process are becoming more common tightness in the market has allowed contractors to hike costs and push risk off onto sponsors, making for tough negotiations and delayed awards. While these wrinkles are part of todays EPC tendering process, they nevertheless raise concerns because a number of Gulf projects have been delayed and even axed due to cost escalations or because they have attracted insufficient contractors to allow competitive bidding. For example, plans for Kuwaits proposed fourth refinery were delayed as contractor bids exceeded the budget (MEES , 15 January) and Omans Liwa Petrochemical Company cancelled its ethylene dichloride project due to escalating project costs (MEES , 1/8 January).

Financing Moving Ahead

Kayans financing is moving ahead and the company has submitted a prospectus to the kingdoms Capital Markets Authority (CMA) ahead of its initial public offering (IPO) which is planned for April or May. The public will be offered 45% of the company, with 35% held by SABIC and the remaining 20% by Kayan which was set up by Project Management and Development Company (PMDC). Debt needs of $6bn will come from export credit agencies (ECAs), conventional and Islamic banks, with the kingdoms Public Investment Fund (PIF) and Saudi Industrial Development Fund (SIDF) also expected to participate. Discussions with potential lenders continue, although the amount provided by each group has yet to be decided. Financial close is planned for June, MEES understands. Arab Banking Corp, SAMBA and BNP Paribas are financial advisors and underwriters on the deal, and have been joined by ABN Amro and HSBC, which have taken on underwriting, but not advisory, duties (MEES , 5 February). PMDC had announced its intention to construct the olefins and amines project two years ago when costs were estimated at $3.5bn (MEES , 28 February 2005). Thereafter the costs climbed as the projects scope was increased and EPC prices escalated.

Fluor Corp is project management company (PMC) and has the $2.2bn EPC contract for the utilities and offsite facilities (MEES , 4 December 2006). Kellogg Brown & Root (KBR) has the EPC contract for the 1,350,000 tons/year olefins plant (MEES , 3 July 2006). Samsung is constructing the $400mn polypropylene plant, while the UKs Simon Carves is constructing the $300mn low density polyethylene (LDPE) facilities. South Koreas Daelim is the EPC contractor on the polycarbonate package and Tecnicas Reunidas from Spain holds the EPC contract for the phenolics package. SABIC expects production to start at the Kayan complex in 2009. Aside from amines unit, the project includes: a 2mn t/y ethane/butane cracker, including benzene extraction facilities; a polyethylene plant (700,000 t/y capacity); a polypropylene plant (350,000 t/y); and an ethylene glycol unit (530,000 t/y). An integrated phenolics plant, including cumene, phenol and units, will produce feedstock for a 260,000 t/y polycarbonates plant (Bisphenol-A will also be produced for the first time in the kingdom).