20 December 2005
Oman's $2.2bn Sohar Aluminium project passed an important landmark last week with a ceremony to sign major agreements and announce the financial close for this iconic deal.
The meeting on December 11 marked the completion of three important foundation blocks, paving the way for the next phase. All the key stakeholders were present, along with the ministers of trade and industry, national economy and transport and communications. The smelter is projected to make a 2% contribution to GDP when it becomes operational in mid-2008.
The green light for the next phase of the project was heralded as the financial close was announced, securing funding for the plant.
ABN Amro, Citibank and Sumitomo-Mitsui are lead arrangers in a syndicated package, which includes a broad cross section of participating banks. They will arrange a $1.46bn non-recourse term loan - interestingly, the only facility to date in the sultanate which includes Islamic financing.
The rest of the capital will be provided by the shareholders - the Oman Oil Company and the Abu Dhabi Water and Electricity Authority (ADWEA) with 40% each, and the remaining 20% stake belonging to Alcan.
The ceremony also marked the announcement of the successful bids for the smelter construction contract and the power plant contract.
Bechtel was announced as the engineering-procurement-construction-management (EPCM) contractor for the smelter, after a competitive open-bid tender process. This US company has a great deal of experience in the field of aluminium, having recently completed the Line 5 expansion of the Alba Aluminium smelter in Bahrain.
After a period of review, the first-stage power station engineering-procurement-construction (EPC) contractor will be the French company Alstom. This constitutes the single largest contract awarded for the whole project. Similar to Bechtel, Alstom has been involved in the recent expansion at Alba Aluminium.
Sohar Aluminium will be the first green-field smelter project in the Middle East for the last 25 years. It will consist of a plant with a capacity of 350,000 tonnes per annum using Alcan's latest AP35 technology, and a dedicated 800-MW power plant. This will be generated by six gas-fired combined cycle turbines, with all the gas being supplied from Omani sources.
According to Tony Kinsman, CEO of Sohar Aluminium, the capacity of the first stage power plant will be 1000 MW, but the allocation available for seawater cooling only enables the plant to produce 800 MW.
This is sufficient for our first phase, he told reporters at the ceremony. However, We will have some redundant capacity until the second phase comes on.
The development of the project to full capacity will therefore be a gradual process which will continue once the plant comes into operation. Initially, only ingots and sows will be cast, but in the future more involved casting is planned.
However, these recent announcements mark the beginning of the psychologically important second stage, where the project quite literally comes off the drawing board.
Both the Omani government and regional analysts have placed great importance on the whole Sohar Industrial Port project, and particularly the aluminium smelter. Heavy industry is seen as a vital aspect of the diversification of the Omani economy. In addition, industry is a greedy employer - something equally important to the sultanate.
The Battinah coastal area - where Sohar is located - is also looking to benefit significantly.
Over the last 25 years, Kinsman added, the smelters established in Bahrain and Dubai have produced a 10-fold increase in the number of jobs. These included some 30,000 jobs in downstream industries.
Given that in addition to the smelter, other major industrial projects planned include the Sohar Refinery Company; Sohar International Urea & Chemical Industries; Oman Methanol Company; and the $1bn Sohar Aromatics Company, the labour required will be significant.
There are still many challenges for these fledgling enterprises, however, not least the perennial problem of finding adequately skilled Omanis to fill the vacancies they will create.
In anticipation of this potential problem, many of the companies have already begun to formulate training initiatives for future employees. The port itself leads in this respect, being supported by the International Maritime College Oman, which in its first year will concentrate on increasing English language skills for those looking to work in the docks and wider maritime industries.
With Oman's oil reserves finite, and reliant on expensive and medium term enhanced extraction, alternative sources of revenue must be found. Industry is expected to play a major role. As a measure of the importance placed on the sector, between January 2001 and November 2004 the government provided OR37.5m ($97.59m) in soft loans to support various enterprises in the sector.
Sohar Aluminium's recent announcement thus not only heralds the next phase of this specific project, but will also be a welcome boost for all those involved in diversifying Oman's growing economy.
Oman's $2.2bn Sohar Aluminium project passed an important landmark last week with a ceremony to sign major agreements and announce the financial close for this iconic deal.
The meeting on December 11 marked the completion of three important foundation blocks, paving the way for the next phase. All the key stakeholders were present, along with the ministers of trade and industry, national economy and transport and communications. The smelter is projected to make a 2% contribution to GDP when it becomes operational in mid-2008.
The green light for the next phase of the project was heralded as the financial close was announced, securing funding for the plant.
ABN Amro, Citibank and Sumitomo-Mitsui are lead arrangers in a syndicated package, which includes a broad cross section of participating banks. They will arrange a $1.46bn non-recourse term loan - interestingly, the only facility to date in the sultanate which includes Islamic financing.
The rest of the capital will be provided by the shareholders - the Oman Oil Company and the Abu Dhabi Water and Electricity Authority (ADWEA) with 40% each, and the remaining 20% stake belonging to Alcan.
The ceremony also marked the announcement of the successful bids for the smelter construction contract and the power plant contract.
Bechtel was announced as the engineering-procurement-construction-management (EPCM) contractor for the smelter, after a competitive open-bid tender process. This US company has a great deal of experience in the field of aluminium, having recently completed the Line 5 expansion of the Alba Aluminium smelter in Bahrain.
After a period of review, the first-stage power station engineering-procurement-construction (EPC) contractor will be the French company Alstom. This constitutes the single largest contract awarded for the whole project. Similar to Bechtel, Alstom has been involved in the recent expansion at Alba Aluminium.
Sohar Aluminium will be the first green-field smelter project in the Middle East for the last 25 years. It will consist of a plant with a capacity of 350,000 tonnes per annum using Alcan's latest AP35 technology, and a dedicated 800-MW power plant. This will be generated by six gas-fired combined cycle turbines, with all the gas being supplied from Omani sources.
According to Tony Kinsman, CEO of Sohar Aluminium, the capacity of the first stage power plant will be 1000 MW, but the allocation available for seawater cooling only enables the plant to produce 800 MW.
This is sufficient for our first phase, he told reporters at the ceremony. However, We will have some redundant capacity until the second phase comes on.
The development of the project to full capacity will therefore be a gradual process which will continue once the plant comes into operation. Initially, only ingots and sows will be cast, but in the future more involved casting is planned.
However, these recent announcements mark the beginning of the psychologically important second stage, where the project quite literally comes off the drawing board.
Both the Omani government and regional analysts have placed great importance on the whole Sohar Industrial Port project, and particularly the aluminium smelter. Heavy industry is seen as a vital aspect of the diversification of the Omani economy. In addition, industry is a greedy employer - something equally important to the sultanate.
The Battinah coastal area - where Sohar is located - is also looking to benefit significantly.
Over the last 25 years, Kinsman added, the smelters established in Bahrain and Dubai have produced a 10-fold increase in the number of jobs. These included some 30,000 jobs in downstream industries.
Given that in addition to the smelter, other major industrial projects planned include the Sohar Refinery Company; Sohar International Urea & Chemical Industries; Oman Methanol Company; and the $1bn Sohar Aromatics Company, the labour required will be significant.
There are still many challenges for these fledgling enterprises, however, not least the perennial problem of finding adequately skilled Omanis to fill the vacancies they will create.
In anticipation of this potential problem, many of the companies have already begun to formulate training initiatives for future employees. The port itself leads in this respect, being supported by the International Maritime College Oman, which in its first year will concentrate on increasing English language skills for those looking to work in the docks and wider maritime industries.
With Oman's oil reserves finite, and reliant on expensive and medium term enhanced extraction, alternative sources of revenue must be found. Industry is expected to play a major role. As a measure of the importance placed on the sector, between January 2001 and November 2004 the government provided OR37.5m ($97.59m) in soft loans to support various enterprises in the sector.
Sohar Aluminium's recent announcement thus not only heralds the next phase of this specific project, but will also be a welcome boost for all those involved in diversifying Oman's growing economy.
© Oxford Business Group 2005
