$300 million plant to position Oman as global supplier to plastics packaging industry
MUSCAT -- Oman is set to host a world-scale petrochemicals complex which will manufacture APET sheet and PET resin for the rapidly expanding global consumer plastics packaging industry. The $300 million project, currently under construction at the Salalah Free Zone, will position the Sultanate as the indisputable market leader in the production of APET sheet for the global plastics packaging industry and the largest PET producer in the Middle East. "We are establishing the world's biggest-ever fully integrated APET sheet and PET resin manufacturing facility at Salalah," said Nicholas P Barakat, Managing Director, Octal Holding and Co SAOC, which is overseeing the development of the project.
"When it comes on stream in April of next year, it will be five times larger than the biggest plant of its kind in the world. "It will be the lowest cost producer of APET sheets in the world. A project of this magnitude and sophistication will truly position Oman as the hub for the fastest growing packaging segment in the world, and establish immediate opportunities for downstream business," Barakat added in an interview with the Observer.
Octal is backed by a consortium of US-based investors (led by Chemlink Capital and Pound Capital) as well as a number of leading Omani business houses and investment firms, including Suhail Bahwan Group, National Investment Fund Company (NIFCO), Oman Investment Fund, Oman and Emirates Investment Holding Co SAOG, Dhofar International Development and Investment Holding Co (DIDIC), BankMuscat SAOG, Malatan Trading, and Muscat Overseas, among others.
Chemlink Capital is a US- based private investment firm specialising in providing merchant banking services to the chemical and process industries, while Pound Capital is, another US investment firm that originates, structures and invests in buyouts, strategic equity investments, equity private placements, greenfield projects and venture capital. Significantly, the project is being launched this week at the prestigious 17th Annual SPE (Society of Plastic Engineers) Thermoforming Conference under way in Cincinnati, USA, which attracts top players from the global plastics packaging industry.
Octal plans to use the event as a platform to showcase the Salalah project's unique value propositions that would result in significant cost benefits to the industry. According to Barakat, Octal Petrochemicals FZC will boast a capacity of 330,000 tonnes per annum of APET sheet, which is used in convenience food packaging and clear rigid packaging for consumer products, a market which is showing promising growth.
"APET has become the packaging material of choice because it is something of a magic product that's rapidly entering everyday life. You see it in supermarkets, convenience stores, retail outlets, and so on.
It is used for packaging fresh foods and dairy products, and is also making rapid inroads into the cup market. Besides, it is increasingly finding application as packaging for fast moving consumer products such as toys, electronics, and hardware. Traditional packaging materials like PVC and styrene are rapidly being replaced by APET because of its transparency, gloss and toughness, as well as its suitability for packaging goods that require product protection." A pilot plant manufacturing APET sheet went into production at the Salalah Free Zone last December.
The product was enthusiastically received in the key markets of Europe and the United States, prompting Octal to embark on a full-scale rollout of a mega-sized plant to capture on the advantages established in the markets of Europe and the US. "We launched the pilot 'Crystal' phase with a plant of 20,000 metric tonnes capacity just 500 metres from the Port of Salalah. This month, we are adding a third line of another 10,000 metric tonnes. Resin for the APET sheet in this phase is being entirely imported. Interestingly, Octal is the first project in the Salalah Free Zone to start production.
However, in the next phase, dubbed 'Sapphire', we will make the resin ourselves in a fully integrated, state-of-the-art complex that leverages both the upstream and downstream components of the PET and APET business. Thus, in the next 9 months, the plant will grow from 30,000 tonnes to 330,000 tonnes, making it the fastest growing project of its kind in the world, serving an articulate segment of the packaging industry," Barakat noted. Construction work on the Sapphire phase is now well under way on a 470,000 sq mt plot at the Salalah Free Zone. The state-of-the-art facility will feature two 40-metre high reactors that will make the PET resin alongside multiple automated production lines that manufacture APET rigid films.
"We will take advantage of the Salalah's strategic geographical location, along with the excellent shipping facilities, to supply markets around the world in quick time. Our integrated approach along with these advantages will help us achieve the target of being the lowest cost producer in the world. Our target markets are mainly the US, where we enjoy duty free access thanks to the recent Free Trade Agreement (FTA), and Europe, where duties are presently low. With the negotiations under way between the GCC and the EU we anticipate for the duties to be eliminated over the coming years. In July, we have opened up an office in Shanghai in China, and will be setting up a sales office in India as well."
Octal has projected sales of around $500 million per annum from mid-2008, accounting for a roughly 20 per cent share of the world market currently estimated at $2.25 billion. Shipments to the US and Europe would result in a five-fold increase in Omani non-oil exports to these markets, Barakat pointed out. The $300 million for the project was raised in record time through an optimum mix of equity and limited recourse debt. BankMuscat was the financial adviser for the equity raising and the debt raising.
"Octal is the first project of this size in the region that is being financed on a limited recourse project finance basis. Projects in the region tend to be either supported by the Government, the promoters or through offtake agreements. Lenders have been comfortable with the market risk for Octal is based on its disciplined development approach and its clear market strategy. This should open up the financing market for similarly well-structured projects," said AbdulRazak Ali Issa, Chief Executive, BankMuscat.
Significant socio-economic benefits will also accrue from the project to the local community in Salalah, and to the Sultanate in general. An estimated 1,600 direct and indirect jobs will be created as a result of the venture, with a beneficial impact not only on the Free Zone and the Port of Salalah, but to local businesses as well, he added.
By Conrad Prabhu
© Oman Daily Observer 2007
