Saudi Binladin seals $3.7bn smelter deal

(Getty Images)

Saudi Binladin Group (SBG) and its partner Malaysian infrastructure and energy group MMC Corporation Berhad (MMC) on Saturday signed a 14 billion Saudi riyal ($3.73 billion) contract with Aluminum Corporation of China (Chalco) to establish a second aluminium smelter at Jazan Economic City (JEC).

The contract was approved by Saudi investment authority (Sagia) governor Amr Al-Dabbagh and signals the start of work in JEC, Saudi’s fourth economic city.

The aluminium smelter will be developed by a new joint venture company to be formed by the end of the year and construction is scheduled to begin during the second half of 2008.

The plant will have an annual production capacity of approximately one million metric tonnes. 

The developers of JEC expect the plant to hold enormous potential for downstream industries in JEC that use aluminium as a base material for their products.

This deal follows an earlier proposal to establish JEC’s first alumina refinery with an annual production capacity of approximately 1.6 million metric tonnes and an aluminium smelter that will have an annual production capacity of 600,000 metric tonnes.

MMC will increase the generation capacity of the power plant at JEC from 3,000 megawatt, as initially envisaged, to 4,860 megawatt to cater for the needs of the second aluminium smelter.

Installing this additional electrical capacity will raise the investment cost of the power plant from $3 billion to almost $5 billion.

Chalco will supply the plant with its alumina requirements. Alumina is the raw substance used for producing aluminium.

The Chinese company will also handle the offtaking and distribution of the aluminium produced.  

The low electricity tariff within JEC will lower Chalco production costs. This will enable it to offer competitively priced aluminium to meet the growing global demand on aluminium that China is playing a big role in.

China consumed 12 million metric tonnes of aluminium in 2006 and this is projected to increase by 20% annually.

Chalco is the sole producer of alumina in China, the second largest producer of alumina in the world, and it is among the top five largest producers of aluminium in the world.

Sagia estimated that the smelter would create about 2,500 jobs in Jazan area. Sagia also believe that the plant will provide the opportunity for local workers to build a sound technical base.  

The $3.73 billion investment required for the smelter will bring the total capital invested in JEC to $20 billion, according to Sagia.  

“We are indeed pleased with this development and the overall progress of JEC,” Governor Amr Al-Dabbagh said in a statement.

MMC also announced during the inauguration that it would give out 1,000 educational grants for residents in Jazan to study abroad in Malaysia.

This is part of MMC social commitment towards Jazan area and an attempt to provide a technically sound labour force for JEC.

Jazan, located 725 kilometres south of Jeddah by the Red Sea, is one of Saudi Arabia’s poorest cities and the level of education in it is far behind the rest of the country.

MMC and SBG were awarded exclusive rights to develop and manage JEC in November last year.

JEC is envisioned to be a fully integrated and self-contained development, which will comprise industrial and non-industrial zones on a site measuring over 100 square kilometres.  

Expressions of interest have been received from various investors for an oil refinery complex, an iron ore hub and steel cluster and a marine industrial complex, and work on some of these projects are due to commence towards the end of the year.  

In addition, JEC’s industrial zone, representing more than two-thirds of the project, will also accommodate a port, a copper processing plant, a silica gravel refinery, a zinc processing plant, a metal fabrication facility, as well as an agro-based industry. 

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