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SPECIAL REPORT

Jubail - a growing industrial behemoth

Jubail, October 6, 2013

By Mark Lazell
It was lampooned as ‘the biggest boondoggle in history’ by the New York Times in 1980. Two years later, Time magazine heaped scepticism on Jubail, describing it as an infant city ‘that could wind up being an enormously expensive ghost town, as marching dunes are expected to cover it by the year 2000. Future archeologists will be puzzled by this strange ruin,” it predicted.
 
The prophets of doom will be profoundly disappointed with what has since transpired in this corner of Saudi Arabia’s oil-rich Eastern Province, says a specail report in The Gulf, our sister magazine.
 
Jubail Industrial City is one of the world’s biggest civil engineering projects.Currently, 290 industries representing a total foreign investment of more than $110 billion crowd the skyline on one side of the highway running north from Dammam. These industrial giants generate more than 10 per cent of the kingdom’s non-oil GDP, and make up 85 per cent of the value of its non-oil exports.
 
Built on its proximity to some of the world’s most prolific oilfields, Jubail is the largest petrochemical cluster on earth. Petrochemical plants there - the majority of which are joint ventures of the Saudi industrial giant Sabic - produce seven per cent of global supplies,contributing valuable export revenues for the kingdom since the first one opened in 1982. A community of secondary and tertiary factories has flourished in their wake, taking primary petrochemical products and converting them into other by-products such as plastics and chemical derivatives.
 
Like the sand dunes which once surrounded the original fishing village of Jubail,the industrial city is in perpetual motion. It is expanding, with more world-scale plants being built, and several more on the drawing board.
 
Supporting infrastructure must be built to support this expansion - railway links, roads,power networks and other utilities are being laid down on a massive scale. New residential districts are under construction to accommodate the thousands of new workers who will flood into the city for employment at the new plants. New commercial and retail areas are being implemented to make the city more liveable. And a former military airport on the city’s outskirts could, within a decade,be handling commercial flights.
 
Creating an industrial and urban behemoth like Jubail brings new meaning to the definition of planning. Responsibility for that lies with the government-appointed Royal Commission (RC) for Jubail and Yanbu and Bechtel,the US firm providing management services to the RC since 1975, the longest relationship of its kind for the company anywhere in the world. Together, the partners must put in place the infrastructure to support billions of dollars-worth of industrial investments now and for the future.
 
“We currently have 79 ongoing engineering contracts in Jubail and Ras al Khair Industrial City representing a total value of SR13 billion ($3.46 billion),”explains Mike McGarvey, manager of engineering, Bechtel. The RC in Jubail has, since 2006, approved 357 infrastructure contracts worth SR41 billion. Its current work plan for 2013 has a budget of SR3.4 billion, with a similar figure believed to have been allocated by the finance ministry in Riyadh for 2014.
 
“We are currently on the year 39 work plan now, and are now developing next year’s programme. The budget we receive [from the finance ministry] reflects the trust it places in us,” says McGarvey.
 
Repaying such trust is critical, and McGarvey and his colleagues certainly have their hands full in this respect. Seventy nine contracts this year is likely to balloon in 2014 as attention turns to new industrial phases - specifically the completion of the Jubail II project, master planning for which started in 2004 which is set to double the entire city’s industrial footprint, and Ras al Khair, a mineral and metals-based city being built 85 kilometres to the north.
 
We take a bus to Jubail II, westwards past Jubail I’s massive factories served by the world’s largest seawater cooling channels, vast man made rivers some 11 km long. We pass multi-lane roads under construction, and pipelines four metres in diameter jut out from the terrain. Infrastructure expenditure for Jubail II is $3.8 billion alone, before the cost of the massive new plants is factored in.
 
To our left is Satorp, a $14 billion refinery joint venture between state-owned Saudi Aramco and French oil giant Total. Output has been gradually ramping up at the four square kilometre site, with full production likely by the end of 2013. Much of the output will be marketed for domestic consumption.
 
Next door is Sadara, a $20 billion petrochemical complex. A joint venture between Saudi Aramco and Dow Chemical of the US, Bechtel is currently preparing the site in anticipation of the huge units which, when completed in 2015, will make it the largest petrochemical facility ever built in a single phase.
 
Big things are expected of both complexes, and not just by the joint venture partners.
 
“Satorp and Sadara have given a huge lift to the whole Jubail project,” McGarvey explains. Certainly their significance to the kingdom’s long-term import substitution policy cannot be overstated.
 
They are, for example, central to the vision behind PlasChem Park, a planned cluster zone in Jubail II, says Abdullah al Eid, the RC’s director of cluster support development.
 
“Sadara will be a major driving force for the conversion industry, and the Royal Commission is working with them to attract specialised national and international investors to focus on downstream products like plastics and speciality chemicals,” he explains.
 
“We have six investors at advanced stages of evaluation to set up plants in PlasChem.”
 
He adds that some products will be made at PlasChem for the first time in Saudi Arabia.
 
“The PlasChem initiative is about creating world-class clusters. By tapping into shared services in Jubail we can reduce the costs for the investor so he can focus on his core business,” Eid notes.
 
Jubail II is also prompting plans for a dedicated logistics park to handle and move products. Eid says several specialised investors have expressed interest inrunning the facility.
 
Extending infrastructure to Jubail II and ensuring the area reaches its economic potential comes with challenges in various guises. Engineers have had to work carefully around the so-called Kuwait-Ras Tanura (KRT) corridor, a 1.5 km wide north-south bunch of oil and gas pipelines which bisects Jubail, laid many years ago.
 
Technical constraints means the huge seawater cooling channels which served the original Jubail heavy industry park could not be extended to Jubail II. Massive capacity pumps must draw the water along to the new units.
 
RC executives also admit some contractors are struggling to get the numbers and types of workers they need for projects, due to a tightening of visa quotas and the government’s ongoing Saudisation policy.
 
Arguably the biggest challenge for the RC and its partner, however, is conducting the large orchestra of contractors who work in the city. Once again this is where planning is essential.
 
“The RC has always been very forward looking to accommodate future development,”explains Gordon Anderson, manager of projects, Bechtel.
 
“For example, making sure there is sufficient seawater cooling capacity to serve future industries, or working with Marafiq (for water) and Saudi Electricity Company (for power) to ensure sufficient future utility capacities. That doesn’t just happen - you have to plan for that. You have to make sure it is in place in time for the industries that will come along.”
 
Much of Jubail I’s success in attracting FDI has been credited to just that -  ensuring world-class infrastructure is in place for investors. With the expectation that Jubail II will drive even greater levels of FDI - the stated target is some SR 210 billion – the stakes are high.
 
There is another dimension to the investment story. Investments create jobs, and the authorities hope some of the 55,000 new positions expected to be eventually created in Jubail II will be taken by Saudis. Three higher education establishments in the city - Jubail Industrial College, Jubail University College and Jubail Technical Institute – will be expected to equip the next generation of Saudis with the technical skills investors will need to run their plants.
 
To address new housing requirements in the city - currently an estimated 40,000 non-residents already pour into Jubail every day - a massive house building programme is underway. Currently home to about 100,000 people, by 2030 Jubail could house up to 300,000.
 
Jubail will be also be expected to take some of the strain on planned growth in Ras alKhair. That city is being billed as the world’s biggest integrated mineral industrial complex of its kind, taking advantage of large phosphate and bauxite deposits in the kingdom’s far north. The RC assumed responsibility for managing the city in 2012, and with Bechtel is currently awarding the infrastructure packages to develop the major plots, with a view to the city being fully open for business by early 2016. Bechtel is currently building one of the world's largest greenfield aluminium smelter projects in Ras Al Khair for the Saudi Arabian Mining Company (Ma’aden)-Alcoa joint venture.
 
“Everybody is waiting for Ras al Khair,” admits Ahmed al Balawi, the RC’s general manager of technical affairs.
 
“RC management regularly ask when the land [at Ras al Khair] will be ready. That pressure is a big challenge, and it is about managing expectations but also delivering on those expectations. But I’m confident - we mostly have goodc ontractors and a smooth procurement process.” 
 
(The above article appears in The Gulf magazine's October issue.)



Tags: sabic | Saudi | industry | Jubail |

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