$3bn Jazan aluminium smelter deal signed
Riyadh, November 25, 2007
MMC International Holdings and Saudi Binladin Group (SBG) today signed an agreement with Aluminum Corporation of China Limited (Chalco) to develop, own and operate an aluminium smelter at Jazan Economic City (JEC). The project will cost $3 billion and have an annual production capacity of one million tons.
The plant will be developed by Sino-Saudi Jazan Aluminum Limited, which will be jointly owned by Chalco (40 per cent), MMC (20 per cent) and a Saudi consortium including SBG (40 per cent). This definitive agreement follows the signing of a preliminary MoU on October 4 to establish the smelter at JEC.
This agreement was among a series of six agreements and MoUs signed today at JEC’s ground-breaking ceremony which witnessed the laying of the foundation stone of the project’s marketing complex, marking the beginning of construction work.
The ceremony was inaugurated by Prince Mohammad Bin Abdulaziz, Governor of Jazan, in the presence of Saudi Arabian General Investment Authority (Sagia) Governor Amr Al-Dabbagh, Abdullah Mohammad Al-Qarni, mayor of Jizan, as well as local and foreign dignitaries.
This major milestone comes within a year of JEC’s launch in November last year by the Custodian of the Two Holy Mosques, King Abdullah bin AbdulAziz AlSaud.
Al-Dabbagh said: “We are very pleased with the overall progress of JEC, which has commenced construction within one year of its launch. The latest addition of the second aluminium smelter and power plant with an investment close to $5 billion will bring the total capital invested in JEC to $20 billion. The original investment envisaged for JEC was $30 billion over a period of 25 years. We have achieved two-thirds of this amount one year after the project’s launch. This investment by Chalco in a smelter with an integrated power plant is the single largest investment by a Chinese company in Saudi Arabia.”
Chalco is the sole producer of alumina in China, the second largest producer of alumina in the world, and among the top five largest producers of aluminium in the world. The key success factors for an aluminium smelter are low electricity tariffs, secured alumina supply and a captive demand for aluminium.
The smelter will be supplied with low-cost electricity, which will slash the smelter’s production costs and enable it to produce competitively-priced aluminium. The plant’s requirements for alumina will be supplied by Chalco, which will also guarantee the offtake and distribution of the aluminum produced. Chinese demand for aluminium continues to remain strong, where consumption grew by 46 per cent year-on-year in the first nine months of 2007 to 8.8 million tonnes.
Explaining the rationale for MMC’s investment in the smelter, MMC Group chief executive, Feizal Ali said: “For MMC, this is an attractive investment that meets our risk profile and investment returns. The alumina supply, technology support and product offtake is guaranteed with the participation of Chalco. JEC’s low power tariffs provide a competitive advantage for aluminium smelters that would otherwise be vulnerable to rising power costs elsewhere in the world.”
A power plant with a generation capacity of 1,860 MW, which is estimated to cost $2 billion, will be required to satisfy the smelter’s power needs. Feizal Ali said: “MMC intends to own at least 50 per cent of this power plant, which will form part of a larger power plant complex that is planned to have an eventual generation capacity of approximately 5,000 MW. This is a major undertaking for us that will ensure a significant recurring income stream for MMC.” The construction of the aluminium smelter and power plant is scheduled to begin during the second half of 2008 and be completed in 2012.
The event also witnessed the signing of agreements by other anchor tenants of JEC, such as Pan Kingdom Inve