Two Qatar-based companies have formed a joint venture to build an integrated steel, mining and power project in Algeria estimated to be worth $3.2bn.

Qatar Steel and Industries Qatar, both subsidiaries of Industries Qatar, together hold 49 per cent of Qatar Steel International, with the majority stake held by the Algerian government.

“The gas allocation has been confirmed and the point of connect is near the plant, so there is already a gas pipeline,” says steel industry source familiar with the deal. “[Algerian gas] is cheap already but in this case it even cheaper than what is available in Saudi Arabia.”

The project will be tendered on a lump-sum turnkey (LSTK) basis and the execution will be similar to the $3bn Al-Rajhi project in Saudi Arabia. This means that technology providers will have to team up with engineering, procurement and construction (EPC) contractors to submit bids for the scheme. EPC contracts are expected to be tendered in 2013.

The scope of works for the complex includes the construction of a direct reduced iron (DRI) plant, a melt shop and a long and flat rolling mill. The complex will be built in two phases and will be located at the Bellara Industrial Zone, about 40km from the port of Jijel in the east of the country.

Industries Qatar has already made an investment of over $400m in the project and through its Qatar Steel International subsidiary is exploring the possibility of sourcing iron ore from mines near the Algeria/Mauritania border.

Having a fully integrated steel making process with cheap access to gas feedstock is the ideal scenario for any steel company, but logistical problems might arise from the large distance between the planned location of the plant in Jijel and the mining operations.

Algeria’s iron ore industry is currently dominated by Luxembourg’s ArcelorMittal, which produces about 1.7 million t/y at its Ouenza and Boukhadra mines in the north-west of the country.

ArcelorMittal, the world’s largest steel company, was planning to build a similar 5 million t/y steel project in Jijel, but shelved the scheme in June 2010.