Aramco to take on $4bn infrastructure projects at Jizan

22 March 2012

Both schemes are vital to $7bn refinery scheme that Aramco is developing at Jizan Economic City

State oil company Saudi Aramco could be preparing to takeover two major infrastructure projects at Jizan Economic City (JEC) in the southwest of the kingdom in order to speed up their development. Both schemes are vital to a $7bn refinery being developed by Aramco at JEC.

According to sources close to the project, the oil company is considering taking control of a $1.4bn port development at JEC and a $2.5bn2,600MW power plant. The local Saudi Binladin Group are currently behind the port development and Saudi Electricity Company (SEC) is the owner of the power plant scheme.

The port and power station are vital to the operation of the 400,000-b/d refinery that Aramco is currently developing. The firm plans to use the port to bring in crude oil and ship refined products from the refinery when it starts operation in 2016-17.

“Aramco wants to move on the Jizan [refinery] project and it feels that some of the key support projects are moving too slowly ,” says a source close to the project. “This has forced [the company] to take matters into its own hands.”

The JEC scheme is central to Riyadh’s strategic programme to stimulate growth and create jobs in the Jizan region, which has high levels of unemployment.

The Jizan refinery was initially intended to be developed as an independently-owned facility. However, Aramco assumed responsibility for the project after a lack of private sector interest in the scheme. The oil firm has started to prequalify contractors for engineering, procurement and construction packages at the facility.

The Saudi Binladin Group, together with Malaysia’s MMC Corporation, are owners of the $27bn JEC project. Local sources now say SBG and MMC are unwilling to execute the port package, leaving Aramco to either take over the development of the full port or find an investor interested in taking the project on. However, difficulties raising finance for the port project is understood to have prompted discussions with Aramco over funding the scheme.

There has been some interest from the China Communications Construction Company (CCCC) to taking over the port facilities contract, but as yet no deal has been agreed with SBG and MMC. “If CCCC is willing to invest, then they should be allowed to invest,” says the source. “The refinery is bringing in everything via the port so without the port there is no refinery.”

Meanwhile, the situation on the power plant is more advanced, with some sources saying that Aramco has already taken ownership of the project from SEC. The plant will be built next to the Jizan refinery and Aramco could tender it on a build-own-transfer (BOT) model, lower the scale to better fit the refinery’s needs, or sell the excess power generated back to SEC.

Both projects would represent a significant commitment on Aramco’s behalf both in terms of financing and logistics and the extension of the oil major’s commitment to JEC and the region. Several other major projects planned at JEC have struggled to get off the ground, including a $5bn aluminium smelter. To date, minimal infrastructure at the JEC has been completed and the only working factory is a steel plant operated by the local South Steel Company.

“Everyone seems to be waiting for Aramco to give Jizan the impetus it needs,” says the source. “It would not be a bad thing if [Aramco] did take over the full development.”

Aramco has previously provided support to the Saudi government to help meet strategic objectives that involve complex contracting and management. The oil company was put in charge of developing and operating the King AbdullahUniversity of Science and Technology (Kaust) for the first three years.

A spokesman from Saudi Aramco declined to comment about the port facilities and the power plant when contacted by MEED. SBG was not available for comment.

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