Visitors to the Sohar Aluminium site in the Al-Batinah region are welcomed with the customary Omani warmth, but the smelter itself is kept out of sight because of the technology being used. The details of UK/Australian mining giant Rio Tinto’s AP36 technology are a closely guarded secret because of its efficiency in producing aluminium. Plants with AP36 are among the most cost-effective in the world.
Sohar Aluminium is Oman’s first smelter, and the first greenfield aluminium project to be built in the Gulf for 30 years. Ground was broken on the project in late 2005 and the plant was officially inaugurated on 29 April this year, having produced its first hot metal in June 2008 and reached full capacity on 19 February.
The plant, which was built at a cost of $2.4bn and employs more than 1,000 people, is capable of producing 360,000 tonnes of primary aluminium a year. The smelter has 360 AP36 pots – through which electricity is passed to produce molten aluminium – each capable of producing 2,700kg of aluminium a day. The potline is the longest in the world, and is fed with refined alumina supplied from Rio Tinto’s mines in Australia.
The project’s shareholders are Oman Oil Company, with a 40 per cent share, Abu Dhabi Water & Electricity Authority (Adwea), also with 40 per cent, and Montreal-headquartered Rio Tinto Alcan, with 20 per cent. After a competitive bidding process, the US’ Bechtel was appointed the engineering, procurement and construction (EPC) contractor for the smelter project in July 2005, while French engineering firm Alstom was chosen in December 2005 as the EPC contractor for the site’s power plant.
The $504m power plant EPC contract, for a 1,000MW captive plant to provide electricity to the smelter, was the largest contract to be awarded on the project. Six gas-fired combined-cycle turbines were installed by Alstom, with the UK’s Mott MacDonald managing the project. The French company also built the powerplant for Aluminium Bahrain (Alba’s) Line 5 smelter expansion project in 2005.
The site also has a dedicated water desalination plant and a sewage treatment plant.
Sohar Aluminium has a goal of having zero effluent discharge through reuse and recycling, in line with its policy of keeping the plant’s environmental impact to a minimum.
Gas supplies to power the plant have been secured through Oman Oil Company’s involvement. But the plant will have to fight with other energy-dependent industries for further allocations of gas should it wish to expand.
“We have just started operations, but every business wants to expand and at the right moment we will approach the government [about increasing its gas allocation],” says Ahmed bin Salim al-Wahaibi, chairman of Sohar Aluminium, when asked whether gas supply could prove a stumbling block to the plant’s development. “We need to demonstrate to the Oil & Gas Ministry that this is an added-value project and it is one of the best projects it can allocate to.”
As the first hot metal was produced at Sohar in June last year, the world’s financial health was beginning to suffer. With aluminium trading at $1,300 a tonne when the plant reached full capacity in February, down from a high of $3,300 a tonne in July 2008, the timing of Sohar Aluminium’s launch has led to questions over how profitable the plant can be when global demand for the metal is weak.
Jacynthe Cote, chief executive officer of Rio Tinto Alcan, cites the AP36 technology as a defence to the question of how Sohar can be profitable. “Rio Tinto Alcan’s benchmark technology is the most energy efficient and environmentally friendly smelter technology commercially available,” she says.
Sohar Aluminium claims that even with aluminium prices as low as $1,300 a tonne, the company can cover operating costs and the cost of capital.
Cote says the plant is in the “lowest quarter” of aluminium plants in the world in terms of cost-efficiency. “A lot of production that has been shut down will not restart,” she says. “We are in a much better position than much of the industry, and continue creating value, thanks to technology.”
Some 60 per cent of Sohar’s aluminium will be used locally, while the rest will be exported mainly via the Rio Tinto Alcan network to markets including Hong Kong and East Asia. The Port of Sohar has facilities to receive vessels with a maximum 75,000 tonne cargo capacity, allowing for large-scale exports to customers. The plant produces a 500kg sour aluminium that is used as feedstock for the North American market and a 25kg ingot product that is heavily used in the Far East. The vast majority of aluminium is produced in ingot form.
Job creation and the development of the Al-Batinah region of Oman is one of the drivers behind the decision to build the Sohar Aluminium plant. The region has been identified by the government for future industrial development thanks to the transport links at Sohar Port and the region’s proximity to the UAE.
Of the $2.4bn of capital invested in the project, an estimated $513m has been spent in Oman through employing local suppliers and labour, of which $400m has been spent in the Al-Batinah region. Sohar Aluminium says it will continue to spend $65m a year in the region, through on-going operating expenditure.
“The Sohar Aluminium project is one of the largest economic investments ever made by the government of Oman through the Oman Oil Company,” says Oman’s Commerce & Industry Minister Maqbool bin Ali Sultan.
Sohar Aluminium has trained a large number of Omani nationals to work at the plant, in line with Muscat’s Omanisation targets for the private sector, which states that 35 per cent of the workforce in the sultanate’s heavy industries must be local. The company’s training programme has resulted in 679 young Omanis being employed, giving Sohar Aluminium an Omanisation level of 68 per cent.
Al-Wahaibi says indirect job creation from associated industries will also help with employment in the Al-Batinah region. “We have estimates that project the number of jobs created in the region will be four times the number of people Sohar Aluminium employs, which is in line with the sultanate’s and the project’s objectives,” he says.
The company’s Takamul project, a joint venture of Oman Oil Company, which has a 90 per cent stake, and Adwea, with a 10 per cent stake, was set up last year with the specific goal of helping to create a downstream industry for Sohar’s metal. Takamul will market the downstream projects it backs.
One such project is Salzburger Aluminium Sohar, in which Takamul has a 30 per cent stake and Austria’s Salzburger Aluminium holds 70 per cent. The factory, which was opened in March, will produce 25,000 tonnes a year (t/y) of aluminium electric conductors.
While the completion of the Sohar Aluminium project represents the region’s first new greenfield smelter in three decades, there are others in the pipeline that will make the Gulf aluminium industry a tough sector in which to operate. The Gulf governments’ policies of promoting economic diversification through investing in energy-dependent industries such as aluminium mean that Qatar, the UAE and Saudi Arabia all have projects that are either about to reach completion or are under way.
Qatar’s Qatalum aluminium smelter is due to begin production of 585,000 t/y of metal by the end of 2009, and the UAE’s Emal project, with a 1.4 million t/y capacity, is due on stream in mid-2010.
In Saudi Arabia, the $10bn aluminium project led by Saudi Arabia Mining Company (Maaden) has suffered delays due in part to Rio Tinto’s withdrawal from being an equity partner in the project.
Canadian firm Alcan was a 49 per cent stakeholder in the Saudi integrated project to mine bauxite in Zubairah, northern Saudi Arabia, and transport the raw material to the Ras al-Zour complex on the Gulf coast. But when Rio Tinto acquired Alcan in late 2007, its involvement was reduced to a technology transfer agreement in light of Rio Tinto having to make cutbacks because of the global recession.
Rio Tinto’s decision to reduce its involvement in the Saudi aluminium project arguably throws the company’s commitment to the Gulf region into question.
A second phase of the Sohar Aluminium plant was planned, and the land for the second phase has already been levelled. But a decision has not been made on when an extension to the plant may begin, due in part to the current low aluminium prices. If built, the second phase of the plant would take the production capacity to 720,000 tonnes a year.
Tom Albanese, CEO of Rio Tinto, says the company is still committed to its Gulf projects, despite its December 2008 announcement of 14,000 job cuts across the world.
“From a Rio Tinto perspective, we are focused on quality assets like the Sohar Aluminium smelter,” says Albanese. “In the long term, from my perspective, the Gulf will be a future source of interest for Rio Tinto. We recognise the region’s strong endowment of hydrocarbons. And the conversion of oil and gas resources into manufacturing industries is a win-win solution not only for Rio Tinto but for global communities, jobs and regional development”.
The proof of Rio Tinto Alcan’s ongoing commitment to the Sohar project will be in the announcement of a second phase of building at the plant. This will not happen until global demand for aluminium picks up. By then, the Gulf will have two more large smelters.
The completion of the Sohar Aluminium project on time and on budget has been an undoubted success, but the further development of Oman’s first aluminium smelter may not be so easy.