SPECIAL REPORT FREE ZONES
EGYPT’s new free zones are at the heart of the government’s strategy to attract investment into export-oriented projects. Two of the new zones - Suez and East Port Said -are linked to major new port developments, and the third is a media zone, aimed at generating hard currency through attracting investment in film and television production and satellite transmission.
The most advanced of the zones is Suez, where a number of heavy industrial projects are already underway and the new port is due to start operations towards the end of the summer. The government is also drafting a law to define the status of the Suez zone. It is expected to designate the area as a ‘special zone,’ enjoying most of the privileges accorded to projects set up under investment Law 8 of 1997, as well as some other particular features as regards taxes and customs dues. The law will also establish a new government authority responsible for co-ordinating operations in the zone.
The Suez zone will be served by the North Alsukhna Port, the first phase of which is nearing completion. This has entailed the dredging of an approach channel, a turning circle and the first basin, and the construction of a 2,000-metre quay wall. The basin will be able to handle up to six ships of 150,000-dwt at any one time. The project has been managed and designed by a team of Maritime Research & Consultation Centre (MRCC) and Hamza Associates. The total first phase budget is £E 652 million ($191 million), and the project engineers say it is running more or less on target, in terms of both the schedule and the costs. It is understood that there have been some payment delays, reflecting the recent tightening of central government spending, but this problem is expected to be resolved soon.
Exit the state
Once the first phase is completed, the government role in financing the port project will be ended. The port’s designs include scope for a second turning circle and up to three more basins, but it will be up to the private developers to decide on going ahead with any expansion. The privately owned Sokhna Port Development Company will be responsible for equipping the port, and will operate it according to a 25-year renewable concession. Stevedoring Services of America has a 25 per cent stake in the venture. The principal local shareholder is Orascom Construction Industries (OCI), which also holds a controlling stake in Suez Industrial Development Company (SIDC), one of four groups allocated the first 80 million square metres of land in the zone.
SIDC contracted Bechtel of the US to prepare the masterplan for its 23 million-square-metre plot, using as a model the Jubail industrial city in Saudi Arabia, with which Bechtel has been closely involved. SIDC is now developing the infrastructure of an initial portion of 3.5 million square metres. A number of plots have been sold for the establishment of industrial plants. They include an ammonia/urea plant being built by Krupp-Uhde of Germany for Egyptian Fertiliser Company, in which OCI has a minority stake. Kellogg Brown & Root of the US has also bought a 260,000- square-metre plot on which it plans to build an ammonia plant with a capacity of 1,850 cubic metres a day. Both these plants will receive gas feedstock from City Gas, which has a franchise to distribute natural gas in the Suez area. Other projects underway in the SIDC area include several building materials projects being carried out by OCI affiliates and a bus and car assembly plant being set up by Ghabbour Motors, one of Egypt’s leading vehicles companies.
At a similar stage of advancement is the 20 million-square-metre area controlled by Gulf of Suez Development Company (GSDC), headed by Ahmed Ezz, who has risen rapidly over the past five years to become Egypt’s leading steel industrialist. He consolidated his position in late 1999 by taking a 28 per cent stake in Alexandria National Iron & Steel Company, effectively forming an alliance which controls some 60 per cent of the local steel market. The $700 million Al-Ezz Heavy Industries flat products steel mill, a joint venture with Danieli & Company of Italy, is the centrepiece of the GSDC zone. Work is already well underway, and the first phase is set for completion in July 2001. GSDC has also sold plots for a phosphatic fertiliser plant, a cardboard paper mill, and a vehicle spare parts factory.
GSDC has decided to press ahead with the development of the infrastructure for the entire area, based on designs prepared by WS Atkins International of the UK and the local Dr Ahmed Abdel-Warith Consulting. Three contracts worth about $32 million in total have been awarded to the local Arab Contractors (Osman Ahmed Osman & Company) to carry out the first three of five packages in this project.
The location of the zone has been a major factor in attracting investors. For Al-Ezz Heavy Industries, the main selling point has been the savings that will come from importing coal from Australia or South Africa via the Sokhna port, rather than through the Mediterranean ports of Alexandria or Dikhaila. Fertiliser ventures have the advantage of cheap and abundant supplies of gas and easy access to Asian and African export markets.
Other investors in the Suez zone are looking at petrochemicals. Mohamed Farid Khamis, head of carpet producer the Oriental Weavers Group, has acquired a 10 million-square-metre chunk of the zone just to the north of the GSDC area. In early 1999, Khamis decided to locate a polypropylene plant there. This project is being carried out by Orient Petrochemicals Company, controlled by Khamis. It was originally planned to be carried out in Alexandria, but Khamis decided to shift it to Suez because of the advantages provided by the zone’s special investment status. Khamis is planning to build a plant to make the propylene feedstock in Suez, and he has set up a joint venture with South Korea’s Kohap to build a polyester plant.
The zone could become a major petrochemicals centre if plans being drawn up by a number of other investors bear fruit. The key is a gas-to-olefins (GTO) scheme being studied by Suez Petrochemical Company, a venture set up by a group led by Yahya Komi’s Egypt Arab Trading Company. The aim is to process methane, which is abundant in the Gulf of Suez, to make a wide range of olefins and polyolefins.
First Suez, now Al-Farama
Now that the Suez project is starting to take shape, the next big challenge for the government is to ensure a similar success for the Al-Farama investment zone linked to the East Port Said container terminal. Contractors are now nearing the halfway point in their work on the dredging, breakwater and quay wall elements of the port project’s first phase, based on designs by MRCC and Hamza. The budget for this phase of work, which is due for completion by mid-2001, is £E 1,050 million ($308 million), all of which will be paid by the government. Project sources say the work is proceeding on schedule, although, as at Suez, there have been some payment delays. The port itself will be developed and operated by Suez Canal Container Handling Company, a new venture in which ECT International of the Netherlands and Denmark’s Maersk hold 60 per cent. It plans to invest some $480 million in the port, which is due to start operations towards the end of 2001 with an initial capacity of 1 million 20-foot equivalent units (TEU) a year.
Adjoining the new terminal is a 24 million-square-metre free zone which is to be developed by Al-Farama, a new venture named after a Pharaonic landmark nearby. Al-Farama’s principal investor, with 40 per cent of the £E 200 million ($58 million) capital, is the Dreamland group, headed by electronics industrialist Ahmed Bahgat. The group has gained the experience necessary for the job through carrying out the Dreamland real estate and leisure development southwest of Cairo (Construction, MEED Special Report, 2:4:99). The other partners in Al-Farama, all local, are Arab Contractors, National Bank of Egypt (NBE) and Egypt Finance & Investment Company, which is headed by former NBE chairman Mahmoud Abdel-Aziz. The masterplan for the zone has been drawn up by Frederic R Harris of the US, and Al-Farama has already completed the infrastructure of the first 2 million square metres.
Dreamland projects director Amr Assal says a domestic marketing campaign handled for Al-Farama by NBE has resulted in 84 expressions of interest, mainly from small- and medium-sized enterprises. An international marketing campaign targeted at major foreign investors is to be launched in June. Assal says three international banks are bidding for the mandate to arrange the campaign.
Al-Farama will be seeking to capitalise on the zone’s location next to the East Port Said hub port to attract transit trade ventures, as well as industrial projects. Agriculture and fish farming will also be a key element in the project. Some 400,000 acres of farmland is now being developed in north Sinai, irrigated by water from the El-Salam canal, which includes a siphon pumped beneath the Suez Canal. The area around Port Said is also regarded as particularly well suited for fish and shrimp farming.
TV companies swarm in
The third free zone project was launched in January in a 3.5 million- square-metre site just to the north of Dreamland. The site houses a new media and production city, whose first 18 studios are to be inaugurated during the summer by President Mubarak. As part of this initiative, the government has decided to give up itscherished monopoly on broadcasting and open the field to the private sector. One of the first ventures that have expressed interest is Qatar’s Al-Jazeera television station, whose irreverent style is sure to test the extent of the government’s new-found commitment to liberalisation.
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