In June 2007, Emirates Aluminium (Emal) began laying the foundations for what is set to become the biggest single-site aluminium smelting operation in the world. The company is one of several aluminium producers that have recently emerged in the Gulf. What makes it different is its status as a joint venture of the Dubai and Abu Dhabi governments through Dubai Aluminium (Dubal) and state-owned investment company Mubadala of Abu Dhabi.

“This is very much a strategic alliance between the parties,” says Duncan Hedditch, chief executive officer (CEO) of Emal. “Critically, the Abu Dhabi component bought the energy. Aluminium smelting is an energy business and unless you have a competitive long-term supply of electricity at an affordable price, you cannot operate.”

Structure

The 50:50 joint venture is leveraging the industrial expertise of Dubal and the investment strength of Mubadala. “This joint venture provides Dubal with a growth pathway,” says Hedditch. “And it provides Mubadala with a strong technical and operating partner.”

Company snapshot

Date established: 2006

Main business sector: Aluminium production

Financing: $4.9bn

CEO: Duncan Hedditch

The partnership also created Emal’s sister company, Emal International. While Emal’s management are devoted to the development of the Taweelah complex, Emal International is responsible for identifying and developing overseas opportunities. “As Emal developed, it became clear there was another set of shared interests,” explains Hedditch. “Emal International is doing an international business dev-elopment function for the two parties [Dubal and Mubadala].”

Operations

Emal’s aluminium smelter at the Khalifa Port Industrial Zone in Taweelah is rapidly taking shape. When both phases of construction are complete, the planned 1.4 million-tonne-a-year (t/y) smelter will be one of the biggest in the world. It will produce re-melt aluminium and the standard commodity ingot, and will use Dubal’s own reduction cell technology, developed at its base in Jebel Ali.

Construction of the first stage of the project was started in June 2007 and is due to be finished in 2010. Capacity at this stage will stand at 700,000 t/y and operations will be powered by a captive 2,000MW power plant. In January, Emal awarded the US’ GE the $490m contract for the gas-fired, combined-cycle plant. Delivery of equipment for the power plant will start in December 2008 and will be completed in July 2009.

Emal is set to embark on a similar-sized second phase of development following the successful completion of phase 1. This stage will also increase the power plant capacity to 3,500MW.

In May 2007, a joint venture of Australia’s WorleyParsons and Canada’s SNC Lavalin won the $200m engineering, procurement and construction management contract for the first phase of the project. Supplies of alumina have been secured and long-term contracts with those suppliers are already in place.

“They are largely coming out of western Australia for the next 10 years,” says Hedditch. “And supply contracts are in place for the duration of the financing.”

Ambitions

Emal has set its sights high, with plans to build the biggest aluminium smelter in the world, challenging producers based in Russia, where the globe’s largest smelting operations are currently based. With phase 1 of the project’s development in its infancy, meeting construction deadlines remains paramount.

“We have started the foundations and are about 6 per cent into the project at this stage,” says Hedditch. “That is pretty remarkable for a project that two years ago did not really exist. It has been a fast-track project.”

But while Emal focuses on the rapid progress of the Taweelah smelter, Emal International is busy extending its reach across the region. The latest project to be announced is the development of a 700,000-t/y aluminium smelter in Saudi Arabia. In February, the Saudi Arabian General Investment Authority (Sagia) and real estate developer Emaar, The Economic City signed a memorandum of understanding with Emal International to develop a $5bn complex in the kingdom’s King Abdullah Economic City (KAEC).

Elsewhere, Emal International has launched a bankable feasibility study for a smelting operation at Beni Saf in northwest Algeria. The project, being developed with Algerian state energy company Sonatrach, is worth $5bn and construction is expected to start in 2009. In March 2007, Mubadala announced the acquisition of a bauxite mine and alumina refinery in Guinea, West Africa.

MEED assessment

Emal is not alone in its ambitious attempt to develop a large-scale aluminium smelting operation in the region. It will therefore face tough competition in the marketplace from rival aluminium producers as they come on stream over the next four years.

In Oman, the 350,000-t/y complex at Sohar is set to start production this year, and in Saudi Arabia, three other smelting complexes are under development besides Emal International’s planned facility at KAEC. Elsewhere, Qatar’s Qatalum is developing a 585,000 t/y complex set for completion in 2010.

Competition for gas feedstock supply is also tough. If securing energy supplies becomes more difficult, and the price of aluminium on the world market drops with a glut in supply, the economic viability of all of these projects will become less certain. Producers may be forced to turn to more expensive, less efficient fuel oil for power generation.

With the technical experience of Dubal behind the company, the financial acumen of Mubadala and a reliable supply of energy from Abu Dhabi, Emal is well placed to become a significant entity in future regional aluminium production.

Furthermore, with project costs spiralling across the region, Emal secured all major items of equipment early in the project planning stage. Such foresight will serve to protect its construction schedule and budget.

Q&A Duncan Hedditch, CEO

How does Emal differ from similar large-scale smelting operations under development elsewhere in the region?

One of the things that makes this project special is that the plant is conceived as a 1.4 million-tonne-a-year (t/y) smelter. We have elected to build it in two phases, but it is not a case of building a 700,000-t/y smelter and seeing if we can double it. It is designed as a 1.4 million-t/y operation, which is by far and away the largest in the world.

How have you managed the high prices and fierce competition that have become associated with securing contractors and equipment?

There are two issues that we had to manage. Certainly prices reflect tightness in the market – costs in the Gulf are rising in all areas. The other problem was the availability of contractors and suppliers.

This was an even greater concern because a lot of suppliers are fully booked for years ahead. So we took the unusual step very early on, before finance had been raised, of securing all the major items of equipment we knew would be in short supply. That was quite an important move because it protected our schedule.

We are not building lump-sum turnkey. That is a difficult proposition in this market. It is an engineering, procurement and construction management contract and the project is managed in smaller pieces.

Does the number of aluminium smelting projects planned in the Gulf worry you in terms of future market oversupply?

Our business plan has been put together on conservative economic assumptions. Certainly, aluminium prices now are very good, but our model is more conservative than that.

We are comfortable with that. Aluminium is very much a growing market. We expect to need another smelter or two [globally] a year for the next decade at least, just to keep up with the growth in the market. The demand is there.

You do not build smelters that come in at the top end of the cost curve. Even if there is a downturn and the growth does not continue, the production will be cut in places that have high energy and production costs, such as the less-efficient, smaller smelters in places such as China, where energy costs are much higher. We should be robust.

Are environmental concerns having an impact on smelting operations?

Environmental management is a major element of running and operating a smelter.

Smelters are large consumers of energy. They are large consumers of raw materials and need to be managed properly. A properly run smelter is a pretty clean operation.

At Taweelah, we are taking a wide range of comprehensive steps involving a significant amount of investment to make sure we have minimal impact.

The good environmental performance of a smelter comes in at the design phase. If a smelter does not have the design that allows you to treat emissions, good practice will not get you there. But if the plant is designed and equipped properly, and you run it properly, you will get good results.

How will you market your metal?

Dubal will use a marketing services agreement. We can use Dubal’s capability and strengths to reach our customers through an existing and well-established network.

Have you had problems finding qualified people to work for Emal?

The global pool of people qualified to run an aluminium smelter is small. One of the issues of setting up a business like this is finding the people to run it. But that is good news for young, local, qualified people. We expect to have about 400 professional and technical roles.

Emal capacity increase

  • 700,000 – Phase 1: Output capacity (t/y)
  • 2,000MW – Phase 1: Power generation capacity
  • 1.4 million – Phase 2: Output capacity (t/y)
  • 3,500MW – Phase 2: Power generation capacity

t/y=tonnes a year. Source: Emal