Industrial city shapes template for infrastructure finance

02 November 2007
With the sun setting swiftly over the Gulf, the 10 million-square-metre second phase of the Industrial City of Abu Dhabi in Mussafah south-west of Abu Dhabi City was declared open on 29 October in a ribbon-cutting ceremony attended by the emirate's Crown Prince Shaikh Mohammed bin Zayed.

It had taken little more than 17 months to complete the second phase of the industrial's city's infrastructure, and work has been completed on time and under budget. All its 101 plots have been leased or are under bid. Almost half is already being developed by its tenants, which include a steel pipe manufacturer and a glass producer. In less than three years, what now looks like sand desert will be covered by operating factories.

But the second phase of the industrial city is different mainly because of the way in which it has been financed. It is the first private-public partnership (PPP) infrastructure scheme in Abu Dhabi. And it is the first time that an industrial estate in the GCC had been financed using private capital.

The industrial city is the early reward for the work done by the Higher Corporation for Specialised Economic Zones (ZonesCorp), an agency of the Abu Dhabi government set up in 2004 to fast-track industrial development. Infrastructure finance was provided in a long-term agreement with a joint venture between Abu Dhabi Commercial Bank and Australia's Macquarie.

Work has started on the third phase of the industrial city. This will cover a further 12 million square metres and its infrastructure will also be financed using a PPP model. It will accommodate ZonesCorp's polymer conversion, construction and engineering clusters.

The fourth phase of the industrial city, which will be almost twice the size of the two previous expansions, will be followed by the fifth phase of the industrial city. The four expansions will cover an area of almost 50 million square metres. They will establish Mussafah as one of the region's largest centres for light industry.

The industrial city is at the forefront of new private finance initiatives across the GCC that are putting a rocket under the region's industrial development programme.

The previous week, Ras al-Khaimah celebrated the opening of the latest major manufacturing unit in Ras al-Khaimah's industrial park free trade zone. Kirby Building Systems, part of Kuwait's Alghanim Industries, has built a new unit targeted at the UAE and the wider Gulf region. Similar developments are taking place across in the GCC.

But the biggest potential lies in Saudi Arabia. Plans for King Abdullah Economic City in Rabigh call for an industrial zone covering 9 million square metres. It has been designated as the site of the kingdom's 'plastic valley', the kingdom's polymer conversion cluster that will be fed by the PetroRabigh refinery and petrochemicals complex.

Four other economic cities have also been announced. All have industrial zones where private finance will be givena broader role than in the kingdom's established industrial estates. The most ambitious of the new type of GCC manufacturing zone is being developed by the Saudi Industrial Property Authority, previously called the Saudi Organisation for Industrial Estates & Free Zones, which manages the kingdom's 14 existing industrial estates.

The property authority is preparing to roll out of one of the biggest industrial initiatives. It has been authorised to develop a new industrial city in the Najdi city of Sudair about one hour's drive north of Riyadh. A total of 257 million square metres of land has been allocated to the project. This is almost the size of Greater London. A masterplan, that is being finalised, will call for an integrated community including commercial and residential elements.

One of its key attractions is that the kingdom's North-South Railway will run through the site of Sudair on its way from Buraidah to Riyadh. Saudi Aramco's east-west oil pipeline also runs through the new industrial city's area. It is close to the trans-peninsular gas pipeline as well.

The aim is for private finance to play a crucial role in Sudair industrial city. It will be a further test of investors' demand for Arabian risk of a new kind.

Champions of privatisation argue that the second phase of the industrial city sets an encouraging precedent. They say it shows that, given the right model, private finance and expertise can be attracted to infrastructure schemes outside the power and water sector. This has helped deliver a fast-track project on schedule that transfers risk away from the public sector.

A new template has been defined that others in the GCC are likely to find compelling.

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