Jizan refinery to involve cost risk

11 October 2012

International contractors vying for packages at $7bn project have declined to bid for some contracts

As the bidding process for the $7bn Jizan refinery nears its conclusion, international contractors are hoping they will be successful with their submissions and end the year with a billion-dollar contract or two.

While this would certainly please the shareholders, many employees who have worked on the bid submission process have realised that winning multiple packages on Jizan could spell trouble.

The fact that some contractors have declined to bid on packages despite being prequalified indicates firms are wary of working in Jizan.

Despite the refinery scheme being regarded as a pet project by Aramco, the logistics behind building a world-class facility in an extremely remote location are difficult. This is being reflected in the fact that many service providers have quotes prices that are up to 40 per cent more than a similar project in Jubail.

Tens of thousands of workers will descend on the Jizan Economic City and they will have to be housed, fed and kept secure. Raw materials, as well as cranes and plant equipment will have to be transported from urban areas, such as Jeddah, which is located hundreds of kilometres to the north. This means higher costs.

Over the past four years, many vendors in the kingdom who supply the oil industry have been expected to become increasingly competitive in their pricing, but it is clear they are making a stand on this project.

Bringing heavy industry to a remote impoverished area is an inspiring move by Saudi Aramco and all credit must go to the company for taking this project on and seeing it through. But Jizan is not going to be cheap.

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