The two dilemmas present similar opportunities for Kuwait Finance House (KFH) - Bahrain. The Islamic banking giant, drowning in liquidity, is pioneering the concept of an integrated petrochemicals, power and water plant in the GCC and plans twin facilities at Khafji in the DZ and at Sitra in Bahrain. Both will produce matching quantities of ethylene dichloride (EDC), caustic soda, propane and butane, while the Bahrain plant will produce considerably higher quantities of power and water for sale to the national grid.

'Our objective in Bahrain is two-fold - to produce power and water with very high efficiency through co-generation, and to develop the limited petrochemicals base in the kingdom,' says Osama al-Khajah, head of corporate finance at KFH-Bahrain. 'Studies [drawn up by the US' General Electric and the UK's Weir International] showed the integrated plant could produce power 15 per cent more cheaply than a stand-alone power station, while our target for the desalination capacity was that it could be sold at a price no more than that asked by the government - which was met.'

The novel approach does not just extend to the complex itself: for project execution, KFH has had a team of international specialist contractors on board from a very early stage. Four of the original quintet - GE for the power, Weir for the water, Germany's Uhde for the EDC and caustic soda and the US' Chicago Bridge & Iron for the gas separation unit - are still on board. Their quotations for the combined front-end engineering and design (FEED) and engineering, procurement and construction (EPC) contracts are under evaluation by the US' Jacobs Engineering Group. Some may take equity stakes. Revised prices have been requested in order to meet the client's aim of capping project costs at $1,500 million. 'We still think this is achievable,' says Al-Khajah. Letters of intent are due to be issued by the end of the year and completion is due in 2009. KFH is also talking to potential candidates about replacing Stone & Webster, part of the US' Shaw International, on the ethane cracker after the American firm withdrew due to over-commitment elsewhere.

Germany's Siemens and the US' Honeywell will be responsible for the electrical equipment, IT and control systems. 'In such an integrated and complex project, the control systems become extremely important,' says Al-Khajah. KFH is also considering appointing a project manager - reflecting the fact that overseeing a petrochemicals project is rarely part of the training undergone by Islamic bankers.

KFH is on firmer ground with the financing. The bank plans to fund the project on a 70:30 debt/equity basis, with the institution taking 10 per cent of the equity and probably issuing a sukuk for the debt portion. Memoranda of understanding (MoUs) have been signed for five-year offtake agreements with Japan's Mitsubishi Corporation for the EDC and caustic soda and with Bahrain Natural Gas Company (Banagas) for the propane and butane.

The product mix was carefully chosen. 'The integrated concept can be applied to other petrochemicals,' says Al-Khajah. 'Caustic soda was chosen in this case because its production is very power-intensive - so it makes more sense to link it to power generation. Also, caustic soda is one of the feedstocks for aluminium, so if the planned alumina mine and smelter project goes ahead in Saudi Arabia, opportunities will be presented. And the desalination will produce chlorine for the EDC manufacture.' Future expansion could see downstream polyvinyl chloride (PVC) and