02 February 2010

Qatar’s first aluminium smelter project marks the beginning a new, collaborative approach.

Company snapshot

Date established: December 2004 as 50:50 joint venture of Qatar Petroleum and Hydro

Main business sectors: Aluminium

Project cost: $5.6bn

Region: Qatar

CEO: Truls Gautesen

With both Bahrain and Dubai building large-scale aluminium plants over the past few years, Qatar has finally embarked on its own production facility. The Qatalum joint venture was formed in December 2004 to build and operate the country’s first aluminium smelter, with Qatar Petroleum (QP) and Norway’s Norsk Hydro each holding a 50 per cent stake.

The move follows 20 years of discussions, during which a host of well-qualified companies, including British Aerospace, Dubai Aluminium (Dubal) and BHP Billiton, have registered interest. A final investment decision was taken last year to proceed with the project and the first Qatari-produced metal is due to come on-stream by late 2009.


Qatar’s first aluminium smelter also marks a new willingness by the government to share with an international developer the risk and profit of a major capital project. Hydro was granted an equal stake in the Qatalum joint venture with QP, illustrating the importance for the state of diversifying its portfolio of gas-based industries with a trusted partner.

The project’s contracting strategy also reflects a new, collaborative model not often seen in Qatar. Whereas QP tends to award several large contracts to a host of trusted names it has dealt with before, the Qatalum joint venture is notable for its decision to break the project up into at least a dozen main engineering, procurement and construction (EPC) packages.

The strategy aims to monitor and control cost inflation on the project more closely, but is also a reflection of Hydro’s bespoke set-up in Oslo.

Hydro runs its in-house project organisation from its head office, meaning much of the initial design and procurement is already mapped out. This also allows the client greater visibility over the precise construction packages it requires. “From the Hydro side, we have a lot of experience of handling projects in this way,” says Truls Gautesen, chief executive officer (CEO) of Qatalum.

The overheated construction market is also a factor. “There is a question about how much competition you would get if you went out [to the market] to find someone who could do the whole project with sufficient capacity,” says Gautesen.


Qatalum is in the middle of one of the largest logistical exercises to date, with the first phase of the construction workers’ village at Mesaieed completed in the last week of February. The construction village will stretch over 500,000 square metres with room for 1,920 workers, expanding to 10,000 by September.

The village will house the construction workers who are building the primary production plant and adjacent gas facility. While Qatalum has procured the gas and the site from QP, Hydro will supply the alumina and potline technology, as well as project managing and marketing the final product.

“We will take a lot of metal to Europe and also to the Asian markets,” says Gautesen. “Some will [also] likely go to north America.”

Along with his executive committee, Gaut—esen is planning transport options for the aluminium. “We are working on the logistics of this because in these markets you have to be able to give lead times for customers, and you have to understand the pattern and challenges in taking these kinds of products into different markets,” he says.

While much of the major work has been awarded, contracts are still being handed out. In February, Qatalum awarded Italy’s Astaldi a $93m civil works contract for the smelter, along with a deal to Sweden’s Atlas Copco to supply the plant’s compressed air system.


While the emphasis is clearly delivering on its promise to develop a 585,000-tonne-a-year (t/y) plant by 2010, Gautesen is considering further expansion. Qatalum eventually plans to double capacity to more than 1.2 million t/y, creating the largest smelter project in the Middle East. “We are not looking for other projects in the region, but as you can see from the plant drawings, there is room for doubling the capacity,” he says.

While room is available in the existing Mesaieed site, Gautesen is aware that QP’s gas feedstock allocation cannot be taken for granted while the moratorium on North field production remains in place. “We have a positive view on the market and the growth we see long term could support adding capacity,” he says. “But it will also come down to the availability and priority of gas as to whether we look to expand the operation.”

The joint venture is in talks with a host of local and international companies about creating an extrusion plant. “There are a lot of companies visiting us to ask about our timeline and their interest on a standalone basis to establish extrusion capacity at Qatalum,” says Gautesen.

MEED assessment

Qatar first considered developing an aluminium smelter in the state in the late 1990s, during a sluggish period for the metals market. If the decision to go ahead had been made earlier, Qatar would have had a competitive advantage.

A decade on, its decision to proceed with the investment looks a little late as its neighbours in the UAE, Saudi Arabia and Bahrain are pushing forward with new or expanded aluminium facilities.

However, global demand for aluminium remains high, with annual growth hovering at 4.5 per cent. The Qatar project represents a lucrative opportunity for Hydro to strengthen its balance sheet while hitting its target of 2 million t/y of primary production by 2010. And for QP, the smelter fits perfectly with the state’s focus on downstream diversification.

But like almost all energy projects in the Gulf, costs have surged from an initial $3bn budget in 2004 to $5.6bn by the middle of last year, despite the joint venture’s smart piece-by-piece contracting strategy. Industry watchers expect total costs to exceed $6bn.

Q&A: Truls Gautesen, CEO

Truls Gautesen is chief executive officer (CEO) of Qatalum, an equal joint venture of Qatar Petroleum and Hydro. Before taking the position, he was Hydro’s president of primary aluminium production, overseeing the operation of 11 aluminium plants worldwide.

Are you surprised it has taken so long to develop a smelter in Qatar?

It is strange that there has not been a successful project in Qatar because there has been a lot of interest for a long time. When you see the successful projects in Dubai and Bahrain, it only adds to the interest in diversifying industries.

But it is also a fairly complicated process to establish companies like this, and to make sure you have the concept that all parties are comfortable with.

So even if it is surprising that it has not happened before, there may be good reasons for that.

Are you happy with the results of splitting engineering and construction contracts into small packages?

We will never know if that was the right decision or what would have happened if we had done it in a more conventional way. We are not doing this as a test - one project like this and one project like that. We have chosen our strategy and we are following it.

That strategy gives us a lot of possibilities for flexibility, but we stick to it and have not regretted it.

Do you expect the current strong growth in aluminium demand to continue?

We see a strong fundamental backdrop for the way aluminium is developing for the time being. Some years ago, we used to talk about 2-3.5 per cent [as the benchmark], and if you get a setback in China, that could bring growth back to that historic level.

But at the same time, it is hard to see how growth in China could be reversed because it is focusing on developing the country the fast way and the need for materials is extremely high.

Do you support the idea of creating an aluminium free zone in Qatar?

Yes, there is a free zone being planned not far from Mesaieed and I think if an extrusion plant was to be established, it would be in this area.

We are more or less giving information about what we are doing [to the developers] and how we can provide metal supplies companies looking to establish themselves. But we are not planning to get involved with these companies as Qatalum.

Is $5.6bn a realistic budget given the current inflationary environment?

We have given some figures along the way but there have been many things happening on the projects and in the [wider] market. The general pressure on resources, both human and materials, have affected this project.

We are giving our budget numbers in dollars, so the currency changes also affect us. We have only one [financial] target but I am not speculating on any other numbers on this. $5.6bn is the official number given by the operators and we do not operate to any other numbers.

Are you still confident of strong returns despite the increased budget?

Normally we are fairly conservative about the assumptions we make for a project like this, but when the owners made the final decision in the summer of 2007 they were confident about the basis for running this project.

The owners were able to finance this in the external market, which has given a lot of confidence in the future of the project. We got good terms relative to [Hydro’s] local experience here in Qatar.

In Qatar, it is project financing a lot of big projects like this and it has good benchmarks for these projects. This was seen as a very good result.

Are you confident of pushing ahead with a capacity expansion for the smelter?

It is only natural that you have a blueprint for the plant like this that can take more than the original size capacity. It will take us beyond what has been done before [in the Gulf] and is the sort of trend we will see more of in Qatar.

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