As in other sectors, engineering, procurement and construction (EPC) costs have risen exponentially as the demand for materials, manpower and logistics has outstripped supply. Lengthening contractor delivery schedules are having an inevitable impact on project execution times. Delays are a growing concern.

Ambitious projects

Spiralling prices undermine the feasibility of smaller-scale projects. Their super-sized counterparts are also feeling the impact. In Qatar, the cost of the Qatar Fertiliser Company’s (Qafco) expansion at Mesaieed has tripled. The Qafco 5 project was valued at about $1bn two years ago but the budget now stands at $3.2bn, with completion expected in January 2011.

However, clients are still going ahead with major projects. In Saudi Arabia, Saudi Arabian Mining Company (Maaden) is making progress on two of the most ambitious projects in the Gulf. Major contracts have been awarded at Ras al-Zour and Al-Jalamid, which form part of the biggest fully integrated phosphate complex in the world. Tentative progress is being made towards securing an EPC contractor for the 1.6 million-t/y aluminium smelter at Ras al-Zour. Construction of the 1,800-2,400MW power plant serving the complex is scheduled to start in July 2008.

Aluminium will be a key expansion sector in 2008. Qatar’s Qatalum, a joint venture of Qatar Petroleum and Norway’s Norsk Hydro, laid the foundation stone for its $5.6bn aluminium complex at Mesaieed in November. The facility is expected to start production in late 2009. In the UAE, site construction work on the 1.4 million-t/y Emirates Aluminium (Emal) facility at Taweelah will also start in early 2008.

Meanwhile, Abu Dhabi Basic Industries Corporation (Adbic) is in the final stages of negotiations with Australia’s Rio Tinto to establish a joint venture to develop a $5bn aluminium smelter at Ruwais.

While the Gulf is concentrating on exploiting its cheap energy supplies to support the development of highly energy-intensive heavy industries, some governments in North Africa are looking to move away from these activities.

Energy subsidies

Following the award of a series of licences to build cement and steel production facilities towards the end of 2007, Egypt is looking to implement the next reduction of energy subsidies to industrial users, which will reduce local firms’ profit margins but boost competition in the energy sector.

Cairo’s development of industrial zones with international partners will continue, with 10 partners set to be signed up in the first quarter of 2008.

In Algeria, bids are due in May for the second international licensing round for mining acreage, while commercial gold production will come on stream in March from the country’s first mining joint venture at Amesmessa in the south.

Algiers also hopes to sign up an international partner for an estimated $15bn integrated steel production project using iron ore from Gara Djebilet near Tindouf, while state energy company Sonatrach is developing a large-scale aluminium smelting complex project at Beni Saf with UAE companies Dubai Aluminium (Dubal) and Mubadala.

In Sudan, Sudanese Free Zones & Markets Company will launch the second phase of development at the Garri free zone. The contract will be awarded to carry out feasibility studies on a $500m port development on the Red Sea.

In the year ahead, some innovative contracting strategies and modernised supply chain management techniques will be implemented to mitigate the impact of delays and spread the risk of rising costs among the parties involved.

Industry in numbers

  • $3.2bn – The budget for the Qafco 5 project at Mesaieed in Qatar

Source: MEED