Rising costs fail to dent Qatar's aluminium project

The plant will be located in the Mesaieed Industrial City, which is around 40 kilometres south of Doha, and construction should get underway this autumn. It is hoped the facility will reach its initial 585,000 tonnes per annum capacity in 2010, while the plant will be designed so that this can eventually be ramped up to 1.2 million tonnes in due course.

Huge undertaking

The joint venture partners claim that Qatalum will be the largest primary aluminium plant ever built in one phase. It will be a fully-integrated facility consisting of a smelter, cast house and carbon plant, as well as a gas fired power plant with a capacity of around 1,250 megawatts. The power plant will be supplied with gas by Qatar Petroleum under a long-term gas tie-up.

Qatalum will generate more than 5,000 jobs during the construction phase and, once it has been established, will require over 1,000 permanent staff to operate it. The site will also include its own dedicated port and housing for up to 1,100 employees.

But such an ambitious venture requires a hefty injection of cash and, over the past year, the anticipated total financing cost has spiralled. When the project was first announced back in 2004 a figure of $3bn was predicted but by November 2006 this had been adjusted upwards by a further $1.5bn, or 50 per cent.

This summer, the price has been tweaked again with the current total estimate being $4.8bn. The power plant alone is expected to cost around $1bn. The weakening of the US dollar has been blamed as the main reason for the increase, with design changes a further factor.

But despite the ballooning costs, Qatalum has managed to gain significant financial backing for the project and, last month, it was revealed that limited recourse financing of $2.6bn, comprised of a commercial bank term loan facility worth almost $2.3bn and a $350m export credit agency facility with the Norwegian Guarantee Institute for Export Credits had been arranged. The commercial bank term loan was joined by no fewer than 30 banks, as well as Export Development Canada.

Everything on track

Financing levels may have become rather problematic for QP and Norsk Hydro but they have remained focused on driving the Qatalum project forwards. Last November, at the same time as details of the major rise in costs were first being revealed, so Canada's SNC-Lavalin was being handed a $700m contract to construct the main buildings and related project infrastructure at Qatalum.

QP and Norsk Hydro have continued to tie up major deals over the past few months with perhaps the most significant being the award of a construction contract for the 1,250 megawatt power plant to a consortium of General Electric (GE) and the Doosan Heavy Industries Construction Company in mid July.

GE and Doosan have been awarded the deal on an engineering, procurement and construction (EPC) basis after the contract was put out to tender. The plant will comprise a combined cycle unit with a configuration that includes four gas turbines and two steam turbines. The new power plant will start operations in September 2009 in order to meet the scheduled first liquid metal production in December.

Just last month, Swiss engineering outfit ABB announced that it had secured a $140m contract to supply a high voltage power rectifier station as well as high voltage cabling, with the agreement having been tied up at the end of the second quarter.

Glittering future for aluminium

The decision to hand out some fairly big-ticket deals for the construction of Qatalum in the face of mushrooming costs may seem rather bold but aluminium production is one of the fastest growing sectors in the Gulf region.

Every GCC state bar Kuwait either has an established aluminium production facility, such as Bahrain's Alba and the UAE's Dubal, or is in the process of building one. Oman is setting up a plant in partnership with Canada's Alcan, as is Saudi Arabian mining firm Ma'aden. The UAE's Dubal is also joining forces with the Mubadala Development Company to form Emal, which will have more than twice the output capacity of Qatalum when it comes on stream in 2013.

The Gulf presently produces around 1.6 million tonnes of aluminium per annum but this should rise to more than 5.5 million tonnes by 2020 once all the various plants come on stream. With regional competition presenting a major challenge, and backed by the Qatari government's firm desire to diversify its economy, Qatalum should become a major force in aluminium production in the years ahead.

See also:

Qatalum raises $2.6bn

ABB $140m Qatar contract