Saudi-Indian Ties: Unprecedented Progress

Nilofar Suhrawardy, Arab News

The new intensity marking Saudi and Indian ties is likely to become even stronger in the near future.

Saudi Ambassador Saleh Al-Ghamdi attributes this to “the will and determination” of both countries. “What we are witnessing is unprecedented in the history of Saudi-Indian relations,” he told Arab News. Though India and Saudi Arabia have always had cordial diplomatic ties, recent high-level exchanges are bound to strengthen them further as well as tap new areas of cooperation.

The new chapter in Indo-Saudi ties opened with the Indian visit of Custodian of the Two Holy Mosques King Abdullah in January. He was the chief guest at India’s Republic Day parade in Delhi on Jan. 26. It was only the second visit to India by a Saudi monarch. “It is definitely his majesty’s visit that has created this unprecedented environment,” Al-Ghamdi said.

Describing the king’s visit as “very successful” and “historic,” Sanjaya Baru, media adviser to Indian Prime Minister Manmohan Singh, highlights the factors that have played a crucial role in bringing leaders of the two countries closer.

“There was an extremely close rapport between the prime minister and the king,” Baru explained. “The Saudi king was very moved that the prime minister went personally to receive him at the airport and also to see him off,” Baru says. For his part, Prime Minister Manmohan Singh was especially “pleased” with the discussions he had with the king, which covered bilateral as well as global issue.

These talks and the subsequent signing of the Delhi Declaration were not simply an exercise in diplomatic niceties. This has been proved by subsequent work to put the agreements into effect. India’s Human Resource Development Minister Arjun Singh and Minister of State for External Affairs E. Ahamed have since visited Saudi Arabia and a visit by Lok Sabha (the parliamentary lower house) Speaker Somnath Chatterjee is expected soon. Saudi Arabian ministers too have visited India for discussions with authorities, including National Security Adviser M.K. Narayanan.

Ambassador Al-Ghamdi said: “We look forward to more visits from the two sides, including that of Crown Prince Sultan and a visit to Saudi Arabia by Manmohan Singh.” The date of the Indian prime minister’s visit is yet to be finalized.

Both countries are eager to expand and diversify their economic ties beyond the traditional supplies of oil (Saudi Arabia is India’s largest and most trusted supplier of oil and India is the Kingdom’s fourth largest oil customer).

“The two states are friends who will stand by each other, even in a crisis,” Indian Petroleum Minister Murli Deora told Arab News. “The Saudis are a people who honor their commitments,” Deora said, describing Saudi Arabia as a “dependable” friend. Following disruption of cooking gas as a result of a major fire at the Jamnagar refinery of Mukesh Ambani-controlled Reliance Industries in October, India was able to quickly access supplies from Saudi Arabia and Kuwait.

Economically, both countries are keen on mutual investments in all sectors. A sign of Saudi interest in opportunities in India is the construction of a brand new embassy in the Indian capital. But for the moment, the investment is largely Indian to Saudi Arabia. India is now the fourth largest investor in the Kingdom, ahead of Japan.

“Investment is booming,” according to Al-Ghamdi. From $250 million, three years ago, Indian investment in Saudi Arabia is now $1.2 billion, he said.

There has also been a 28.17 percent increase in the two-way, nonoil trade between India and Saudi Arabia. While the value of total nonoil trade was $1.29 billion in 2001-2002, it was $3.44 billion in 2005-2006. During the same period nonoil exports from Saudi Arabia to India increased from $463.99 million to $1.63 billion, while Saudi imports from India increased from $826.43 million to $1.8 billion.

Following changes in Saudi law allowing 100 percent foreign ownership of projects in the Kingdom, Indian companies have established more than 100 joint ventures in Saudi Arabia. These are in sectors such as management and consultancy services, construction, telecommunications, information technology and pharmaceuticals. There are also flourishing collaborations between companies in design, consultancy, financial services and software development. Statistics indicate that from April 2000 to August 2006, foreign investment in Saudi Arabia from India included 157 projects with a value of SR4.07 billion. The joint ventures included 32 projects in industry (SR394.46 million), 32 in the services sector (SR92.37 million) and 64 in agriculture (SR275.68 million). During the same period, 100 percent owned Indian ventures included 39 projects in industry, 54 in services and 93 in agriculture.

Meanwhile, there are some 49 Indo-Saudi ventures in India covering paper production, chemicals, computer software, granite processing, industrial products, machinery, cement and metal industries. A further 50 projects have been approved and are being established. These include stationery, granite slabs, asbestos, cement, trailers and computer software for the health and financial sectors. Joint ventures are also being put together in the hotel, telecommunication and heavy engineering industries. In addition, Saudi investment is being made in fuel and lubricant distribution for ship bunkering and aircraft refueling. In West Bengal, an LPG joint venture is being set up.

Saudi investors are reportedly interested in setting up water desalination plants in Pondicherry. A recent Saudi visit by Pondicherry Education Minister M.O.H.F. Shahjahan explored a proposal for a waste water recycling scheme.

While some Indian companies such as Wipro Consulting have already set up a strong base in Saudi Arabia, other industrial giants and companies are still in the planning stage. The State Bank of India (SBI) is expected to open for business in Saudi Arabia in 2007; it was licensed by the Saudi Arabian Monetary Agency (SAMA) earlier this year. Reliance, a private Indian energy firm, plans to invest in a refinery and petrochemicals project in Saudi Arabia. Meanwhile, India’s state-owned energy firm, Oil and Natural Gas Corporation (ONGC) is keen to find a Saudi partner for a refinery project in the Indian state of Andhra Pradesh.

A world class Saudi school, to be managed by Saudi Ministry of Education, was opened in the Indian capital Delhi in September. It will mainly enroll sons and daughters of Saudi and Arab diplomats together with children of other Arabs working and living in India. A Saudi group is building a five-star, 500-room hotel in Hyderabad.

All these deals are just a beginning. “We are appreciative of the progress in Indo-Saudi ties,” said Anjan Roy, economic adviser at the Federation of Indian Chambers of Commerce and Industry (FICCI). “But, as of now,” he emphasized, “this is much lower than the potential level.” In Roy’s view, with India emerging as a “quality producer,” Indo-Saudi trade can be expanded and diversified further in the oil sector as well as beyond it.

Welcoming the importance being given by both countries to the expansion of business ties, M.C. Pandey of the Associated Chambers of Commerce and Industry of India (ASSOCHAM) said: “There is very good environment for expanding business ties. It is paving the way for business-friendly sectors.” While the initiative has been taken to boost Indo-Saudi business ties, Pandey told Arab News that a lot of projects are still in the “planning” stage.

Analysts believe that there are major opportunities for Indian companies in almost all sectors of Saudi economy, including higher and technical education. Indian IT companies are already involved with a growing number of Saudi companies that have outsourced their IT requirements. These Indian firms have supplied high-quality products and skills at a fraction of the cost of international competition.

The Delhi Declaration signed during King Abdullah’s visit asserted: “Both countries will develop a strategic energy partnership based on complementarity and interdependence. The elements of this partnership would include, inter alia, a reliable, stable and increased volume of crude oil supplies, through ‘evergreen’ long-term contracts; cooperative and joint ventures, both in the public and private sectors, in the upstream and downstream oil and gas sectors in India and Saudi Arabia as well as in third countries; Saudi investments in oil refining, marketing and storage in India, subject to commercial viability; and the setting up of India-Saudi ventures for gas-based fertilizer plants in Saudi Arabia.” There were also important provisions for closer technology cooperation particularly in IT and communications, agriculture, bio-technology and non-conventional energy technologies. In addition, it was agreed to explore cooperation in health sectors, science and technology, tourism, youth affairs and sport, agriculture research, technical education and vocational training.

The likely outcome of this planned surge of projects and links is that within the next four years, India will have become one of Saudi Arabia’s Top 5 trading partners. Currently it is in ninth position as a supplier of goods to Saudi Arabia. There is a view that once Indian rules regarding foreign investment are relaxed further, Saudi investors are likely to invest more. “We are trying to encourage our people to invest more in India. We are succeeding in that endeavor,” noted Ambassador Al-Ghamdi.

Indo-Saudi ties are certainly no longer linked to just Haj, oil trade or employment of Indians in the Kingdom. Indians form the largest expatriate community in Saudi Arabia (1.6 million) and cultural and social links, always cordial, are also expanding. For instance, this year a Saudi soccer team took part in the Asian Football Confederation Youth (Under-20s) Championship in Delhi. In the new academic year, 500 Saudi students are expected to enroll in Indian colleges, particularly for IT courses. Indian firms have this year sent two exhibitions to the Kingdom, one dealing with textiles and the other small-scale industries.

A trade conference to explore fresh business opportunities between India and the Gulf region is scheduled to be held in Dubai in early December. The India-Arab World CEO Summit will be the first of its kind and will see the launch of the India-Arab CEO Guide, developed by Moutamarat and the India Brand Equity Foundation (IBEF). Moutamarat, a joint venture between Dubai Holding and the Saudi Research and Publishing Company (publishers of Arab News), has partnered with the Confederation of Indian Industry to generate what is unique business guide for the Arab world. “The proximity of this event to the Arab Strategy Forum,” explained Moutamarat CEO Khalid Al Malik, “allows the CEOs to capitalize on their participation and get additional insight on business opportunities in India directly from the mouth of the Indian CEOs.” The CEO Summit immediately follows the Arab Strategy Forum. The 2007 CEO Summit is planned to be held in India.

Saudi-Sino Relations Poised for Further Expansion

Javid Hassan, Arab News

China is the fourth largest supplier of goods to Saudi Arabia, while the Kingdom is the No. 1 oil exporter to China. Last year, it bought 22.2 million tons of crude oil from the Kingdom. This year, in the first three quarters, it bought 20 million tons, 17 percent of its crude import total.

In a wide-ranging interview, Li Yan Lin, economic and commercial counselor at the Chinese Embassy in Riyadh, told Arab News that the relationship between the two countries is poised for further expansion following the landmark visit of Custodian of the Two Holy Mosques King Abdullah to China in January this year and the return visit of President Hu Jintao to the Kingdom in April.

“China was the first stop on King Abdullah’s first overseas trip since he ascended the throne, which shows that he places great importance on developing relations between our two countries. Even as crown prince he was keen to develop good bilateral relations in political, economic and international affairs as well as in other fields.”

Li pointed out that six agreements were signed during King Abdullah’s visit to China in January and five during President Hu’s visit in April. The two visits open a new chapter of Sino-Saudi relations, he said, laying a fast track for expanding trade and economic cooperation. The economic counselor believes that the friendly political relations and complementary make-up of the two countries’ economies constitute a strong foundation for a strategic alliance between the two countries. These ties are set for further expansion, driven by Chinese energy demand which has been growing rapidly in the wake of the country’s economic development.

“In recent years, mutual investment in the energy sector has become the highlight of bilateral cooperation. Chinese companies are investing in the natural gas sector in Saudi Arabia, while Saudi companies are investing in several refinery and petrochemical projects in China,” he said.

As for follow-up action in the wake of the king’s visit, he said the embassy’s priority was to implement the agreements signed during the visit. These include promoting cooperation in investment, in technology and the energy sector, strengthening bilateral economic and trade relations, and encouraging more Chinese companies to become involved in infrastructural development in the Kingdom.

According to Li, the past year witnessed comprehensive growth in ties in the following areas:

Energy: The two state-owned oil companies of the countries signed a memorandum of understanding on cooperation in the energy sector.

Trade: Bilateral trade hit $16.07 billion last year, a 56.1 percent increase over 2004, with a projected figure of over $20 billion this year.

Investment Promotion: Two refinery projects in China with investment from Saudi Aramco are going smoothly. The Chinese oil company, Sinopec, has invested more than $150 million in natural gas exploration projects in the Kingdom. Refinery, petrochemical and cement factory projects executed by Chinese companies have become operational. These contracts are totally worth $3 billion.

FTA (free trade agreement) negotiations between China and the GCC are into their fourth round. Commodities trade negotiation is in the final stages while service trade negotiations have just started. The coming FTA agreement between China and GCC states is expected to have a major impact on bilateral trade and economic development.

Intensified communication and interaction between government organs and companies. The number of exhibitions and seminars, tourists and business visitors is being increased.

Li said that although there was a sharp increase in bilateral trade in recent years, China faces a huge trade deficit with the Kingdom. “Chinese commodities account for only six percent of the market share in the Kingdom — far behind America, Japan and Germany. Besides the traditional advantages in textile, clothing, shoes and light industry products, Chinese companies are strengthening their presence in household appliances, IT products, machinery and the automobile industry. There is great potential for trade in these products. We hope that the Saudi government could expedite matters in holding exhibitions, registering companies and issuing visas for Chinese companies.”

Even so, bilateral trade rocketed to $13.1 billion by August this year, a 31 percent increase over the same period last year. Of this Chinese exports to the Kingdom accounted for $3 billion, a 26 percent increase over the same period in 2005, and imports from Saudi Arabia $10.1 billion, up 33 percent for the same period last year. The trade deficit for China during the first eight months was $7.1 billion. On the question of mutual investment between the two countries, the Chinese diplomat said it had started on a promising note. China, as a fast growing economy, was improving its investment environment to become the best choice for investors including those from Saudi Arabia. “We hope more and more Saudi businessmen could go to China to see the improvement personally.”

Li continued: “We are going to promote awareness about investment laws in China in order to let Saudi businessmen know more about the country. At the same time, we are going to cooperate with the Saudi Arabian General Investment Authority (SAGIA) to seek preferential treatment for Chinese companies and encourage them to invest in Saudi Arabia.” He pointed out that Chinese companies had won many projects in recent years, including a refinery project, a petrochemical plant and cement factory projects. These projects are worth a total of $3 billion. Another major Chinese industrial joint venture project worth over $4 billion is to be established in the Kingdom shortly, according to Amr Al-Dabbagh, governor of SAGIA, who was in China earlier this month.

According to Li, Chinese firms will compete for their share of the market when tenders are floated for mega projects such as the new economic cities, the King Abdullah Financial District in Riyadh, Jeddah airport redevelopment, water, electricity, road and railroad construction, as well as the huge investments earmarked for the energy sector over the next five years.

Saudi-Japanese Ties: New High

Javid Hassan, Arab News

Japan is optimistic that the historic visit of Crown Prince Sultan to Tokyo in April this year has opened a new chapter in Saudi-Japanese relations. Many Japanese companies, buoyed by the recovery of their country’s economy, are planning to expand their business links with the Kingdom.

In a wide-ranging interview, Japanese Ambassador Shigeru Nakamura told Arab News that the Kingdom’s “Look East” policy could lift their Saudi-Japanese relations to a new high. He cited the $9.8 billion “Petro-Rabigh Project” being undertaken jointly by Sumitomo and Saudi Aramco.

When completed in late 2008, this will be one of the largest integrated refining and petrochemical projects ever built at one time. A total of 2.4 million tons of petrochemical solids and liquids, along with large volumes of gasoline and other refined products, will be produced.

“The Sharq Project by Saudi Petrochemicals Development Company (SPDC) and Saudi Basic Industries Corporation (SABIC) will be expanded. Saudi Aramco has invested in Showa Shell Sekiyu K.K. in Japan,” said Nakamura. “I am very happy to note that many Japanese companies are interested in expanding their business relations in Saudi Arabia.”

The ambassador said he was honored to serve as Japan’s envoy to the Kingdom as relations enter a new phase in the wake of the crown prince’s visit. He believes that since 1955, when their diplomatic ties were first established, they have blossomed into “strategic and multilayered partnership.” These multidimensional ties have spread out from energy and finance into politics, culture, human networking. “With this in mind, the ‘Memorandum on Policy Consultations between the Ministry of Foreign Affairs of Japan and the Ministry of Foreign Affairs of the Kingdom of Saudi Arabia’ was signed during the Crown Prince Sultan’s visit to Japan to enhance political dialogue between the two countries.”

He continued: “In order to further strengthen ties in the fields of trade, investment and energy, the government of Japan has been negotiating a FTA (free trade agreement) with GCC countries as well as an investment treaty with Saudi Arabia. Furthermore, the government of Japan will launch regular energy talks with the Saudis.”

Japan has provided and will continue to provide its technical cooperation to the Saudis in the field of human resources development. “As far as the cultural exchanges are concerned, I welcome the decision made by the Saudi government to launch a scholarship program by which hundreds of Saudi students will be sent to Japan,” said Nakamura. “This new Saudi scholarship program will, together with the existing scholarship offered by the Japanese government, further deepen mutual understanding and serve as a bridge for the future generations.”

In this context, a joint statement issued by the two sides during the visit of Prince Sultan said: “The Saudi side expresses its gratitude for the technical assistance which Japan has so far provided, mainly through the Japan International Cooperation Agency, in the various fields of human resources development to implement the Japan-Saudi Cooperation Agenda. Both sides welcome, as a role model for vocational training, the successful achievement of the Saudi-Japanese Automobile High Institute (SJAHI) project. The Saudi side also expresses its appreciation for the other projects such as the project of High Institute for Plastics Fabrication and the project of Training on Female Enterprise Promotion.”

The ambassador pointed out that relations have been boosted with the launch of direct flights to Japan by Saudi Arabian Airlines.

The Japanese envoy noted that aside from the expansion of economic relations with East Asia, the Saudi government’s focus on social welfare projects would also impact on Saudi-Japanese relations.

“The Kingdom of Saudi Arabia has launched various mega projects such as the building of ‘Economic Cities’ in Rabigh, Hail, Madinah and Jizan, and the expansion of railroad. I highly admire such efforts and also wish that Japanese companies will be able to take part in such big development projects and set up new joint venture business with Saudi partners.”

While the Middle East was facing formidable challenges, the stability of Saudi Arabia is crucial to its status as a regional power, the world’s largest oil producer and a leader of the Islamic world, he said.

“We highly appreciate the bold leadership the Saudi government has demonstrated in trying to put an end to the conflict in the Middle East as is evidenced by the Arab Peace Initiative of then Crown Prince Abdullah at the Beirut Arab Summit. On the other hand, Japan, as the second largest economy in the world, is willing to play a more active role than ever to contribute to the stability and prosperity of the global community,” says Nakamura.

The ambassador added that since Japan has shown its deep respect for diverse religious faiths, “we have been accepted as a trusted friend by all the parties to the (Middle East) conflict. This trust that we have nurtured with the Arabs has been of value when it comes to making contributions to the peace process. Thus, the relations between our two countries are very important not only for the two nations themselves but also for the international community.”

These relations should serve as a basis for stability and peace of the world, the ambassador believed. “With this in mind, in their joint statement, both the Japanese and Saudi governments underlined the importance of Japan-Saudi joint efforts for peace and stability in the entire Middle East, on such issues as the Palestinian-Israeli conflict, Iraq, Afghanistan, Iranian nuclear program, counterterrorism, and UN reforms,” he observed.

Ambassador Nakamura underlined his determination to make the most of the momentum flowing from the Crown Prince Sultan’s visit to Japan, which he said, had “spearheaded” efforts to advance the Kingdom’s brand new foreign policy of ‘Look East’. “I am very optimistic that we will see a greatly strengthened and more fruitful Japan-Saudi relationship based upon the ‘strategic and multilayered partnership’ in the near future,” he concluded.

A Women-Only Zone

Maha Akeel, Arab News

Work in establishing the first all-women industrial zone (or “city,” as it is locally called) is progressing and the project will be ready for operation after the completion of infrastructure and equipment. In June 2004, Saudi authorities approved the establishment of an all-women industrial zone in Jeddah at a cost of SR375 million.

Covering an area of 600,000 square meters, the zone will host training centers and employ approximately 10,000 women at more than 80 factories.

Two agreements have already been signed with a Chinese and a Malaysian company to start training programs for the women. The facility will be launched with female Asian workers who will then be replaced with trained Saudi women.

The moving spirit behind this massive project is businesswoman Hessah Al-Oun, chairman of Al-Bidaia Holding Company Group, which owns, among other businesses, the International Earth for Real Estate and Mining Development Company and the Industrial Cities for Productive Families Company.

“I’m currently establishing industrial cities for whole families who can live there and work together to produce various products,” explains Al-Oun. “I have made agreements worth SR600 million with an industrial company to establish three such cities, in Hail, Yanbu and in the Eastern Province at the industrial cities being built there. I’m going to float 50 percent of these industrial cities to the poor as shareholding companies. The idea is to help the poor help themselves and be part of the economic development. There will be over 90 factories for small and medium projects in these industrial cities.”

Al-Oun believes that undertakings such as agricultural products, handicrafts, perfumes, carpets and computer assembling will be suitable for family enterprises. “The government supports these projects through its funds and these products and jobs are certainly needed. Before we can start employing the families, we have to train them first. My strategy is to have facilities to train them and then employ them in the industrial cities,” she explains.

Saudi Aramco: The Leader

Jamal Kheiry, Arab News

Saudi Aramco has been a major contributor to meeting the Kingdom’s and the world’s energy needs for nearly seven decades. Responsible for roughly 260 billion barrels of proven oil reserves, Saudi Aramco is the largest producer and exporter of crude oil and a major player in refining as well natural gas production. The company stands committed to providing a reliable supply of petroleum and petroleum products to communities and consumers around the globe. Throughout its history, Saudi Aramco has never failed to meet a delivery commitment to a customer due to operational reasons. The company’s ability to bring its excess capacity on-stream has been repeatedly proven in recent years in response to market needs.

Saudi Aramco pursues a pair of intertwined objectives: To be the world’s most reliable supplier of energy and continue to strengthen and diversify the local economy. In pursuit of these objectives, Saudi Aramco has embarked on a series of massive projects of breathtaking scope. The array of undertakings ranges from expanding crude oil and natural gas production capacity to new refining, petrochemical and marketing ventures.

The synergistic integration of petrochemicals with Saudi Aramco’s domestic and international refineries is an important part of its downstream strategy in order to grow the profitability of these assets.

Rabigh: The Petro-Rabigh joint venture agreement signed last August with Japan’s Sumitomo Chemical Company will convert the existing Rabigh topping refinery into an integrated refining and petrochemicals complex. This $9.8 billion project will produce 2.4 million tons per year of petrochemicals, and is set to come on stream in the third quarter of 2008. It is the first phase of a three-phase program that will ultimately make the Rabigh site one of the world’s most integrated petrochemical and refining sites, with a diverse product portfolio. This project has also created third-party investment opportunities in Saudi Arabia’s private sector for utilities and other related infrastructure.

It represents an opportunity for increased industrialization in Saudi Arabia and provides a platform for the development of a diversified downstream conversion industry. This project is a concrete example of the Kingdom’s strategy of attracting foreign investment to expand its economy and provide increased job opportunities for Saudi nationals.

Ras Tanura: Following Rabigh, the plan is to turn the Ras Tanura and Yanbu refineries into large manufacturing complexes that would take advantage of petrochemicals integration. The Ras Tanura integrated refining and petrochemical project will be located adjacent to Saudi Aramco’s existing Ras Tanura Refinery and the Juaymah NGL plant in the Eastern Province.

The $16 billion project will feature the first naphtha cracker in the Middle East, coupled with ethane cracking and aromatics production. This fits with the company’s strategy to promote crude oil-based petrochemicals and produce the diverse products that are essential for the establishment of an advanced export-oriented conversion industry (such as synthetic rubber and automobile parts).

The project will integrate with the 550,000 bpd Ras Tanura Refinery and produce about three million tons per year of olefins and aromatics, as well as being expected to produce more than four million tons per year of polymers and petrochemicals. Similar to the Rabigh project, Ras Tanura will also develop an industrial park, thus creating an environment for a successful conversion industry adjacent to the project. The target completion date for the project is 2010-2011.

In July, Saudi Aramco selected Michigan-based Dow Chemical as its potential partner to engage in exclusive negotiations for the proposed joint venture.

Yanbu: The plan for Yanbu is currently under development, evaluating options to upgrade the existing 235,000 bpd refinery into an integrated refinery, olefins, and aromatics complex that will provide a diverse line of petrochemical products. The master plan will also consider synergies with existing Saudi Aramco plants and planned projects. It is intended to pursue downstream expansion, both domestic and international, in collaboration with high-quality partners. These partnerships will help strengthen the world’s product-supply system, in addition to being economically attractive investments for Saudi Aramco.

Export Refineries: In May 2006, Saudi Aramco signed memoranda of understanding with Total and ConocoPhillips to build two grass-roots export refineries, the former at Jubail, the latter at Yanbu. Changes in the dynamics of the global refining industry have made investments in new refining capacity attractive. The refineries are planned to come on-stream at the same time as the Manifa field under the waters of the Gulf, which will feed the two with Arabian heavy crude. It is the first time that refining and oil production have been brought on together. They are due for start up in 2011.

The two refineries will each have an initial capacity of 400,000 bpd, and the ability to double that capacity. The projects will produce a range of products, including gasoline for export to the United States, diesel fuel to Europe, and naphtha and fuel oil to Asia.

Fujian, China: Saudi Aramco is partnering with ExxonMobil, Sinopec and the government of Fujian province in China to expand an existing refinery in Fujian and build an integrated petrochemical complex. The Fujian Refining Ethylene Project (FREP) will be a joint venture between Fujian Petrochemical Company Ltd. (FPCL), ExxonMobil China Petrochemical Company and Aramco Overseas Company (AOC). It is currently intended that the partners will have an equity ratio of 50 percent, 25 percent and 25 percent respectively.

The FREP project is located in Quangang district in Quanzhou city, which is in the coastal area of Fujian province. The FREP project will increase FPCL’s existing capacity of four million tons annually (80,000 barrels per day) to 12 MTA (240,000 barrels per day). After the revamp, the refinery will greatly improve its refining ability and be able to process Saudi sour crude and produce high-quality petroleum products. At the same time, the project will involve construction of new chemical units, including an 800,000 tons per year ethylene cracking unit, a 650,000 tons per year polyethylene unit and a 450,000 tons per year polypropylene unit with a one million ton per year aromatic unit. The project will also involve construction of supporting public utilities and a 300,000 tons per year crude oil terminal.

Upstream Projects: To keep its pledge to maintain 1.5 to 2 million bpd of spare capacity, Saudi Aramco is undertaking a series of “mega projects” to expand its crude oil production capability.

The Abu Hadriyah, Fadhili and Khursaniyah fields are being developed, with production of 500,000 bpd of Arabian Light crude oil, plus more than one billion standard cubic feet/day (scfd) of associated gas. This is forecast to come online in December next year.

Located deep in the Rub Al-Khali, or Empty Quarter, the Shaybah field has been delivering 500,000 bpd of Arab Extra Light crude oil since its start-up in 1998. Plans call for increasing production capacity to one million bpd, with the first increment of 250,000 bpd under implementation and slated to come onstream by the end of 2008.

Two other major field development projects on track to meet the maximum production capacity target are the Khurais and Nuayyim fields. The Khurais project, which will also include production from the Abu Jifan and Mazalij fields, is projected to produce 1.2 million bpd of Arab Light crude oil in 2009. The Nuayyim project, a central Arabian field, is slated to add 100,000 bpd of Arabian Super Light crude oil by 2008.

The Manifa field development project is another mammoth undertaking that is now under way. This offshore field calls for production of 900,000 bpd of heavy crude and is due to come on-stream in 2011.

In conjunction with the expansion of production facilities in the Southern Area, Qurayyah, the world’s largest sea water treatment plant, is also being expanded. Capacity has been increased by 2.5 million bpd, thus giving a total capacity of nine million bpd, matching the dual needs of maintaining reservoir pressure and conserving precious ground water. An additional expansion of 4.2 million bpd is planned in conjunction with the Khurais project.

These new production increments come on the heels of other major projects completed in recent years, including Shaybah (500,000 bpd) in 1998; Haradh I, II and III (900,000 bpd in total) 1996 - 2006; and Qatif (800,000 bpd) in 2005.

Gas Development: The Master Gas System, built and operated by Saudi Aramco and already one of the largest integrated gas systems in the world, is also expanding still further. This system currently has the capacity to carry over nine billion scfd of sales gas, 700,000 bpd of Natural Gas Liquids (NGL) and roughly 650 million scfd of ethane gas. Expansion plans to increase delivery capacity of all these products are now in hand.

An NGL recovery plant at Hawiyah, designed to process nearly four billion scfd of gas and to yield 310,000 bpd of NGL, is scheduled to be completed in 2008. The Hawiyah Gas Plant will also be expanded by 50 percent.

A new grass-roots gas plant, designed to process 300 million scfd of sour gas associated with the development of the Abu Hadriyah, Fadhili and Khursaniyah oil fields, is taking shape at Khursaniyah.

To accommodate the processing (fractionation) of higher levels of NGL received from both the Hawiyah NGL recovery plant and the Khursaniyah gas plant, the capacity of the Juaymah gas plant will be expanded 45 percent by 2008.

This past year marked the first full year of exploration activities by four upstream gas joint ventures between Saudi Aramco and international energy companies — Shell, China’s Sinopec, Russia’s Lukoil and an Italian-Spanish consortium of ENI and Repsol. The landmark ventures, formed in 2003-2004, call for the exploration, production and processing of nonassociated gas, NGL and condensate in four contract areas of the Rub Al-Khali. These ventures promise to attract substantial foreign investment and will ultimately help diversify the Kingdom’s economy, create jobs and provide additional fuel and feedstock for industries, desalination plants and electricity generation.

Saudi Arabia is currently the second highest per-capita user of gas, outstripping most of the highly developed, energy-intensive OECD economies. Given the continued expansion of both upstream and downstream gas activities, that status should continue well into the future, and in turn spark further economic development and diversification.

Some Pioneering Industrial Enterprises in Eastern Province: A Bird’s-Eye View

Arab News

The niche that Eastern Province has carved out in the Saudi industrial map reflects its dominance in oil, gas and petrochemicals. These sectors, however, have put into the shadow much of the world-class developments in other industries in the province, such as cement, steel and their downstream sectors. All are energy-intensive and all have been spurred on by the boom in oil, real estate and construction, not only in the Kingdom but also in other GCC states.

Arab News looks at industrial ventures in the traditional sector in the province that rarely get the attention they deserve but which have made a contribution to the Kingdom’s economic progress.

Saudi Cement Consolidates Leadership
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Which is the oldest industrial unit in the organized sector in the Kingdom? The answer is: Saudi Cement Company (SCC). Set up in 1955 in Hofuf in the Eastern Province, this joint stock company has become an integral part of Saudi economic transformation. Over the years, SCC has maintained its position as the top player in the building materials manufacturing sector. SCC is the largest cement manufacturer in Saudi Arabia, with its production touching a peak of 5 million tons last year — about one-fifth of the total Saudi cement output. The remaining four-fifths of production is shared by seven other large units in the Kingdom (including the Eastern Province Cement Company, which produced 2.5 million tons of cement last year).

SCC has played a unique role in literally cementing the foundations of Saudi economic development since its product formed part and parcel of most of the infrastructure projects over the years.

SCC has two cement plants, one in Hofuf and the other in Ain Dar, about 35 km apart. The Ain Dar plant, which went into production in 1981 as Saudi-Bahrain Cement, merged with SCC in 1991. Both plants together currently have 10 kilns with a total clinker capacity of 4.15 million tons annually.

The year 2006 has turned out to be a new milestone in the history of the company, with the launch of one of the world’s largest expansion plans in the industry costing SR2.2 billion. Two new production lines are being added to the Hofuf plant increasing capacity by seven million tons a year.

The production range includes ordinary Portland cement (OPC), sulfate-resistant cement (SRC) and oil well cement (OWC). This ISO certified company claims to have one of the “most modern and efficient quality control systems,” the heart of which is the robotic control which facilitates full automation.

With its quantitative and qualitative progress, the company has built up a good reputation abroad and has stepped up exports. In 2002, exports of cement amounted to 1.6 million tons, or more than half of the Saudi cement industry’s total exports. But the export drive had to be slowed down because of buoyant domestic demand. With expansion, SCC is poised to make a major comeback in international markets. It has taken a long-term view of exports and has made ready infrastructure to mount a major export drive. It is probably the only exporter that could think of investing in a jumbo-sized export terminal on its own at the Dammam port, notwithstanding the cyclical nature of cement exports. The export terminal facility it has built in the port has a loading capacity of 800 tons an hour of cement and 700 tons of clinker.

The outlook for the Saudi cement industry is promising because the relatively low cost of energy helps to maintain its competitive strength vis-a-vis foreign competitors. The WTO, which Saudi Arabia joined a year ago, has given a stamp of approval to the pre-existing Saudi pricing formula for feedstocks; thanks to that the industry has vast potential for growth.

More or less the same situation has emerged for the Saudi steel industry, which is also energy-intensive. As a result Eastern Province has had a virtual monopoly of primary steel production in the Kingdom, focussed on two units — SABIC-owned Hadeed, located in Jubail, and that belonging to Al Tuwairqi Group, located in the Dammam 2nd Industrial City.

Hadeed, the Largest Steel Plant in ME
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Since coming into being in 1983, Hadeed has become the largest steel plant in the Middle East. It is “one of the largest fully integrated complexes of its kind in the world,” according to SABIC. Total production of long and flat steel of the company has been steadily rising, reaching 3.8 million tons last year. Expansion programs will take that over the 5-million mark by the end of the year and bring Saudi Arabia to the point of steel self-sufficiency.

Hadeed has made some exports, but once again the domestic shortage restricted its overseas market drive. With the expansion projects completed this year and those under way, the company will be able to offer a sizable export surplus in the near future.

Al Tuwairqi Group, Top Steel Producer
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New private sector initiatives in steel industry have been few and far between. Al Tuwairqi Group (ATG), Dammam is a notable exception. The company has chalked up an ambitious plan to expand and diversify at home, even as it spreads its wings abroad. Its Al-Ittefaq Steel Products Company (ISPC) can claim to be a private sector leader in the Middle East, being the largest hot rolled steel deformed and plain round rebar manufacturing company. ISPC has an annual production capacity of 1.25 million tons. ATG has been steadily planting the seeds of an integrated steel plant, with its Direct Reduction Iron Company installing 2-DRI modules in Dammam and planning for backward integration into a pellet making plant.

ATG has just launched a SR1.2 billion green-field steel plant project in Dammam, which is expected to go into production in two years’ time. The plant will produce 2 million tons of flat steel. Posco Engineering of South Korea has been given a contract to supply the equipment.

Overseas expansion plans include manufacturing facilities in Sharjah and Dubai at a cost of $800 million. The company has also expanded into Pakistan with a $200-million steel mill in Karachi. Al Tuwairqi hopes to achieve a total steel output target of 3 million tons by 2010.

Saudi Steel Pipe Pumped Up by Oil Sector
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In the metallic downstream segment too, the Eastern Province has made major progress, thanks to the buoyant construction market triggered by housing and real estate boom and the roaring demand for oil and gas piping by Saudi Aramco. Demand has been so huge that Aramco has made forward booking for bulk purchases from all reliable domestic steel pipe manufactures.

Those benefiting from this are veteran supplier Saudi Steel Pipes (SSP) and relative newcomer Group Five Saudi Arabia, both located in the Dammam 2nd Industrial City. Both are joint ventures, the former with HU Steel Pipe Company of South Korea and the latter with the Group Five Pipe of South Africa.

SSP was set up in 1980 as a major exercise in import substitution. The Saudi investors in SSP are Rabia & Nasser Company, Al Khorayef Sons Company and Fahd Mohammed Al Saja. The company has today an annual capacity of 160,000 tons of high frequency reduction (HFI) welded pipes. SSP’s latest addition is the plant with a further HFI welded-pipe mill. SSP has a good reputation in foreign markets but, like the cement companies, domestic demand forced it to put its export drive into lower gear.

Group Five Spirals Up
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Group Five Pipe Saudi Arabia went on stream in Dammam 2nd Industrial City in 2001. The company’s entry into the market could not have been more timely. This company was established by Adbel Hadi Abdullah Al Qahtani & Sons (Tareq Abdel Hadi Al Qahtani & Bros). The South African partner, Group Five Pipe, is a recognized leader in carbon steel large-diameter spirally welded pipes. The plant began with an annual capacity of 130,000 tons. After testing the market, the company launched an expansion plan to raise annual capacity to 350,000 tons. It is scheduled to be completed this year. Part of production is exported.

Alupco for Aluminum Profiles
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With vast deposits of bauxite ready for exploitation and Maaden’s plans for its first aluminum refinery at Ras Azzour, Eastern Province is poised to make a breakthrough in primary aluminum. This will strengthen the existing aluminum extrusion companies and their downstream industries. Among these is Dammam-based Alupco (Aluminum Products Company) One hundred percent Saudi-owned, Alupco’s major shareholders are Hashim Saeed Hashim, Olayan Financing and Badad International. The company, which came into being in 1975, has another plant in Jeddah. The total investment of the company is SR500 million.

The Dammam plant now has a capacity of 30,000 tons of aluminum, the Jeddah plant 35,000 tons. There are expansion plans in the extrusion and surface coating capacity to meet the increasing demand from the architectural and industrial users for fabrication of windows and doors, automobiles, electrical products and furniture. About 70 percent of production is sold in Saudi Arabia, the rest exported.

Textiles Breakthrough
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In the mass consumer goods sector, market conditions for the domestic industries are generally not as encouraging as those for industrial raw materials, equipment, or other intermediate products.

Textiles and fisheries, for instance, have established a strong foothold in the province and while competition in these fields from low-cost imports has been too severe for many companies to overcome, some stout-hearted among them have managed to survive with minimum damage. Globalization has only aggravated their threat perception.

Credit for establishing the first organized textile unit goes to Al Ahsa Development Company (ADC). The Saudi-Japanese Textile Company factory, a joint venture with Japan’s Marubeni Corporation, opened in 2002 following the commencement of polyester yarn production by SABIC affiliate Ibn Rushd in Yanbu.

Set up at a cost of SR160 million, the company has an annual capacity of 2.5 million yards of thobe and abaya fabrics. A number of Japanese experts have been helping the factory in its production operations and training of Saudi technical hands. For the year 2006, the factory management, shareholders were told, has prepared a new plan of action, “which will lead with the help of God to achieve profit and diversify the products and improve quality.” The company is also making effective marketing strategies and in-house R&D to improve matters.

ADC also possesses a dates processing and packaging plant started around the same time as the textile factory. It had been making losses but last year showed a turn-round and made profits for the first time, and 2006 is said to be equally promising. ADC in any case has a proud record of earnings in view of its judicious investments in various lines of activity.

Saudi Fisheries Guarantees Fresh Seafood
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Saudi Fisheries Company (SFC) represents another leader in a traditional sector. A star performer in the Saudi foodstuffs business with nationwide processing and distribution facilities, it has made a distinguished contribution to the improvement in the food habits of people all over the country.

Set up with a paid-up capital of SR100 million, 40 percent from the government and the rest from private sources, SFC came into existence in 1980 in Dammam to provide a dependable alternative source of quality food. The company, with processing plants and sales outlets in all major cities and a Kingdomwide distribution system with a convoy of refrigerated vehicles, operates 14 modern trawlers in the Gulf and the Red Sea. It has also set up the first major aquaculture shrimp farm on the western coast with capacity to produce 1,500 tons of shrimp a year. It also manufactures a variety of value-added and breaded snack foods.

ChevronPhillips to Repeat History?
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Turning from the traditional sector to the downstream hydrocarbon world, Saudi Arabia is now a leader in petrochemical exports. For that, credit has to be given to SABIC, which has a cluster of 17 units in Jubail, all of them world-class and world-size. It has also set up a manufacturing base in Europe and will soon be entering China.

As part of the liberalization policy, investment in petrochemicals was opened to the private sector a decade ago. The first private sector project to enter the field was Saudi ChevronPhillips joint venture petrochemical plant between ChevronPhillips Chemical Company of the US and the Saudi Industrial Investment Group. The plant, located in Jubail and costing $650 million went into production in 2000. ChevronPhillips is now involved in a more ambitious export-oriented project, a $1.2-billion world-scale styrene facility. Currently under construction, it is due on stream in 2008.

Nama Chemicals Seeks New Horizons
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Another successful joint venture is the Jubail-based Nama Chemicals (the new name given to the Arabian Industrial Development Co. as part of a corporate streamlining). Nama is a joint stock company established in 1992, with a capital of SR250 million, to promote chemical projects. The capital has since been raised to SR650 million.

The company has developed two chemical plants: the SR111-million Arabian Alkali Company (SODA) and SR300-million Jubail Chemical Company (JANA). SODA produces 50,000 tons a year of caustic soda which has a wide range of applications in almost all types of industries, both in GCC and abroad. It is today one of the largest Middle East producers. JANA, which produces epoxy resins, has annual capacity of 30,000 tons. Nama is currently setting up a third company — Hassad Petrochemicals.

All the enterprises covered here have launched innovative products and processes, shown commitment to quality and technology upgradation and laid out bold plans for progressive increase in their exports.

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.....meanwhile, the Israel, the Zionist Regime continues to be a parasitic state.

Saudi Women Are No Longer Standing in the Shadows

Khaled Almaeena, Editor in Chief

Jeddah is hosting today the Khadija bint Khuwailid Businesswomen’s Forum. Chaired by Princess Adelah bint Abdullah ibn Abdul Aziz, the forum’s theme is “The Reality of Women’s Participation in National Development.” At Arab News, we are publishing the first ever Top 20 List of Saudi Women’s Businesses. The list is along the same lines as the Top 100 Saudi Businesses which we started publishing some 18 years ago.

Initially when the idea of the Top 100 was conceived by Arab News and floated to companies, marketers and advertisers, it was greeted — and treated — with skepticism. Even knowledgeable businessmen looked at it with suspicion and cynicism. Some thought that the authorities wanted us to publish the list so that profit figures listed by companies would reveal how much zakat had to be paid. Far-fetched as that may have been, there were dozens of other equally mysterious queries, remarks and suppositions. In any case, we carried on and the list became a regular Arab News publication, year after year.

The supplement gained respectability because we in Arab News held ourselves to a very high editorial standard. We also had a different theme each year. The increasing number of publicly-listed companies which by law had to publish their figures helped in making our list more detailed and accurate.

The publication of this Top 20 List of Saudi Women’s Businesses is something we are proud of. This will be the first of many. Over the past five years, the Kingdom has witnessed some very rapid economic changes and a number of women have played important roles in these changes. Of course, oil prices have helped create this new economic boom but more than that Custodian of the Two Holy Mosques King Abdullah has shown his personal determination to put Saudi Arabia firmly on the world economic map. In order to do this, it is clear to everybody that an atmosphere conducive to economic and social development is needed. Perhaps the quickest and most effective way to achieve our goals is through the combined entrepreneurship of both men and women.

Saudi men have traditionally been the entrepreneurs but our women are no longer standing in the shadows. They have stepped into the light and have become the backbone of society. We in the Kingdom are fortunate to have well-educated, financially powerful women. A society that encourages and allows such women to play a vital role in its development is a society that is bound to succeed. On the other hand, a society that restricts what its women can do and prevents them from using their natural talents, whether social or economic, is bound to fail. We don’t want to fail. Indeed, for many reasons, we cannot afford to and we must not.

We thought long and hard about publishing a list of women’s businesses and were inevitably led to team up with the Khadija bint Khuwailid Center for Businesswomen at the Jeddah Chamber of Commerce and Industry (JCCI). The determination of those we met there, their hard work, their aim to solve women’s business problems and increase the role of women in the Kingdom’s economy is commendable.

The going, however, has not been easy. From initially sending out forms which were returned either half filled out or with totally incorrect information to questions that had nothing to do with the project and what we feared was lack of cooperation — all these would have made many others give up.

But a start was made and now both Arab News and the Khadija bint Khuwailid Center for Businesswomen have decided there is no going back. At times we really had to plead with businesswomen to get the forms filled out. And yes, we told them it was a new venture but please help us. Many did — after we made personal calls. To all these women, we offer a salute. They have been brave in coming out in the open and setting a precedent.

This year’s list may not be totally accurate and it almost certainly does not include all the hidden businesses — yet it is a start. To the cynics, we say: “Wait for next year’s and the one after that and after that.”

While compiling the list and assembling the editorial content, we made some interesting discoveries. We found a divorced mother who started a small business and who is struggling for the capital to enable her business to survive. We discovered women of all ages who need start-up capital in order to turn their ideas into reality. We discovered the best resource any country can have — brain capital.

That to me is the greatest achievement. The two-day conference will highlight the empowerment of women and will help women network. It will thus provide a valuable platform for an exchange of ideas that will prove beneficial to the economic progress of our country, its men and — let us be frank — its women.

Japan Ranks 2nd in Terms of Investment

K.S. Ramkumar

Japan is now Saudi Arabia’s largest trading partner, just ahead of the US. That is mainly due to higher prices for Saudi oil and a drop in oil sales to the US. In terms of investment, Japan ranks second in the Kingdom, after the US.

* My personal comment: The USA is being squeezed out of international relations... all thanks to Israeli/Jewish policies -- THANKS ASHKENAZIS, THANKS A LOT!!! *

According to Japanese diplomats in the Kingdom, the US had invested a total of $11.018 billion in the Kingdom to the end of 2006, compared to Japan’s $8.309 billion. At year’s end there were 27 major Japanese-Saudi joint ventures in the Kingdom.

But Japanese investments are on the increase. In 2006, Japan was the largest investor, ahead of all other advanced countries. Its investment was $3.5 billion compared to France’s $2.1 billion, the US’s $1.6 billion, and China’s and Russia’s $1.1 billion each. Petrochemicals remain the main area of Japanese investment in the Kingdom. That level of investment is expected to increase as Saudi Arabia develops more downstream petrochemical industries and develops its mineral industrial potential.

With the Kingdom becoming a member of the World Trade Organization and its World Bank ranking in terms of attractiveness for foreign direct investment jumped from 67th to 38th place in a year, Riyadh is hoping to attract some $800 billion in investment from Japan over the next decade.

In particular, the Kingdom is looking for investments and partnerships in desalination, water, power, health projects, education, infrastructure, information technology, civil aviation and railroads — areas in which the Japanese have considerable expertise.

Economically, the most impressive Japanese investment in the Kingdom in recent years came in August 2005 when Sumitomo Chemical Co. and Saudi Aramco agreed to a $10-billion joint venture to build an integrated complex for refining and petrochemical products in Rabigh, north of Jeddah. The plant will be the world’s largest integrated refining and petrochemical complexes A total of 2.2 million tons of olefins, along with large volumes of gasoline and other refined products, are to be produced annually once the plant begins operations next year. Saudi Basic Industries Corporation (SABIC) recently signed a letter of intent with the Japanese Engineering Toyo Company to design and establish a 700,000-ton gycol ethylene plant in SABIC’s YANSAB compound at Yanbu Industrial City. The plant will be the third established in the compound.

In mid-2006, Chiyoda Corporation, one of Japan’s leading engineering and construction companies, was awarded, together with its Saudi Arabian affiliate Chiyoda Petrostar, the contract for the engineering, procurement, construction and commissioning of a world scale, 2,900-ton-a-day methanol plant and associate utilities facility project by International Methanol Company (IMC). IMC is a joint venture between Saudi International Petrochemical Company (SIPC) and Japan-Arabia Methanol Company (JAMC), owned by a consortium of major Japanese companies led by Mitsui. The majority of the methanol produced is to be earmarked for JAMC. The project, to be completed by 2010, is at Jubail Industrial City.

The choice of contractors is an example of why Saudi industry so often chooses Japanese partners. Chiyoda’s expertise obtained in past methanol projects, combined with abundant EPC experience in the Kingdom, was a major factor in its selection. Due to its substantial experience and expertise in engineering, procurement and construction of synthesis gas process plants, Chiyoda is able to offer a technically and commercially reliable proposal with a competitive price, which resulted in Chiyoda’s selection for this project.

Meanwhile, capacity at SABIC Jubail affiliate, the Eastern Petrochemical Company (Sharq) is also being expanded. The plans include a 1.3 million-ton ethylene plant and polyethylene plants with total annual capacity of 800,000 tons. Sharq is a 50:50 joint venture between SABIC and a Japanese consortium, led by Japan’s government and the Mitsubishi group of companies. The $2.28-billion Sharq’s third expansion project is due for completion in mid-2008.

Japan is gradually diversifying its investment in Saudi Arabia.

A week after the Aramco Sumitomo deal was signed, a consortium led Japan’s Marubeni Corporation and including JGC Corporation, Itochu Corporation, both of Japan, and ACWA Power Projects of Saudi Arabia was awarded the contract to build, own and operate the oil-fired cogeneration and desalination plant for the Rabigh petrochemical complex. The concession is for an initial term of 25 years. The contract for the engineering, procurement and construction of the new cogeneration and desalination plant was awarded at the same time to the Japanese giant Mitsubishi Heavy Industries Ltd. (MHI) on a full turnkey basis.

There are other areas. For example, Unicharm is expanding the project of diaper manufacturing.

The Kingdom, which supplies between 25 and 30 percent of Japan’s oil imports, and Japan have agreed to set up a ministerial committee to discuss investments and stable energy supply following a call from former Japanese Prime Minister Shinzo Abe during his visit to the Kingdom last year.

“Until now, Japan let the private sector do the dealing. With the governments’ involvement, Japan’s energy resources are expected to become more stable,” a Japanese diplomat said.

Japan is optimistic that the historic visit of Crown Prince Sultan to Tokyo in April this year has opened a new chapter in Saudi-Japanese relations. Many Japanese companies, buoyed by the recovery of their country’s economy, are planning to expand their business links with the Kingdom.

According to Japanese Ambassador Shigeru Nakamura, the Kingdom’s “Look East” policy could lift their Saudi-Japanese relations to a new high. He cited the $9.8 billion “Petro-Rabigh Project” being undertaken jointly by Sumitomo and Saudi Aramco as an example.

“When completed in late 2008, this will be one of the largest integrated refining and petrochemical projects ever built at one time. A total of 2.4 million tons of petrochemical solids and liquids, along with large volumes of gasoline and other refined products, will be produced,” said the ambassador.

Saudi Aramco has invested in Showa Shell Sekiyu in Japan as well.

Japan is equally busy encouraging its business community to invest in the Kingdom and making all round efforts in that direction.

A Saudi-Japan Investment Workshop was held in Riyadh on November last year. It was hosted by the Saudi Arabian General Investment Authority (SAGIA) in cooperation with the Japan Cooperation Center for the Middle East and the Japan Bank for International Cooperation. Three months later, the 8th Saudi-Japan Business Council Joint Meeting was held in Tokyo. A delegation sponsored by the Council of Saudi Chambers of Commerce & Industry met with 100 Japanese businessmen to discuss bilateral business prospects.

The presence and interaction of former Japanese Prime Minister Shinzo Abe, Minister of Commerce & Industry Hashim Yamani and Saudi Arabian General Investment Authority (SAGIA) Gov. Amr Al-Dabbagh added importance to the meeting. The delegations from both sides had “fruitful” meetings.

The Saudi delegation was also briefed at the Japan Automobile Manufacturers Association Inc., Japan Auto Parts Industries Association and the Japan Automobile Tyre Manufacturers Association. The 9th Japan-Saudi Business Council Joint Meeting is set for Jan. 20, 2008, in Riyadh.

JETRO Works to Enhance Trade Ties

JETRO Riyadh is a semi-governmental nonprofit organization established in October 1994 to promote and enhance investment and trade ties between Japan and the Kingdom. It is the joint representative office of Japan External Trade Organization (JETRO) and Japan Cooperation Center for the Middle East (JCCME).

JETRO Riyadh operates six Invest Japan Business Support Centers (JBSCs) all over Japan for the provision of one-stop support and service to foreign firms seeking to set up business in Japan. The centers, linked to relevant government ministries and agencies, provide free temporary office space, consultation with expert advisors and access to a wealth of business information.

It is offering Saudis, as well as other international business interests, the opportunity to search for a business partner on the Internet. The program is easy to use and allows companies to register their products online and be seen by other businesses on a global scale as well as to browse through 30,000 Japanese businesses covering a wide range of fields from export and import of products/parts, business and technological tie-ups, according to JETRO Director Ahmed Hussein Ahmed.

“However, with the Kingdom’s entry into the WTO, trade has become more liberalized and we at JETRO hope that Saudi businesses will take advantage of this unique trading tool,” he said.

Since its establishment, JETRO has worked as a catalyst and made efforts to promote and enhance mutual cooperation between Japan and the Kingdom in areas such as investment, technology transfer, trade promotion, human resource development, market surveys, etc.

Thinking West — Moving East: Strategic Options

Dr. Mohamed A. Ramady

The groundbreaking overseas official visits that Custodian of the Two Holy Mosques King Abdullah made in January 2006, were to China, India, Malaysia and Pakistan. In the case of China this was reciprocated by President Hu Jintao’s state visit to the Kingdom in April of the same year. A large number of accords were signed during both visits and these set the stage for a new strategic partnership with the East.

Commercial relations between the Kingdom and Asia have been dominated by energy-related bilateral investment flows and the Asian region’s vast appetite for oil imports. Investment links are building up also in non-energy areas. Other traditional trading partners such as the United States and Western Europe have seen their relative share of trade flows fall to these new Asian strategic partnerships, causing some to express concern at the nature and extent of this deepening relationship, particularly that with China. The older trading partners, however, should not see Asia’s rapid trade advances and its need for energy from Saudi Arabia in terms of rivalry. All parties have a vested interest in ensuring steady and uninterrupted energy supplies in what is essentially a global market for energy.

The trade figures with Asia speak volumes about the shift in direction by the Kingdom. In 1984, Chinese imports to Saudi Arabia were a mere SR688 million or less than 1 percent of total imports. By 2006 this had risen to a dramatic SR21.7 billion, or 8.7 percent of total imports. India’s share rose from SR997 million in 1984 (0.8 percent) to SR9.3 billion in 2006 (3.7 percent). Asia and the Far East account for nearly 60 percent of total Saudi crude oil and refined product exports and the figures are rising given Saudi pricing premiums for the region. Will this new golden trading era continue and what are the implications for both sides?

The difference now in the global economy is that the world is less dependent on demand from US consumers to drive world growth than in the past. The power of incremental consumer demand from China, India and other rising economies in the Asia such as Vietnam, was for the first time in 2007, greater than from the US. China once again seems to be shouldering this incremental growth and the World Bank has raised its forecast for China’s economic growth this year by almost one percent. This means that China’s economy will expand at an incredible pace of almost 11.3 percent. What is more interesting is the perceptible change in the internal drivers of the Chinese economy. While strong investments and exports have so far been the main drivers of China’s amazing growth, there is now more confidence that a rise in domestic consumer spending will boost China, even if demand for some of its exports falls. The same trends are beginning to appear in other rising economies such as India, where prosperous middle and professional classes have started to spend more and save less.

This is the crunch and provides ammunition to those who caution against too fast a strategic shift from Saudi Arabia’s traditional trading partners. It centers on the scale and pace of economic growth in India and China and whether this can be sustained. This scale is sometimes hard to grasp, but to put it into perspective, it is estimated that more copper needs to be dug up in the next 20 years than has been produced in all history if current projected demands from India and China are to be met. What will happen to the world’s economic order if such demand is not met or internal bottlenecks and social problems appear in these new super-growth countries? The Chinese leadership itself is aware of the social and economic problems that could arise as evidenced by Chinese President Hu Jintao’s keynote speech in October when he noted that the Communist Party had fallen short of the people’s expectations.

Are some of the criticisms leveled against China valid?

The Chinese economy is still a centrally controlled one, where most of the investment decisions are determined by officialdom rather than by a free market process. State-owned Chinese banks make loans because the party says they must make a loan — and they have a different culture from commercial banks. Some financial reform of the banking sector is beginning, and foreign banks are entering China. Saudi banks, with many years of first-class commercial and investment banking experience, could be in a position to assist China by exporting their expertise to joint venture Chinese-Saudi banks. The other concern is resource-based, whereby Chinese economic growth has imposed some costs on the rest of the world, especially in its demand for more oil.

The world’s present economic cycle seems to be now determined by China and the United States, and both are much more important than Europe to many aspiring world economic players. The Chinese will be watching very carefully for signs of a downturn in the US economy. The most likely sign will be the bubble in US house prices bursting, because consumers had borrowed against rising house prices. This would be a disruption to the Chinese economy until substitute markets were found, leading to some disruption throughout Southeast Asia. The Chinese are not waiting for this to happen and have moved to other areas of the world, especially Africa and the Middle East.

For the time being though, there is sufficient momentum in the rising Asian economies that should carry them through any downturn in their major overseas markets in reasonable shape, thanks mainly to their new-found domestic growth. For countries in the Gulf that have been busy establishing strategic economic alliances with these rising new economies, such economic “bets” are now paying off.

For Saudi Arabia, it would be prudent to expand its economic ties with China, with joint ventures both in the Kingdom and in China. This would meet regional demand for consumer goods in a more predictable manner as well as satisfying third-party country demand from joint ventures operating out of China. Investments not prone to cyclical world recessions should be identified and oil energy conservation technology should be a priority for both parties in the long run. There is another area where Saudi Arabia and other Asian countries can cooperate and this is in the area of strategic management of their liquid (mostly dollar) reserves.

This will translate into Chinese partnership in prospecting activities in China’s Asian neighbors, Africa, Middle East, Australia and Latin America. Such strategic partnership could focus on oil and gas fields as well as strategic metal extraction. Chinese participation could encompass equity stakes in new joint ventures, or through acquiring existing foreign companies and projects. The pace of such partnerships will be limited only by the extent of any shortage in overseas Chinese management expertise, but the Chinese already seem to be doing extremely well in the most unlikely places around the world, from Siberia to Sudan. In the end, given the pace of China’s accumulation of new foreign exchange reserves, the spending of $200 billion in this new strategy out of reserves estimated at nearly $1.3 trillion is roughly equivalent to the pace of annual growth of Chinese reserves. The problem for China will be to identify sufficient projects and willing overseas partners.

In Saudi Arabia, China has found a willing partner. Following the state visits of the two countries’ heads of state, a number of accords were signed in security, defense, health, trade, and youth matters. There have been discussions about establishing a strategic oil reserve in southeast China using Saudi supplies. In other major developments, Saudi Aramco and Sinopec, China’s top refiner and petrochemical producer, signed a memorandum of understanding to increase trade cooperation as well as reviewing Sinopec’s gas exploration activities in the Saudi Rub Al-Khali (Empty Quarter). At the same time, Saudi Basic Industries Corp. (SABIC) discussed with their Chinese counterparts plans to establish a $9.3 billion refinery and petrochemical project in northeastern China. It is already obvious to the world’s major petrochemical players that the only viable competitive route to multinational companies is to enter Saudi Arabia as a major petrochemical producer. In this way the Chinese can ensure competitive supplies to their domestic markets as well as feed China’s growing petrochemical needs from their Saudi Arabia operations.

At the same time, the Kingdom has a growing need for more investment in technology, management skills, science, technology and infrastructure. China, India and the other fast developing Asian countries have an opportunity to establish an important commercial presence in the Kingdom beyond an energy relationship. China in particular has the capability to expand its already significant export of labor services to a region with a growing demand in construction areas.

The emergence of this new strategic partnership should be viewed positively and not with alarm by others. Chinese activities in Saudi Arabia will increasingly be driven by commercial realities rather than politics. The more that China and others in Asia are locked in economically with the global system, the more important for them that there is stability in the energy market. The reality is that the two super economic giants of the world today — the US and China — must co-exist while competing increasingly on a commercial basis.

What direction then for the Kingdom? Once again, the indications point East rather than West as one Gulf country after another signs up to long term strategic economic relationship with Asian countries, particularly China and India. Companies from these new economic giants are already setting up businesses in the GCC, attracted by the region’s free-trade zones, enhanced FDI regimes and oil-price-based boom. The Kingdom is truly thinking West but moving East.

(Dr. Mohamed A. Ramady visiting associate professor, finance and economics, King Fahd University of Petroleum and Minerals.)

Saudi Investment in the Philippines Up
(By the way, where is the Zionist Regime in all of these international developments?!?)

Querubin J. Minas

AS 2007 draws to a close, recent developments augur well for the Philippine economy, suggesting that the pace of economic growth will be sustained and the volume of foreign investments rise. However, while the overall outlook for the year appears positive, there are risks of possible downsides. A strong peso, accompanied by softening external demand, will impact on Philippine export growth and foreign investment appeal, while domestic politics pose a threat to greater fiscal consolidation and the progress of key economic reforms. Despite these risks, the annual economic outlook, with only a month left, is stable and the country is expected to achieve average annual growth of 4.7 percent through to 2011. One barometer of the Philippine positive outlook is the sudden flow of foreign direct investments into the country. This year’s foreign investors brought to light prominent names in the business world — both individual and institutional investors — from the Gulf countries, noticeably from Saudi Arabia.

In the absence of available official statistics on the volume and value of Saudi investments in the Philippines, data nonetheless showed a marked improvement in the size of Saudi business stakes in the Philippines — particularly in tourism, agriculture, export and import trading sectors — and all within a short period. A healthy foreign direct investment will maintain the economic growth affected by diminishing exports because of the rise in the peso.

The flow in investment is attributed by observers to a number of factors such as the quality of manpower resources, a strategic business location, a liberalized and business-friendly economy, a hospitable lifestyle, unlimited business opportunities and the government’s drive to win greater foreign investment — with 100-percent foreign equity ownership permitted in most economic sectors and foreign businesses granted tax privileges in 45 special economic zones.

In 2006, the country’s total foreign direct investment reached $2 billion in January-November, up 54 percent from the previous year, although the country continues to lag behind other countries in the region. In line with that, the volume of Saudi investments in the Philippines is comparatively low compared to the Kingdom’s presence in other developing Asian countries — especially those in the subcontinent — despite the Philippines being firmly located on Saudi radar thanks to the presence of over a million Filipinos working in the Kingdom. They constitute the third largest foreign workforce in the country after Indians and Pakistanis and the largest pool of skilled foreign labor.

It is 30 years since the Philippines opened its first embassy in Saudi Arabia - in Jeddah, transferring it to the Diplomatic Quarter in Riyadh in 1986. Since then, commercial links have grown steadily, but largely on the trade side rather than in terms of investment. Saudi investments in the Philippines came much later, not until the passage of the Philippine Foreign Investments Act in 1991, considered as landmark legislation because it liberalized the entry of foreign investors into the country.

As a result, in March 1994, the first major Saudi investment of Saudi Arabia in the Philippines occurred. Saudi Aramco paid $532 million for a 40-percent stake in Petron, the downstream unit of the Philippine National Oil Co. (PNOC). There was a rationale to this. More than half — 56.3 percent — of the Philippines’ crude supply is sourced from Saudi Arabia through Petron, which has a refining capacity of 180,000 barrels per day. The Philippines imports more than 39 percent of its oil needs from the Kingdom, out of its more than 92.8 percent crude requirements that come from the Middle East. Oil constitutes more than 90 percent of the Philippines’ imports from the Kingdom.

The Petron agreement acted as an impetus for other Saudi investors to move into the Philippines. Saudis were even more encouraged to do so after President Gloria Macapagal Arroyo’s visit to the Kingdom in January 2001. At the time, the president drove home her message on the attraction and the incentives for Saudi investors in fast-growing tourism and ICT sectors in the Philippines where “high-value jobs are plentiful and ... can use our most competitive resource — the great Filipino workers.” Arroyo told Saudi businessmen that investments in the mining industry offered ample opportunities given the $1 trillion-tag put on the country’s estimated mineral reserves. They are the fifth largest mineral deposits in the world: Fifth largest in gold, ninth largest in copper, and 20 percent of the world’s nickel.

She said Mindanao offered vast opportunities for Saudi investors in the energy sector, particularly in establishing oil refineries. The president also said that Saudi investments in agriculture would help transform Mindanao into the “food basket of the Philippines.” She also said, “We want to raise its production, processing and logistical capacities, including the Halal food industry.”

Most recently, in April 2007, Prince Alwaleed Bin Talal entered into a joint venture with Ayala Land Inc. (ALI), investing $151 million in luxury hotels in the Makati business district. The project, 80-percent owned by Kingdom Hotel Investments (KHI) and 20-percent by ALI, will be the most expensive hotel project in the Philippines. Arroyo praised the prince’s decision at the time, saying, “Prince Alwaleed’s group investment in the Philippines is a clear vote of confidence from the Middle East, which is a bastion of our national interest because of the presence of more than a million Filipino workers in that part of the world.” She hoped that more Arab investors would follow suit. She awarded the prince the country’s Order of the Golden Heart during his visit.

The KHI-ALI planned complex, comprising a 300-room Fairmont Hotel, a 30-suite Raffles Hotel and 189 Raffles-branded residences, will be built on a 7,377-square-meter lot on Makati Avenue and Pasay Road. The site is currently being used by Anson’s department store, Park Square 2, and a public transport terminal. The new hotel complex will be placed under KHI-ALI Manila Inc. (the joint venture firm that will own the property on which the hotels will stand) and KHI-Manila Properties will be the operating company. ALI donated the land, while KHI will shoulder the hotel’s development and operations.

Another group of Saudi investors led by Abdul Rahman Al-Jeraisy, chairman of the Riyadh Chamber of Commerce & Industry and at the time also chairman of the Council of Saudi Chambers of Commerce & Industry, visited Manila prior to Prince Alwaleed’s initiative, to look into possible investment partnerships with Filipino businessmen.

Both the Philippine and Saudi governments look to further strengthen the bilateral relationship, as seen in their successful 2nd Joint Commission Meeting in October 2005 in Riyadh. It resulted in the signing of four important agreements. These included the Agreement on the Encouragement and Protection of Investments.

This establishes nondiscriminatory measures in the management, maintenance, use, enjoyment or disposal of investments. Encouraged by the competence of skilled Filipino labor in the Kingdom, a memorandum of understanding on technical education and vocational training was also signed, making provision for 16,000 instructors from the Philippines to train Saudi women to become more productive in the work force.

Under a separate MOU, the Saudi government and private sector were encouraged to invest in the Philippine domestic shipping modernization program, the maritime industrial park and help develop the Cotabato Port Project. In the transportation sector, the Philippines has sought Saudi financing to help facilitate infrastructure and socio-economic development in Mindanao, in particular the Mindanao Railway System, Socialized Microcredit Program and Socialized Housing. In the food sector, the Kingdom remains an attractive market for Philippine food and other food exports because of the large number of overseas Filipino workers (OFWs) and other Asian expatriates in the Kingdom, as well as a growing acceptance of tropical and exotic foods by Saudis.

The Philippines is hopeful that the surge in oil prices will spur Gulf Arab businessmen to invest in diversified portfolios in Asian markets, including their own country where the incentives are attractive. In the past five years, trade volumes between the Gulf Cooperation Council and Asia have tripled and, without question, much of the incremental demand for Gulf exports — not just oil and gas but also petrochemicals, base metals and services like finance and tourism — will come from Asia. The GCC has seen large inflows of migrant labor from Asia, creating both a growing source of private capital flows between the regions as well as an increased cultural overlap.

In addition, geopolitical trends are favoring strategic diversification. There is a recognition that should current economic and consumption trends continue, Saudi Arabia’s relations with the Philippines will take on even greater strategic importance.

Kingdom, China Economies Complementary

Jawaher Al-Sudairy

The emerging links between Saudi Arabia and China increasingly point to a very strong bond between them. Examining some of the synergies between the two markets, an impressive web of interdependent trends, gives a clear illustration of how the two economies complement each other.

The mining industry in Saudi Arabia has received much attention in the past few years, and rightfully so. Saudi Arabia, like its neighboring Gulf states, is committed to diversifying its national income away from oil. With its cheap energy reserves, abundant natural resources and a pressing need to create jobs for its fast-growing young population, the Kingdom is making determined plans to turn mining into a core industry. Saudi Arabia aims to compete internationally as a lead supplier of metals and minerals, such as aluminum, phosphate and steels. The production cost for these energy-intensive industries in the oil capital of the world is notably competitive, with estimates pointing to as much as 30 percent margins on market price. The Kingdom is looking out and looking east for international players to participate in developing its reserves, while at the same time transferring their know-how and expertise.

Simultaneously, China is on a quest to secure foreign supplies of natural resources. Rapid urbanization and expansion projects are translating into soaring demands for oil and other commodities, such as copper, nickel, iron ore and most relevantly aluminum. China comes second after the US in oil consumption, and has surpassed all as the biggest aluminum consumer and producer in the world. Just last year, China alone accounted for at least a quarter of global demand for aluminum. The Chinese government is committed to building up strategic reserves of minerals, and has urged companies such as Chalco, its aluminum producer, to secure raw materials overseas. Africa has already proved itself to be a lucrative market for the Chinese, and so will the Gulf.

Only this year, China National Machinery Industry Corp. (Sinomach), and China Nonferrous Metal Industries (NFC) signed a deal with Saudi-based Western Way for Industrial Development Co. (WWIDC) to invest in a $4 billion aluminum complex and a power plant to be built in Jizan Economic City. The aluminum smelter is projected to produce 1.6 million metric tons of alumina and 700,000 tons of aluminum annually. And there is more. One of the largest vertically integrated phosphate mining, fertilizer and chemical manufacturers in China is bidding for the Maaden phosphate beneficiation plant tender in Al-Jalamid, one of the world’s largest, underdeveloped reserves of phosphate. Maaden plans to use the exploited phosphate concentrate from Al-Jalamid to produce diammonium phosphate (DAP) fertilizers in Ras Azzur, which will also become a major export.

For China, investment in metal and mineral production in Saudi Arabia is not only cost effective but also fulfills its need to conserve energy. The relationship between the two is taking on new shapes. It has clearly moved far beyond oil trade and will continue to evolve as China keeps its sight set on forthcoming opportunities.

The mining projects present immediate demands for transportation links and port upgrades. Taking the concentrates from the mines in Al-Jalamid to the processing plants in Ras Azzur and the finished minerals to the export markets (either to China or elsewhere) will require a 1,500 kilometer railway running all the way from the north of Saudi Arabia down to the Eastern Province. The Saudi Ministry of Transportation plans several railway and port contracts and Chinese players have put their bids in.

Already China Railway 18th Bureau has been approved, for the second contract (CRW 200) of the North-South Railway. The award, earlier this year, was worth $524 million. The first contract was awarded to Saudi Bin Laden, and the third to a consortium consisting of Al-Rashid Trading & Contracting and Mitsui (Japan).

Two other Chinese construction companies were short-listed for the project. Many others are bidding (and winning) contracts all over the Kingdom. China Harbor Engineering Company was awarded the contract to build a container terminal at Jeddah Islamic Port and China Civil Engineering Construction Company is establishing itself in the Kingdom.

Saudi enterprises are aiming to meet the demand and many have come to China and Hong Kong in search of Chinese partners with manufacturing experience in construction material. Al-Turki Group is taking the lead, venturing strongly in East Asia and has already set up shop in Shanghai.

Asia’s Big Apple has had its share of Saudi action this year. Unlike the mainland, Hong Kong’s economy is very much service driven and is engaging in completely different business activities with Saudi Arabia. Rather than industrial development, Hong Kong is exploring opportunities in finance, construction, utilities, telecom and transport.

As a financial center, and a gateway to the mainland, Hong Kong attracts many visitors looking to explore the Chinese market and the Far East as a whole. One prominent visitor in 2007 was Prince Alwaleed bin Talal, who is now not only a shareholder in the Bank of China through Citigroup but also an active investor in the Asian leisure market.

Hong Kong witnessed another headliner this year, Maan Abdul Wahed Al-Sanea, who purchased a 3.1 percent stake in HSBC (worth 3.3 billion sterling pound) making him the second-biggest shareholder in the world’s biggest bank.

Hong Kong hedge funds and venture capital firms are making their own visits to the Gulf. Delegations arrived in Riyadh and Jeddah over the last two years, the most recent of which was headed by Frederick Ma, secretary for Hong Kong Financial Services and the Treasury. These delegations are eager to penetrate the Saudi market and offer their services as experts on mainland China.

In telecoms, Hong Kong PCCW, along with two other consortia — Bahrain Telecommunications and Verizon Communications of the US — were approved to operate Saudi Arabia’s new fixed-line network in April this year. No estimates have been announced of the total license price, but according to initial reports Batelco bid $133 million, which indicates that it was a very high premium. PCCW is currently setting up its presence in the Kingdom as a joint venture partner with Saudi Arabia’s Integrated Telecom Company (ITC).

Aside from Saudi Aramco’s oil refinery in Fujian and SABIC’s Ethylene plant in Tianjin and petrochemical project in Dalian, Saudi Arabia has yet to make itself felt in the Chinese market. Ajlan ibn Abdulaziz Aljalan & Brother got a stake in cotton spinning project in Xinjiang and Saudi Economic & Development Co. (SEDCO) acquired shares in a marble factory.

Investing in sectors that depend on the consumption of minerals imported from Saudi Arabia should be one consideration. China is already developing its aerospace industry, which relies heavily on aluminum. It has accumulated good expertise in building aircraft and is a strong supplier of hardware and engine parts to international brands such as Boeing. China is expanding its knowledge and adopting international production and management standards to compete internationally.

China’s direction remains relevant to Saudi Arabia, which is also building its own aerospace industry.

Saudi Arabia has announced plans to set up an aerospace industrial site, the objective of which is to develop an engineering and production footprint in the Kingdom that will result in original equipment manufacturing and provide a platform for aerospace exports. Collaborating with China, both as an investor and host for Chinese manufacturing facilities, should prove to be of mutual long-term benefit for the two countries.

Another opportunity for Saudi Arabia to consider is the newly launched Chinese sovereign funds mandated to invest in global financial markets.

The National Council for Social Security Fund (NCSSF) and China Investment Corp (CIC) are joining Chinese commercial banks in their hunt for deals outside China. The Chinese government is encouraging the outflow of capital in order to spread risk away from the local market, gain revenue and support Chinese projects abroad. Saudi Arabia should target these funds and engage them in the local financial market. Another option is for the Kingdom to propose a bilateral investment program with China.

The Sino-Saudi relationship may be a marriage of convenience of sorts, but it could develop into one made in heaven.

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