Saudi Arabia's Ministry of Petroleum has spent almost four years trying to find a way to build the Jizan refinery without involving state Saudi Aramco, but in the end it has proved too challenging. The kingdom's private sector simply lacked the technical expertise, while the new realities of the project financing market made it unlikely that Saudi firms could come up with the more than $10 billion needed to fund the venture. To be economic -- even with the incentives offered by the ministry -- advisors to bidding consortiums recommended that Jizan be an integrated world-scale refining and petrochemical complex. Tasnee, one of the few Saudi bidders, admitted the size would be a challenge, but securing financing was the primary concern. "Getting credit is probably the biggest problem right now," one Saudi-based banker tells PIW. Bruised by the global financial crisis and rocked by a string of high-profile loan defaults, Saudi Arabia's bank lending contracted last year for the first time since 1990, the banker says. With lenders wary and refining margins weak, there was realistically little chance that inexperienced firms would get credit to build a such a large plant in a remote region on the unstable border with Yemen (PIW Jan.25,p7). Even if the bidding consortia had raised the money, it's likely that the terms of the financing would have crippled the economics of an already marginal project, ordered by King Abdullah in 2006 to stimulate investment in the poorer southwestern province.
Bringing in Aramco solves many problems. The oil and gas giant demonstrated last year that it could raise money at favorable rates in a tough market, using its 100% backing from the world's largest oil exporter and its solid reputation for project delivery. It understands integrated refining and petrochemical projects, and has a very different outlook from the private sector on internal rates of return. Aramco recently began production at its $10 billion Petro-Rabigh facility and has the $20 billion-plus integrated Ras Tanura plant next in line. If Aramco opts to build only a refinery at Jizan, it will likely use its own cash resources and will have more leeway to tailor the plant to best benefit the local community -- the impetus for the project in the first place. If it chooses an integrated plant, Aramco will probably need to bring in a foreign partner, such as Dow, BASF or Sumitomo, to provide the technology, and will put more emphasis on profitability. Such a foreign-partnered venture would probably require financing, but Aramco would have few problems getting it, banking sources say.
Jizan is the latest example of Aramco being instructed to take over a stumbling project following other Saudi institutions' failure to deliver. There are questions about the company's capacity to take on non-oil projects, but the completion of a number of oil mega-projects has at least freed up some resources, PIW understands. "If it is big, requires lots of cash and needs to be done in a limited time, history has shown Aramco can deliver," one Saudi source says. The company was given -- and met -- a tight schedule to deliver King Abdullah's $6 billion pet technology university, Kaust, and is also behind the most advanced industrial development program in the country (PIW Oct.5,p2). Aramco now has more management resources available following the recent completion of both Kaust and the 1.2 million barrel per day Khurais project, the largest single oil increment in the company's history.
