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SPECIAL ADVERTISING SECTION

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SSaudi Arabia is booming again. At the beginning of this year, econo-mists at the Saudi American Bank (Samba) estimated that since 2002“the Saudi economy has almost doubled in size to $348 billion.” Butthis time around, the outperformance has a broader base than volatileoil and gas prices, and economic growth is more multifaceted.

Although in absolute terms hydrocarbon productionremains the bedrock of the Saudi economy, the non-oil privatesector is now its fastest growing segment, with expansion of 6.3% in 2006, well above its 10-year average. In the same year,non-oil industry in general was the fastest growing sector at10.1%, driven by increased petrochemical and metal production

as investment poured into these two energy-based industries totake advantage of low feedstock prices.

WITH ENTRY INTO THE WTO, A DIVERSIFIED PRIVATE SECTOR HAS OPENED A NEW ECONOMIC

SPACE FOR SAUDI ARABIA. THE PETROCHEMICAL INDUSTRY OFFERS GREAT INVESTMENT

OPPORTUNITIES WHILE CREATING SYNERGIES WITH METALLURGICAL PLANTS

AND FINANCIAL SERVICES.

Saudi ArabiaIndustrial ambitions

In the 2007 forecast presentation on the bank’s website,Samba economists added that they expected an acceleration of the non-oil growth rate to a multi-year high of over 7%, andbelieve this will be a pivotal year, “the year in which the boommoves from being an oil revenue story to one of broad-basedprivate sector growth.”

This private sector dynamism is no accident: it is testimonyto a series of five-year modernization plans that have beenimplemented since 1970 by the late King Fahd and by KingAbdullah. The plans have successfully paved the way for theemergence of a diversified, industrialized country, which in

December, 2005 was able to win entry into the WTO club of open economies.

Focus on Industry

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SAUDI ARABIA Industry

Reflecting the transformation brought about by those plans, it isprivate and foreign investment that will increasingly drive the eco-nomic growth of Saudi Arabia and will meet the key policy goal of creating more employment for Saudi nationals.

King Abdullah, in his “State of the Kingdom” address in April,said that “due to the importance of investment in national develop-ment, we are planning to continue our support for the private sectorto become a strategic partner in economic development.”

“We are also planning to remove all obstacles facing Saudi andforeign investors so that they can benefit, whenever possible, fromthe proportional privileges in the Saudi economy.”

A series of so-called “mega projects” are the poster boys for thediversification process. Four days after his address, King Abdullahannounced the launch of over $31 billion of development and infra-structure projects, including the $7.5 billion King Abdullah Finan-cial District in Riyadh, which will be the largest financial center inthe Middle East.

The most spectacular mega projects are six new economiccities, whose flagship is the $26.7 billion King Abdullah EconomicCity on the Red Sea. These projects will be largely financed by theprivate sector. In April 2007, the Council of Saudi Chambers of Commerce and Industry estimated that the private sector had a roleof nearly 70% in these mega projects.

WTO accession is also stimulating diversification and foreigninvestment. The Saudi Arabian General Investment Authority(SAGIA) licensed 1,389 joint and foreign projects in 2006 with atotal value of over $67 billion, up 25% compared to 2005. Accord-ing to its website, SAGIA plans to attract foreign and joint invest-ment exceeding $80 billion during 2007.

Over the last decades, the five-year development plans of KingFahd and King Abdullah have gradually shifted focus, from buildingup the country’s infrastructure in the 1970s, to encouraging anindustrial base away from oil in the 1980s, to stimulating the privatesector in the 1990s and now. Much of the focus of the current eighthplan is on increasing foreign investment.

Moayyed Bin Issa Al-Qurtas is the CEO of Tasnee, formerly theNational Industrialization Company, a pioneer in the diversificationof Saudi Arabia’s economy over the last twenty years, and the firstindustrial private joint stock company in the kingdom.

Since its establishment in 1985, Tasnee has focused on build-ing up several core industrial areas in Saudi Arabia: petrochemi-

cals, chemicals, metals and metallurgy, as well as its services busi-ness, which includes the marketing and distributing of its petro-chemical products and other sectors such as automotive batteriesand carton packaging.

Growth across the companies in which Tasnee has equitystakes has been explosive in recent years; its chemicals unit Cristalhas achieved record production levels of titanium dioxide (a pig-ment used in many industries), Rassas has doubled its capacity forrecycling batteries for their lead, and Battariat has expanded its

production to two million batteries per year. Net profit for Tasneerose 17% to $99 million for the 2005/2006 fiscal year.

Al-Qurtas pays tribute to the legacy of the successive five-yearplans on the physical and social infrastructure of Saudi Arabia.“There was a very strong vision that industrialization is the wayfor growth in Saudi Arabia,” Al-Qurtas says. “Utilities are highlyreliable and highly competitive. We are second to none in terms of the ability to supply products at very competitive logistics costsdue to the excellent port facilities and the roads network in Saudi

Arabia, and the links that we have with the rest of the world. It isvery critical to produce competitively, but it is almost equally criticalto be able to supply competitively,” says Al-Qurtas.

The petrochemical sector is one of the most attractive seg-ments in the economy for private and foreign capital, preciselybecause it is hard to beat Saudi Arabia in terms of competitivelypriced supply of feedstock. The WTO allowed the kingdom tomaintain its feedstock prices at low levels and did not require themto rise to meet global prices. Saudi Arabia can now work withinthe WTO to cut global tariffs on its petrochemical exports.

In 2006 Tasnee fully acquired its majority-owned subsidiaryTasnee Petrochemicals in order to accelerate growth in this sec-tor. “We have competitive advantages in a number of areas,” Al-Qurtas says, “production and logistics costs, the ability to be verycompetitive producers. There are very substantial advantages forinternational companies to invest in Saudi Arabia.”

This intense industrial activity by Tasnee and other privatesector players in Saudi Arabia is having a knock-on effect on oth-er sectors of the economy, notably on banking. Samba, the secondlargest bank in the Middle East, is providing a total of $370 mil-lion in financing for the establishment of the Saudi Ethylene andPolyethylene Company (SEPC), a petrochemical joint venture

between Tasnee’s affiliate NIPC, the Sahara Petrochemical Com-pany and Netherlands-based Basell Polyolefins.

A view of Riyadh

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Eisa Al-Eisa, Managing Director and CEO of Samba FinancialGroup, said in a press release for the SEPC agreement that “thephilosophy adopted by Samba is to support the private sectorefforts of driving economic growth and diversifying sources of income.”

These are bonanza times for banks in Saudi Arabia, drivenmainly by the financing opportunities provided by this process of industrial diversification and by the mega projects.

“We are very excited about the large number of major pro-

jects,” Al-Eisa says. “Our estimate is that there are about 40 majorprojects in different stages of implementation that currently total$283 billion in costs. This offers excellent opportunities for us toparticipate in the financial engineering and the actual financing of many of these projects. There will be IPOs, bonds, syndicated loans,and project finance structures associated with them.”

Although in 2006 the Saudi stock market fell over 50% afterequity valuations had reached excessive levels and it has been slug-gish this year, the appetite for IPOs of Saudi industrial companiesseems to be returning.

Samba is currently preparing what will be one of the largestever IPOs in the region – the $1.8 billion IPO of the Saudi KayanPetrochemical Company, an ambitious project which is coming to

market in order to raise capital for a giant 4 million ton specializedpetrochemical complex in the industrial city of Jubail.In a statement on the Samba website, Al-Eisa said he expected

an “unprecedented” level of subscription for Saudi Kayan, which isselling 45% of its capital.

Samba is well positioned to capitalize on current opportuni-ties. Due to its scale, it has the balance sheet strength to be a majorparticipant in much of the financing, and it has an extensive trackrecord in managing and underwriting Saudi IPOs in key industrial

sectors. In 2006, it managed the $525 million Yansab Petrochem-icals IPO, which had close to 9 million subscribers. This mega pro-ject will produce 1.3 million tons of ethylene per year, adding15% to the kingdom’s current capacity.

Samba has also been involved in raising financing for other keysectors, notably transport and communications, which is the secondfastest growing segment in the economy. Samba managed the 2004IPO of Etihad Etisalat, the telecommunications operator that brokethe monopoly of Saudi Telecom. “We expected two million sub-

Making room for industrial plants at Jubail

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scribers, but received over four million, and we managed it well,”Al-Eisa says. “The flexibility and resilience of our management andexecution processes were crucial given the surge in volumes, andwere critical to the success of that IPO.” Early indications are thatSamba’s experiences with mass oversubscription will be key to themammoth Saudi Kayan offering.

But with entry to the WTO, Samba is now facing new compet-itive challenges. “There are currently 10 new foreign banks in dif-ferent stages of establishing a presence in Saudi Arabia,” Al-Eisa

says, “and new domestic banks are starting up as well, so the land-scape is becoming more competitive.”

In the period running up to WTO accession, Saudi Arabia cuttariffs aggressively and it has now opened key sectors to foreign par-ticipation, including telecommunications, banking, insurance,wholesale and retail trade, as well as air and train transport,although oil production remains on a “negative list”.

But while the mega projects grab the headlines, it is smallerscale, fast-growing firms, such as Saudi Ceramics Company, whichare in the vanguard of the Saudi economy as they adjust to WTOmembership.

The company, which is 30 years old and has a workforce of over 1,700, is rapidly expanding and aims to have a total capacity of 32 million square meters by 2008, from around 23 million now. Inaddition to investing in new capacity, it is also investing in higherquality products as it looks to expand to new export markets. The

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company specializes in porcelain and ceramic tiles of various designsand shapes for use on walls and floors, and it also manufactureselectric water heaters and sanitary ware for bathrooms.

Saad Ibrahim Al-Mojel is the US-educated Chairman of Sau-di Ceramics, and manages the Almojel Group of Companies,which includes steel, building materials, plastics, amusementparks and fast food restaurants.

“The WTO is challenging,” Al-Mojel says. “We have to findnew markets as we grow and as we compete with imports coming

to this country. It helps us to achieve maximum capacity of pro-duction which allows us to lower our unit costs. It is not healthy

for our industrial companies to focus only on their own market;they should develop outside. What we are trying to do is to expandthe range of products that we are selling abroad.

General Manager Abdul Karim A Nafie acknowledges thatthe company couldn’t provide the quality of European tiles or the

low prices of the Chinese, “but we provide value for money. Wehave to make good quality for a reasonable price.”Saudi Ceramics is also actively seeking partnerships with for-

eign companies in the sector who want to distribute their productsin this increasingly attractive market using their own brands.

“If you are a foreigner coming here you cannot just go to acontractor to build,” Al-Mojel says, “you have to have somebodywho can help you. We have the expertise, we know the system of the local market.”

For all of Saudi Arabia’s burgeoning private sector, WTOentry means that quality and competitiveness must increase, newinternational markets be found, and foreign partners sought tocreate new business at home. For the country as a whole, that isall translating into faster, more diversified growth.

“Saudi membership in WTO clearly presents more opportu-nities than challenges,” Al-Eisa at Samba says. “For the country,it means higher rates of economic growth, stronger inflows of foreign investment, and stronger trade flows.”

With barriers to trade and investment falling, industrialgrowth surging, and new cities rising from the sand, WTO acces-sion has placed the seal on Saudi Arabia’s return to its historicalposition at the heart of the regional economy.

“Our culture is extremely open,” Al-Mojel at Saudi Ceram-ics says. “We have been used to trading for thousands of years,and anybody who goes from Asia to Europe has to cross us,either by sky, or land or sea. We are the crossroads.”

The petrochemical sector is one of the most attractive segments in theeconomy for private and foreign capital, precisely because it is hard to beatSaudi Arabia in terms of competitively priced supply of feedstock.

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The industrialization of the Saudi Arabian economy is being

spearheaded by a range of private sector companies which areseizing the opportunities provided by the government’s devel-opment plans. The Saudi Chemical Company, an explosivesmanufacturer founded in 1972, is supporting the expansion of the country’s oil, gas and miningindustries while also diversifyinginto the growing pharmaceuticaland distribution sectors.

The history of Saudi Chemi-cal mirrors the economic trendsof Saudi Arabia over the lastthree decades. Initially a jointventure with an international

partner, Sweden’s Nitro Nobel,and importing its products, itgradually switched to local manu-facturing for all its productionlines. In 1985 it became a whollySaudi company, with foreignpartners continuing to providetechnical support. Then came theconversion to a joint stock com-pany in 1998, followed by a stockmarket listing in 2001. As a pub-lic company, Saudi Chemical isnow responding to shareholderdemands by expanding into new

growth businesses.Managing Director Fahad S. Al Jarbou says that the company

was established to serve domestic demand for civil explosivesduring the boom in construction and infrastructure in Saudi Arabiain the 1970s. Until the establishment of Saudi Chemical, all explo-sives were imported into the country; “it was soon realized thatthere was a need for local manufacturing of civil explosives, to cutdown on shipping and transporting dangerous explosive materialson our long roads,” says Al Jarbou.

Al Jarbou has had a diversified career in several key sectors inthe Saudi economy since graduating in applied electrical engineer-ing from King Fahad University in Dharhan. In 1995 he becameManaging Director and member of the board of the Saudi Chemi-

cal Company, following a period of running the family business andmanagement roles in the steel and cement industries.Throughout its 35 years of operations in the explosives sector,

Saudi Chemical has been characterized by its commitment to safetyand to quality. “In our business, especially in civil explosives, thereis no room for ignorance or error,” says Al Jarbou.

The company’s international heritage is evident in this safe-ty and quality culture. “All our facilities were designed accord-ing to the highest Swedish standards for explosives facilities,”Al-Jarbou adds, “and all operations and handling of explosivesare done according to strict procedures.”

Annual safety audits carried out by international companieshelp to keep standards high. The company’s other internationalrelationships also allow it to maintain product quality: it sources its

raw materials from the highest quality suppliers worldwide, and it

adheres to strict manufacturing procedures. This commitment

to quality and safety was crowned in 2002 with the award of ISO 9001:2000 certification by BSI.

Mining is currently a key strategic sector for the diversifica-tion of the kingdom’s economy, and Al Jarbou expects Saudi

Chemical to play a major role inthis area. “Mining is about totake off as a major resource inour economy, and as the onlymanufacturer of civil explosivesin Saudi Arabia we are well posi-tioned to provide the best ser-vice to this industry with a greatdeal of confidence,” he says.

“Our three factories in the threemain regions, and a 35-yearexperience in this field will makeus a first and best choice aspartners. We cannot see our-selves outside the game.”

The oil and gas sector isanother growth area for the com-pany. In 2004, Saudi Chemicalstarted producing the advancedEnviroseis seismic explosiveunder license from Austin Interna-tional. Enviroseis is approved bySaudi Aramco for use in its seis-

mic oil and gas exploration projects. It is more environmentally friendly and can be used in areasthat are unsuitable for exploration with traditional explosives.

Since listing on the stock market, Saudi Chemical has alsoaccelerated the pace of its diversification into other areas, par-ticularly in retail and distribution. It has expanded into the phar-maceutical sector with the acquisition of Sitco Pharma, thelargest pharmaceutical distributor in the kingdom, representingmajor multinationals including AstraZeneca, GSK, Sanofi-Aventisand Eli Lilly.

“It’s been one of the best things we did,” Al Jarbou says.“It immediately boosted the size of the company, the volumeof sales, its international reputation. Growth is the name of the

game and public companies cannot stand still.” And thatgrowth is paying in financial results. In 2006, net profit rose by35% to $39 million.

Al Jarbou says that Saudi Chemical is now discussing acquir-ing a retail pharmaceutical business, and a company which distrib-utes major perfume brands. “The retail company we plan toacquire is one of the best retail chains in the Eastern Province andthey are going to expand to the other regions. They are very wellpositioned in the market and they have up-scale pharmacies.” Aspart of its growth strategy, the company is also investing in a thirdsubsidiary, Petro Hunt Middle East Ltd.

While perfumes and seismic explosives may seem unlikelypartners, it is testimony to the strength and depth of the localeconomy that Saudi Chemical can now find business opportuni-

ties in both sectors and others.

EXPLOSIVES MANUFACTURER SAUDI CHEMICAL COMPANY IS PLAYING A KEY ROLE IN THE DEVELOPMENT

OF THE KINGDOM’S OIL AND GAS SECTOR, AND IS EXPANDING INTO NEW LINES OF BUSINESS

Explosive Growth at Saudi Chemical

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W While Riyadh is the administrative and political capital of SaudiArabia, and the vast desert provinces of the east and southeastare home to its oil wealth, it is the two coastal cities of Jubail andYanbu that form the country’s industrial heart.

Jubail on the Arabian Gulf and Yanbu on the Red Sea havedriven the industrialization of the kingdom since 1975, and it ishere where the current surge in local and foreign investment in thenon-oil economy is most evident.

Jubail accounts for nearly half of total foreign investment inSaudi Arabia, and it now produces around 7% of all world petro-chemicals. In 2005, Foreign Direct Investment magazine named itthe city in the Middle East with the most economic potential.According to the Royal Commission for Jubail and Yanbu, whichhas managed the development of the two cities, Jubail’s non-petro-leum share of gross national product is 11.5%, and about 70% of the kingdom’s non-petroleum exports come from Jubail.

The two cities have leveraged their natural advantages of cheap energy and their strategic locations near key shipping lanesto Asia and Europe, benefiting from over three decades of sus-tained investment in infrastructure. This infrastructure, combinedwith attractive financial incentives to invest, such as tax exemp-tions and inexpensive rent, have turned the two cites into the Sau-di capitals for heavy industry and have provided employment toover 100,000 workers.

Jubail and Yanbu are now entering a new stage of industrialexpansion with the construction of Jubail II and Yanbu II.

The Jubail II expansion is being managed by Bechtel and will

add a second industrial area to the city, housing 22 primaryindustries and providing at least 55,000 new jobs. Phase I of the

The Expansion of Two CitiesJUBAIL AND YANBU HAVE BEEN AT THE FOREFRONT OF THE INDUSTRIALIZATION

OF SAUDI ARABIA FOR OVER THIRTY YEARS. A MULTI-BILLION DOLLAR EXPANSION PROGRAM

IS NOW BEING IMPLEMENTED IN BOTH CITIES.

expansion is now complete; three more phases are planned, untilcompletion in 2022.

For its part, Yanbu II is expected to be completed by 2019.Although it is over a thousand kilometers from the oil fields of theEastern Province, Yanbu is, like Jubail, a hub for petrochemicalindustry, with pipelines across the kingdom conveying cheap crudeoil and natural gas liquids for use as fuel and feedstock. Yanbu isalso located close to large mineral deposits. In addition to Yanbu-II,a new airport is being built for the city.

Talal Ali Al Shair, Group President of fiber glass manufacturerShairco, is a Yanbu veteran. In 1979, Shairco was the first privatesector company in the city. Al Shair compares the economic growththen with what he sees now: “The boom in the 1970s was mainly inthe infrastructure sector, and a lot of it was built for Jubail and Yan-bu. The boom now is in downstream industries. It’s a differentboom, with a different type of investment, and people can benefit alot more than in the previous boom.”

Shairco specializes in fiber glass products for airports, indus-try, architecture, domestic uses, and the marine and automotivefields, but also participates in a range of other industrial compa-nies, manufacturing polypropylene fabrics, toners for printing, sol-vents and precious metals.

“Jubail and Yanbu will expand by attracting investors whobelieve in the clustering concept,” Al Shair predicts. “A projectthat makes sense on its own makes more sense when it is puttogether with others in one cluster: economies of scale improvefinancial capability.”

Shairco is a part-owner of Cristal, which is typical of the newbreed of export-oriented Saudi companies in these two cities. From

Jubail accounts for nearly half of total foreign investment in Saudi Arabia

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its facilities in Yanbu, Cristal produces titanium oxide, a pigmentthat is widely used in many global industries. In order to meetdemand, Cristal recently increased its plant capacity from 70,000tons to 100,000 tons and is in the process of expanding it further,almost doubling to 180,000 tons.

Al Shair says that new Cristal facilities will form part of aplanned industrial complex in Yanbu which will export minerals,petrochemicals, fertilizers and metals such as zinc, titanium andaluminium.

Also a shareholder in Cristal, Tasnee is focusing heavily on thepetrochemical sector. In 2004 it inaugurated its first complex forthe production of propylene and polypropylene in Jubail, and it iscurrently constructing a $2.5 billion petrochemical plant.

The plant, being built in a joint venture with Netherlands-based Basell, will consist of an ethylene cracker of one million tonsper year capacity, and two polyethylene plants with capacity of 400,000 tons each. Production is expected to start in 2008.Moayyed Bin Issa Al-Qurtas, CEO of Tasnee, says: “The project isproceeding very well. We closed the financing, and the cracker andthe utilities are over 50% completed already.”

Petrochemical exports have spearheaded the industrial devel-opment of Jubail and Yanbu after the Saudi government opened up

the industry to private sector investment in 1995. WTO accessionis accelerating this trend by promising better access to global mar-kets and lower tariffs for petrochemicals produced using cheapSaudi feedstock.

An example of the potential of the sector, the massive $5 bil-lion Yansab petrochemical plant, to be located in Yanbu-II, willproduce 1.3 million tons of ethylene per year, adding around 15%to the kingdom’s total production capacity.

In Jubail, Sipchem, the Saudi International PetrochemicalCompany is now implementing an aggressive expansion programin the city. The Sipchem site occupies over one million squaremeters and currently produces one million tons of methanol per

year and 75,000 tons of butanediol. In 2006 it started constructionof its $250 million facilities for higher value acetyl products, withcommercial operations due to start in 2009.

Ahmad A. Al-Ohali, President of Sipchem, said the acetylinvestment represents “phase two” of the company’s program forproducing petrochemicals of increasingly higher value. Phase threeof this program would be an investment of close to $9 billion ineighteen polyoelfin plants in Jubail. At that stage, Al-Ohali says,“Sipchem should be one of the top three players in the Gulf in petro-chemicals, with production of 5 million tons; Sipchem would be anactive player in the international market and we would expand ourmarketing reach and capabilities outside the Middle East.”

In order to raise finance for the expansion in Jubail, in 2006Sipchem shareholders sold 30% of capital in an IPO. “With the

growth plan of the company, the chemical requirements areincreasing exponentially, so you reach a point where no matterhow strong your shareholders are, you are better off taking yourcompany public,” Al-Ohali explains.

But in spite of this rapid industrial growth, the corporateculture at Sipchem has a strongly environmental flavor. Thecompany employs clean production technology to manufacture itspetrochemicals, and Al-Ohali says that “from day one we have beencommitted to the safety and well being not only of the employeesof the company, but also the community around us, including theenvironment. We have established very strict policies, proceduresand guidelines not to make any shortcuts in any safety or environ-ment related issues.”

Al-Ohali is in no doubt as to the competitive advantages in thepetrochemical sector of Saudi Arabia in general and of Jubail andYanbu in particular: “Feedstock availability and price are probablythe biggest advantages by far, and the infrastructure in Saudi Ara-bia is incredible, especially in Jubail and Yanbu.”

A key part of that infrastructure is now managed by Marafiq,the privately-owned power and water utility company for the twocities, which started operations in 2003. One of the weak areas inthe past for Jubail and Yanbu had been the level of service provid-ed by the publicly-owned utilities. The urgent need for more effi-cient services, with better supply and more competitive pricing, ledto the establishment of a private operator to manage this sector.

Power and water supply has a crucial role in the process of industrialization, and Marafiq is now making major investments to

ensure that new demand from Jubail II and Yanbu II can be met. InDecember, 2006, the company awarded a consortium led by Suez

Marafiq manages the supply of water and power at Jubail and Yanbu

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Energy International a $3.4 billion contract to build, operate andtransfer a 2,750 MW and 800,000 m3 /day Independent Water andPower Project (IWPP), located in Jubail. The IWPP should comeon line in July, 2009.

The Marafiq project represents approximately 10% of the cur-rent total installed capacity in Saudi Arabia of 29,000 MW, which isplanned to increase to 60,000 MW by 2020 to meet rapidly increas-ing energy demand. A large part of the power and water supplied bythe Marafiq IWPP will go towards meeting the demands of Jubail’s

industries. Marafiq is also studying how to increase its power gen-eration and water production capacities at Yanbu.

“We are a key player in this area – we are providing all thesenew industries with services like electricity, water, seawater cool-ing, sanitary wastewater, and industrial wastewater. The diversifi-cation of the economy is very important, and Marafiq has to par-ticipate. We are going to support our end user which is the industry,so that they can expand more and more,” says Abdul Rahman S.Abahusain, VP of Finance at Marafiq.

As well as ensuring supply, a main focus for the company is onminimizing costs to end users: “Marafiq has been established toprovide our end users with their required services and maintain thereliability and stability of these services with competitiveness,”

Abahusain adds.

The company has set up a major customer relations divisionin order to register customer feedback and for Marafiq itself tosuggest possible improvements to customers, which is a majorinnovation in the Saudi utility sector. Abahusain says that “in thelast year there has been a big improvement. The trend is going upand our customers are appreciating what we are doing right nowand they are happy with that.”

One of the defining characteristics of the Saudi private sectoris a keen sense of its wider national responsibilities. In the indus-trial cities of Jubail and Yanbu, this is reflected in Tasnee’s com-mitment to industrialization, in the environmental and safety cultureof Sipchem, and in Marafiq’s customer-centered approach.

At Shairco, Talal Ali Al Shair has a special interest in improvingprospects for Saudi youth by giving them more opportunities forvocational training. “In Yanbu, I was able to gather eight or nine dif-ferent industries together to create a cooperative training center. Weattract young Saudis for specific training - welders, creative steelpainters, carpenters, auto mechanics, and it’s working beautifully.This encouraged us to get involved in projects that will be able to

upgrade the education system, especially at the vocational level. I’mglad it’s happening,” proudly concludes Al Shair.

Ahmad Al-Ohali, President of Sipchem

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In the mid 1980’s, a new breed of Saudi entrepreneurssaw that there was high potential for using Saudi Ara-bia’s vast natural resources more effectively. Simply sell-ing oil and gas was not enough; there would be muchgreater opportunities for growth and for wealth cre-ation by moving up the oil and gas value chain andinvesting in the petrochemicals segment. With this idea,

Mazen K. Allahiq Alnaimi founded SFCCL, the Saudi FormaldehydeChemical Company Limited.Alnaimi’s founding concept was supported by leading

investors from Saudi Arabia and other GCC countries such as AlZamil Holdings and Y.B.A. Kanoo of Saudi Arabia, Mazrui Hold-ings of UAE and Mohammed Jalal & Sons of Bahrain. Otherinvestors included businessmen Fahad Al-Nafisi of Kuwait andMohammed Al Mana of Qatar.

Recently renamed Chemanol, the company is rapidly becom-ing a world class producer of methanol-based products such asformaldehyde, methyl amines and derivatives. Based in the indus-trial city of Jubail, Chemanol is investing heavily in expandingexisting facilities and adding capacity for growth. It will begin pro-duction of methanol for its own use to accelerate its drive into

international markets with competitive, high value and environ-mentally friendly products.

“My vision is to create value from natural gas, not just burn itor sell it as methanol,” Alnaimi explains. “Our new name ‘Che-manol’ is taken from ‘Chemicals from Methanol’. It strongly under-lines our vision of leveraging natural gasresources by using methanol for down-stream products that add value to theindustry, the country and our customers.”

Formaldehyde is the core business of Chemanol. The company produces around400,000 tons annually of formaldehyde andderivatives and exports to over 45 countries;

its 26 specialty products are used in 27industries. It is a major supplier to the globaloil field, textiles, paper, leather and rubberindustries, which all use formaldehyde intheir end products “Our mission is to makeproducts that touch your life in ways unseen,” Alnaimi says.

Chemanol has come a long way since work began on con-structing one small plant back in early 1991, when the PersianGulf War was raging, and when there were no privately ownedcompanies in the petrochemicals industry in Saudi Arabia. “I wasflying where no-one had flown before,” Alnaimi recalls.

The story since then has been one of constant strategic move-ment: growth of Chemanol’s installed capacity, and growth intonew markets and new products. Between 1993 and 1995,

Chemanol doubled its formaldehyde capacity and, as a way of

diversifying its product portfolio, started to produce hexamine,which is used in a range of industries, including rubber, pharma-ceuticals, and mining. In this period, the company almost trebledits revenues.

In 1998 it expanded its capacity even more, diversifying intothe emerging areas of resins and super plasticizers – and doubledits revenues again. All told, Chemanol has now implemented 19projects of capacity expansion and product diversification in just17 years. “Vision does not endure without growth,” Alnaimiargues, “our story to date has been one of proving the concept,expanding the capacities, growing the markets and diversifyingwhenever possible.”

Chemanol is now investing $400 million in expanding andgrowing new production capacity to add new products. By

2008, revenues will have doubled again, and Alnaimi forecaststhat his company will have production capacity of 1 million tonsby 2010. This expansion will result in Chemanol becoming oneof the world’s largest producers of methanol derivatives likeformaldehyde and amines.

In addition to this downstream expan-sion, a key part of the transformation of the company will also involve a process of backward integration, as Alnaimi explains:“Instead of buying methanol, we will pro-duce it at a lower cost. This will provide uswith long term competitive cost advan-tages for our current products and our

new products. We have begun implement-ing our future.”In this highly globalized industry, inter-

national partnerships are one of the keyfactors for ensuring sustained success.

Going into partnership with a Swedish company for the produc-tion of pentaerythritol, a basic raw material for paints and coatingproducts, Chemanol is able produce the substance more efficient-ly, while its Swedish partner markets the products.

As in all successful business partnerships, this arrangementgears the strengths of each partner to the benefit of both. “Wecurrently have many partnering arrangements for technology,licensing, and off-take agreements with companies outside SaudiArabia. We examine all propositions that have synergies with our

vision and with the attributes of our business.” says Alnaimi.

A SPECIALIST IN METHANOL-BASED

PETROCHEMICALS, CHEMANOL IS RAPIDLY

EXPANDING ITS CAPACITY AND DIVERSIFYING

ITS PRODUCT RANGE. IT WILL NOW PRODUCE

ITS OWN METHANOL, LEVERAGING THE

NATURAL RESOURCES OF SAUDI ARABIA FOR

ITS COMPETITIVE ADVANTAGE

Chemanol: Downstream Creativity

Mazen K. Allahiq Alnaimi Founder and Managing Director of Chemanol

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BusinessWeek

T The largest region in Saudi Arabia, the Eastern Province is home tothe massive oil and gas resources that provide the bulk of the king-dom’s wealth. But in recent years the capital of the province,Dammam, as well as the cities of Al Khobar and Dhahran, head-quarters of giant oil producer Saudi Aramco, have seen the emer-gence of an increasingly diversified industrial base. The province ishome to some of Saudi Arabia’s largest conglomerates, and there isnow much more to its prosperity than the mammoth oil fields andthe famous date palms of the ancient oasis towns.

“Our main income in the past has definitely been oil,” saysAbdul Aziz A. Al Turki, President of Rawabi Holding, “but at thesame time, the vision of our government is to diversify and toindustrialize. That is why today you see the petrochemical indus-tries here are massive.”

Two facilities that are being constructed at Ras Al Zour byMaaden, the Saudi Arabian Mining Company, will lead to theEastern Province becoming a major force in the rapidly expand-ing world aluminum and fertilizer markets. Because of the lowenergy and feedstock prices in Saudi Arabia, Maaden will be oneof the world’s lowest cost producers of these materials.

The aluminum complex will consist of a smelter with capac-ity of 720,000 tons per year, a refinery of 1.6 million tons peryear, and a 1400 MW power plant. Maaden estimates that thealuminum project will provide up to 12,000 jobs, will stimulaterelated downstream industries to the tune of $740 million peryear, and will increase the kingdom’s gross domestic product by$30 billion over twenty-five years. In April it was announced

that Canadian aluminum giant Alcan would hold a 49% stake inthe $7 billion mine-to-metal project, with Maaden holding the

remaining 51%. Metal production should begin in the first quar-ter of 2011.

Maaden will also construct a 3 million tons per year, $3.5billion diammonium phosphate (DAP) plant at Ras Al Zour, whichwill be the largest single production site in the world and whichwill create 1,400 jobs. Production is scheduled to begin in 2010,and at maximum capacity the site will account for around 10% of global DAP trade.

The main missing piece in the infrastructure that will supportthese mammoth projects fell into place in April when the SaudiFinance Minister awarded contracts to Saudi, German, Chinese, Japanese and Australian companies to construct a $1.9 billion,1,765 km rail link that will bring the raw materials of bauxite andphosphate from Saudi deposits to the complexes at Ras Al Zour.Special port facilities for exports of aluminum and fertilizers will bebuilt to serve the surging markets of Asia and elsewhere.

From his vantage point at the head of over forty companies AlTurki at Rawabi Holding has witnessed a process of steady changein Saudi Arabia and in the Eastern Province. Rawabi has beenoperating in Saudi Arabia and the Middle East for over thirty years.Through its fully owned subsidiary Rawabi Trading and Contract-ing (RTC), it offers specialized services to the oil and gas and petro-chemical industries.

Rawabi has activities in an increasingly wide range of sectors,including construction, utilities, power and electrical, telecommu-nications and IT, freight forwarding, marine, trading and manu-facturing. Fully owned subsidiary Rawabi Telecommunications &

Software provides technology for voice and data communications,and Rawabi also has a stake in DigitalSkys, which specializes in

Eastern PossibilitiesTHE EASTERN PROVINCE IS NO LONGER JUST A LAND OF OIL, GAS, DESERTS AND DATE PALMS.

INDUSTRIALIZATION IS ACCELERATING IN THE MAJOR CITIES,

LED BY SOME OF SAUDI ARABIA’S FASTEST GROWING CONGLOMERATES.


Waking up to the bustle of business in Al Khobar

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SPECIAL ADVERTISING SECTIONSAUDI ARABIA Industry

providing wireless connectivity. “This area is the heart of the oilindustry,” says Al Turki, “but there are other opportunities. We areconcentrating on IT; there are new things in the market, new thingsinternationally and we want to be a part of that.”

Ahmad Al-Ohali, president of Sipchem, the Saudi Interna-tional Petrochemical Company, says that for his industry the maincompetitive advantages of the Eastern Province, apart from theavailability of cheap feedstock, is its strategic global location.Though its industrial complex is in Jubail, Sipchem keeps offices in

Al Khobar, profiting from the raw materials and port facilities of the province. “Our market is in China, in Asia, in Europe,” saysAl-Ohali. “It is true you have to ship both ways, but at the sametime you are in the center, between Asia and Europe, so comparedto the Americans or the Asians who have to cross oceans, thatgives us some advantages.”

Like the Eastern Province itself, the Khalid Ali Al Turki &Sons Group has progressively diversified into different areas. Inits early years, during the petrodollar-fueled infrastructure boomof the 1970s and early 80s, the group focused on the constructionand oil and gas sectors and then went on to participate in otherindustries such as petrochemicals, utilities, high technology andtelecommunications.

Saudi Readymix, its concrete subsidiary based in Al Khobar,has experienced explosive growth in recent years. In 2006 itresponded rapidly to demand for high quality ready mixed con-crete in Saudi Arabia, producing over 3 million cubic meters of thematerial. Capital investment in 2006 exceeded $35 million, andinvestments in new capacity are continuing in 2007 to meet thegrowth in demand. As part of a five-year growth plan, SaudiReadymix is looking to increase its production volume of concreteand related products by 25% annually, beginning in 2007.

Oil and petrochemicals have long been the Eastern Province's foremost products.

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SPECIAL ADVERTISING SECTIONSAUDI ARABIA Industry

“We have the vision of leading the production of concrete inthe Middle East,” Rami Al Turki, Executive Director of thegroup says. “We are aggressively pursuing acquisitions andorganic growth. Also, we are beginning to explore adjacent mar-kets in the GCC and the Middle East. The idea is to continue toexpand and be a leader in our divisions.”

The Khalid Ali Al Turki Group also has a major interest in theenvironment and in the environmental services sector. “This is asector we felt very excited about,” Rami Al Turki says. “It is an

emerging area globally, especially in the developed world. We arelooking to start as a consultancy, but we will also get into envi-ronmental services, the water and waste water treatment sectors.”

“We have to diversify to develop the country’s economy,” RamiAl Turki adds, “but at the same time continue to focus in the areaswe know best. Building materials, oil and gas, ready mix concrete,the environment and development are the areas where we have avery strong understanding, and we are trying to strengthen our posi-tion in consumer-related areas such as telecom, ICT, and in IT.”

What are the challenges now facing industry in the EasternProvince? Al-Ohali at Sipchem says that WTO accession in Decem-ber 2005 is opening new markets, but is also placing new demandson Saudi companies: “There will be more pressure on us to sharp-

en our pencils, to improve our operations and performance.”Rami Al Turki shares that perspective. He says that with WTOmembership “it’s going to be the survival of the fittest, and we aregoing to be forced to improve services. The WTO forces companiesto be much more focused on customer service and to deliver.”

Abdul Aziz A. Al Turki at Rawabi Holding thinks anothermajor challenge will be on the human side – to ensure that there isa pool of well trained young Saudis available to fill the jobs createdby the expansion and the diversification of the Eastern Province.

“The challenge now is training,” Al-Turki says, “because jobs arehere for a long time to come. This boom is going to last five or six

years. The way the government is looking at future infrastruc-ture, there will be a tremendous amount of work opportunities.The difficulty we face here, like any other company, is to find theright people.”

That’s a view echoed by the Khalid Ali Al Turki Group. “Weneed to do more in terms of training and development for Saud-is,” Rami Al Turki says. “I think that labor is a very big area forreform, and corporate laws are another. These areas are veryimportant for any business and they are being addressed.”

Companies face the challenge of balancing growth with care for the environment.

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BusinessWeek


Unexpectedsynergies

The desert sands of Saudi Arabia hold more treasures than just oiland gas. The kingdom is also home to vast resources of salt, whichis not only a vital ingredient in dining tables across the world, but

also a key basic material in a wide range of industries, includingthe booming petrochemicals sector.Since 1995, Gulf Salt Co. Limited, in the Eastern Province of

Saudi Arabia, has been extracting salt from its 3 million squaremeter mine by the sea. It then gets transported 50 kilometers toits refinery, where it is treated and purified for a number of varyingend uses, including table, food grade, industrial and crudewashed salt. The high purity salt that the company produces isused in a range of applications, such as in drilling mud for the oilsector, as a raw material in the caustic soda industry, in watertreatment, water softening and conditioning, in tanneries and ironand aluminum smelters.

Abdulaziz Abdulhadi Al Qahtani is the Chairman of theAbdulhadi A. Al Qahtani Sons Group, which is an investor in this

completely Saudi run joint venture. “In a lot of petrochemical-based industries, such as methanol, ethanol, polymers, the mainfeedstock is salt. We produce industrial salt to be delivered toother industries,” Al Qahtani explains. “We also produce heavysalts at a high rate, which we export to neighboring countries andEurope. And we have food salt, which is used in date farms andthe cheese industry.”

The Al Qahtani Group is making a major entry into the Saudimining and minerals sector. Consolidated Mining Co. is a jointventure with Bateman Engineering which provides specialisttechnologies in the mining and minerals processing sectors.Arabian Minerals & Chemicals is a US-Saudi joint venture thatsupplies fluids for drilling to customers including Saudi Aramco,

and which has manufacturing capacity of fluids such as barite andbentonite of over 150,000 tons per year.Al Qahtani believes that a partner-based approach is crucial in

this sector. “We have partners in all of those investments in themining industry,” he says, “Not everyone can enter into miningunless they have the right partner. It’s risky without people thathave the experience and the know-how. We have partners fromAustralia, South Africa, Great Britain. They are equity and technicalpartners in our projects.”

Like many leading industrial conglomerates in today’s SaudiArabia, the group traces its roots back to the early days of the oilindustry. “My late father was one of the pioneers of the Dammameconomy,” Al Qahtani recalls. “He started in contracting in theearly 50s, in oil services and other related sectors.”

In spite of a high level of diversification since then, oil field

ABDULAZIZ ABDULHADI AL QAHTANI IS

AT THE HEAD OF A DIVERSIFIED

CONGLOMERATE THAT RANGES FROM OIL AND

GAS SERVICES TO SALT MINES. HE BELIEVES

THAT THE DYNAMISM OF THE PRIVATE SECTOR

IS PROVING TO BE THE BACKBONE OF THE

SAUDI ECONOMY.

services remain the core of the company’s business with Al QahtaniMarine and Oilfield Services Company as its flagship. The group isthe partner in Saudi Arabia to three of the world’s largest and most

active companies in the oil field services sector, Italy’s Saipem, anoil and gas pipeline specialist, Halliburton subsidiary Sperry DrillingServices, and Fairfield Industries of Texas, which uses advancedtechnology to acquire seismic data in surveys. With oil prices stillnear record highs, the Al Qahtani Group is benefiting from thecurrent increase in exploration and production that has beentriggered across the industry. It has also built up particularexpertise in providing onshore and offshore drilling equipment andservices, again with the support of a range of multinationalpartners that include TIW Corporation, Reed Tool Company,Hycalog, and Canada’s Top-Co. Industries.

Since the early focus on services for the oil and gas industry,the group has expanded into areas as diverse as soft drinkproduction and distribution, petrochemicals, wholesale and retail

distribution, and can manufacturing. “Diversification is veryhealthy provided you can master the new business you aregetting into,” Al Qahtani says. “For any new project or newactivity, we make the business stand by itself and we give it adifferent identity. Every one of them, in different fields, isindependent: they have independent profits and losses.Diversification is very important today, but we don’t go to anyindustry in which we don’t have knowledge.”

The food and beverages industry is a core area for the group;it is a franchised bottler for Pepsi Cola in the southwest of SaudiArabia, also bottling Tropicana and mineral water and distributingthem on a large scale. In addition to a wide distribution network,Al Qahtani says the company’s commitment to quality control gives

their clients an edge over competitors. His beverage business haswon fifteen international quality awards in the last twenty years.Leveraging its strengths in the food and beverage sector, thegroup has also expanded into manufacturing cans for drinks: itsSouthern Can-Making Company unit has annual productioncapacity of 600 million cans.

Al Qhatani says that family industries like the group set up byhis father “are the backbone of the country,” and he is confidentthat the process of economic reform that is being driven forwardby King Abdullah will encourage more international partners toinvest in the expanding Saudi economy. “Of course the kingdomstill has to change things to make international investments moreattractive,” he notes, “but Saudi Arabia is very lucrative because of its location and because of its low cost for business. Investors can

also benefit from clear laws of commerce.”

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BusinessWeek


Adding value to partners

Anybody who has ever turned on air

conditioning in Saudi Arabia, spoken on thetelephone, used IBM hardware or software,or driven in a Mercedes, in other words,

just about any business traveler in thekingdom, will probably have had reason tobe grateful to E.A. Juffali and Brothers.

In over sixty years in business, thisJeddah-based group has become partnerof choice in the country to some of theworld’s leading multinationals. E.A. Juffaliand Brothers traces its roots to a shop setup by three brothers in Mecca in the 1930s. The company has ledthe way in private sector involvement in the development of

Saudi infrastructure winning the kingdom’s first electricityconcession in 1945 in the city of Taif. Subsequently it expandedwithin the electricity business through a partnership withSiemens, and moved into areas as varied as refrigerationand air conditioning, telecommunication systems (with Ericsson),IT services (with IBM), chemicals (with Dow), constructionequipment, insurance, printing machinery, and medicalequipment (again with Siemens).

THE NAMES OF THE BUSINESS PARTNERS OF E.A. JUFFALI AND BROTHERS READ LIKE A ROLL CALL OF

THE WORLD’S MOST POWERFUL CORPORATIONS. THE GROUP HAS PLAYED A KEY ROLE IN THE DEVELOPMENT

OF SAUDI INFRASTRUCTURE AND INDUSTRY.

“Progress through diversity” is the

motto of the group. Vice Chairman andManaging Partner Khaled Juffali says that ithas been key to establish “the bestpartnerships in different industries. If wedid not give any added value, thesepartners would not stay with us.”

Juffali says the success of this businesssynergy is helping the group maintain itsforeign partnerships after WTO accession.“A lot of people are scared that their foreignpartners might not remain,” Juffali explains.

“But we know the market, we know how to do business in SaudiArabia and in the neighboring countries. We have delivered what

we have committed ourselves to. We are not in for the short term,for the hit and run. We are in for the long term.”The company is currently looking to expand both

geographically, in the Gulf and the Levant, and also in businesslines, with a stronger focus on information and communicationstechnology by leveraging its current partnerships. “From a businesspoint of view you try to expand wherever you can have an addedvalue, where the direction of the kingdom is going,” Juffali says.

Khaled Juffali, Vice Chairman and Managing Partner of E.A. Juffali & Brothers

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BusinessWeek


A fighter pilot may seem an unlikely environmentalist, but it was dur-ing his time in the Royal Saudi Air Force that Prince Turki Bin NasserBin Abdulaziz’s interest in environmental affairs started to become aprofessional passion. Now, at the head of the Presidency of Meteo-rology and the Environment (PME), which has had ministry statussince 2001, the Prince is responsible for ensuring that the rapidexpansion and industrialization of Saudi Arabia does not come atthe expense of its environment.

The requirement for a sustainable, balanced relationship

between man and nature forms one of the foundations of Islamicbelief, and the kingdom is spearheading Arab and Islamic environ-mentalism by launching a new television channel, Beeaty, which willbe shown in schools and universities across the Middle East to raisethe level of environmental awareness in the region. “The main pur-pose is really to show the Arab world how damaged our environ-ment is becoming and to try to get support from all civil society,”explains Prince Turki.

King Abdullah not only has granted newpowers to the PME to enforce environmentallegislation, but “green” concerns are at theheart of the country’s economic mega projects.Needless to say, there are major opportunities

for the foreign private sector to contribute theirknow-how and expertise in this growth area.According to the teachings of Islam, man

is in a position of responsibility to all beings:his role is as a trustee and steward of the cre-ated world and of the riches of nature. TheKoran teaches that “if any Muslim plants atree or sows a field and a human, bird or ani-mal eats from it, it shall be reckoned as charityfrom him.”

Combined with the resurgence of environ-mental concerns in international policy-makingorganizations, these age-old religious beliefsare leading to greater awareness in all areas of

the Saudi economy. The PME is in the drivingseat of this process.

“Saudi Arabia has passed through two phases of [economic]development,” Prince Turki says. “The first one was in the 1970s,and did not include any environmental assessment. Now we arein a larger phase of development, and we are optimistic that wewill be able to give environmental issues first priority from theinception stage.”

In 2001 King Adbullah awarded the PME, which used to bemerely a legislative and consultative body, powers to enforce lawsand to apply penalties. The role of the organization is to establish

environmental protection standards and prepare policies for the

kingdom. The PME is in a crucial position in the current diversifica-tion of the economy: all new major developmental projects inSaudi Arabia require environmental impact assessments at theplanning and feasibility study stage, without which a license willnot be issued.

“The environmental regulations that we have passed in the year2000 now have been implemented through penalties, even to the

extent of closing factories,” Prince Turki says.“As far as the new projects are concerned, fromthe day they start they must have all the con-trols in place. Before, the PME used to repre-sent legislation only. Now it has the right to goand inspect any project or facility in Saudi Ara-

bia, be it governmental or private.”In this desert kingdom with a rapidly risingpopulation, water scarcity and water conserva-tion are critical environmental challenges. SaudiArabia does not receive enough natural rainfallto meet all its needs, and the PME, supportedby US know-how, is carrying out a major pro-gram of pilot projects which use airplanes toseed clouds with chemical substances in orderto induce greater levels of rainfall.

The latest feasibility study was held in thecool season of November 2006 to March2007, taking advantage of the more frequentnaturally forming clouds in northern Saudi

Arabia in that time. Scientists from the USNational Center for Atmospheric Research from Texas A&M Univer-sity, and from private US company Weather Modification Inc., withthe operational support of the PME, studied the climatology of theregion, the physics and chemistry of clouds and rainstorms, andanalyzed the impact of the cloud seeding tests using Saudi radarand specially equipped aircraft.

Results from these projects suggest that substantial increases inprecipitation and in the country’s water reserves could be achievedwith this technology, and the PME is currently supervising an expan-sion of this program of field experiments across the country.

THE POWERS OF THE PRESIDENCY OF METEOROLOGY

AND THE ENVIRONMENT (PME) TO DEVELOP AND

ENFORCE ENVIRONMENTAL LEGISLATION HAVE BEEN

INCREASED. ON THE FACE OF GREATER

INDUSTRIALIZATION IN THE KINGDOM, THE PME IS

SAFEGUARDING ITS NATURAL ASSETS

A green kingdom

Prince Turki Bin Nasser Bin Abdulaziz,General President of PME

The fauna of the kingdom includes a variety of colorful underwater species in the Red Sea

M ARKETING : Lucie Desmaretz - R ESEARCH : Roderic Pratt - Jez Boix T EXT : Mark Beresford - P RODUCED BY : Carmen Moura - D ESIGN : Mercia Fuocowww.vegamedia.coma VEGA MEDIA creation

Photo: Nico Smit

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