* Industrial complex planned in far north around phosphate
* Total investment to cost $9 billion
* Part of Saudi strategy to diversify from oil
* Oil and gas still roughly half of Saudi GDP
* Future oil revenue uncertain if prices hit by U.S. shale
By Angus McDowall
TURAIF, Saudi Arabia, Feb 13 Billboards on the
highway outside Turaif, a remote desert town in the far north of
Saudi Arabia, foretell a glittering future of glass offices and
palm-shaded residential streets. A future that won't rely on
Last week an array of government ministers gathered in a
tent near this barren outpost, 1,100 kilometres (700 miles) from
Riyadh, to sign contracts to develop an industrial complex
around a phosphate mine, with a new railway link to a Gulf port
and total investments estimated at more than $9 billion.
The Waad al-Shimal project, or "Northern Promise", is part
of a wider strategy in the kingdom, the world's largest oil
exporter, of building downstream industries and boosting the
private sector instead of simply exporting raw materials.
It follows in the footsteps of Jubail and Yanbu, massive
industrial cities on the Gulf and Red Sea coasts that were built
in the 1980s as Saudi petrochemical production grew.
Riyadh is also pushing the King Abdullah Economic City near
Jeddah, run by Emaar Economic City, as a
private-sector scheme along the same lines.
"I think this approach is something that will help diversify
the economic base," said Paul Gamble, director, sovereign risk,
at Fitch Ratings. "It will help diversify export revenues. It
will have an impact on employment, though not a large one. The
one thing it doesn't address is diversifying budget revenues."
Recent diversification efforts through industrialisation
have had little impact on official figures showing the size of
the oil industry relative to the wider economy as increased
crude revenues have outpaced growth in non-oil sectors.
Oil and gas accounted for 49.7 percent of GDP in 2012, up
from 37.7 percent in 2002, the most recent central bank data
shows, as the price of Brent crude quadrupled over the period.
But many analysts expect oil prices to fall in the next few
years as the United States ramps up shale oil production, which
will shine a light on the virtues of diversification.
"We started out exporting crude oil, then we moved into
refining, then we moved into gathering gas and creating a
petrochemical industry. Then we moved into large-scale mining.
The benefit of it is that it has large downstream industries,"
Economy Minister Mohammed al-Jasser told reporters at Turaif.
The desert stretches in all directions from the spot where
he spoke to an unbroken horizon, but when complete, Waad
al-Shimal will be a major producer of phosphate products
including the industrial fertiliser ammonia, animal feedstock,
plastics and detergents.
THE SABIC MODEL
The project could make its biggest shareholder, half
state-owned Saudi Arabian Mining Company (Maaden), a
significant player in the global minerals industry, modelled
perhaps on Saudi Basic Industries Corporation (SABIC),
which was built from nothing in the 1980s and is now one of the
world's biggest industrial chemical companies.
SABIC is not only Saudi's main source of non-oil exports,
but provides the raw materials for a host of downstream
factories in Jubail and Yanbu.
"There (will be) many industries that also have high
employment value in the region," Finance Minister Ibrahim
Alassaf told Reuters.
A measure of the importance attached to job creation at Waad
al-Shimal is that the kingdom's technical training institute
plans a new college nearby, to educate 300 graduates a year for
white-collar jobs in industrial fields.
Saudis increasingly work in technical fields that were once
the preserve of expatriates, something government labour reforms
are aimed at encouraging.
However, many companies still say they prefer to hire
foreigners, who cost less and often have more experience.
Mineral production has been largely neglected by the Saudi
Oil Ministry and for decades has been restricted mostly to
smallscale gold mining.
The government set up Maaden in 1997 and opened the sector
to private and foreign investors in 2001.
"Saudi Arabia is hardly explored. We expect very high
potential for additional mineral resources. Saudi Arabia is
virgin. There is a lot of activity and interest in the
development of minerals," Oil Minister Ali Naimi told reporters.
Maaden was part privatised in 2008, floating half its shares
on the Saudi bourse, and it moved towards large-scale minerals
developments supported by extensive state-funded infrastructure.
The thinking behind Maaden and other former state-owned
companies set up with an eye to privatisation was as a means of
distributing wealth and bringing private-sector nous to
"They have so many foreign partners for these big projects,
which gives more confidence in the due diligence process, and
therefore their chances of success," said Fitch's Gamble.
A first project, Maaden Phosphate Company (MPC), started up
in 2011 in partnership with SABIC, had capacity to produce 11.6
million tonnes a year (t/y) of ore at al-Jalamid in the Northern
Borders region, supplying a 3-million-t/y diammonia phosphate
(DAP) plant at Ras al-Khair on the Gulf coast.
Last year Maaden inaugurated a second major development, a
$10.8 billion aluminium joint venture with U.S.-based Alcoa
, with an alumina refinery, aluminium smelter and rolling
mill at Ras al-Khair.
It currently imports raw material, but will eventually use
bauxite from a mine at al-Ba'itha near Quiba in Qassim Province
scheduled to start up this year with output of 4 million t/y.
The phosphate mine at al-Jalamid, the bauxite mine at Qassim
and the processing facilities at Ras al-Khair are connected by a
new rail network built by state-owned Saudi Arabian Railways
that will be extended to Waad al-Shimal.
The government built the port and some other facilities at
Ras al-Khair, but Maaden developed a power and water
desalination plant for its aluminium and phosphate projects.
Waad al-Shimal, a joint venture with SABIC and U.S.
phosphate and potash producer Mosaic, builds on these
earlier developments with a mine at Umm Wual near Turaif and
nine large processing facilities.
In December Maaden said it had secured $4.2 billion
financing commitments from banks, while government bodies would
supply $3 billion. First production is expected in 2016.
Government agencies will also pay for rail and port expansions.
Engineering, procurement and construction contracts for the
main facilities have already been awarded, with the largest jobs
going to Daelim Industrial Co, Spain's Intecsa
Industrial, SNC Lavalin, Sinopec Engineering Group
and Hanwha Engineering & Construction Co.
The engineering consultant is Fluor Corp, and the
project manager is Bechtel.
Saudi Arabia is already a major exporter of urea and
ammonia, two of the most common artificial fertilisers, via
Saudi Arabia Fertilizers Co (SAFCO), a unit of SABIC.
"It's about using what they have and producing value-added
goods instead of just exporting the raw material. Around that is
an industrial cluster strategy that you hope will create jobs
and industries you never had before," said John Sfakianakis,
chief investment strategist for Saudi investment company Masic.