Participants of Environmental Education Course 2010 with Hamdan Al Shaer

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By Robin Wigglesworth in Abu Dhabi  www.ft.com

The site at Taweelah – a barren, sandy tract of land on the outskirts of Abu Dhabi – might not impress now, but the emirate hopes it will eventually be the industrial heart of a more balanced, diverse economy.

Strategically situated roughly halfway between Abu Dhabi and neighbouring Dubai, it will be the site of the Khalifa Port and Industrial Zone, arguably one of the most important projects planned in the United Arab Emirates.

There is no official cost estimate for the overall KPIZ project, which is not due to be completed until 2030, but Zawya Dow Jones, a data provider, estimates that just the zone’s port and infrastructure will cost $24bn, not counting the various individual plants and other associated projects.

Abu Dhabi Ports Company, which oversees the project, last month brought in Tony Douglas, a former chief executive of Heathrow Airport, to ensure that the critical first phase is finished on time. Mr Douglas says: “The scale of it is incredible. We’re looking to build the region’s largest industrial zone.”

Manufacturing at present represents only about 10 per cent of the economy but, according to the government’s “2030 Vision”, Abu Dhabi hopes to boost the sector’s share to 25 per cent by 2030 and KPIZ is to play an integral role in this aim.

The main concerns about the project are whether it can compete with other manufacturing zones in the UAE and Asia while attracting private-sector companies, and to what extent the project will be affected by the financial crisis.

The plans are certainly grand. The first phase alone, due to be completed in late 2012, will include a 51 sq km zone and a port with a capacity of 2m 20ft container equivalent units, or TEUs, as well as space for 9m tonnes of general cargo.

Overall, the entire project foresees a 417 sq km industrial zone, about four times larger than Abu Dhabi’s main island, while by 2030 the port is slated to achieve a capacity of 15m TEUs and 35m tonnes of cargo.

The huge port is designed to service several manufacturing “clusters”, such as aluminium, plastics, logistics, paper and glass. KPIZ will also be directly linked to nearby airports in Abu Dhabi and Dubai and the planned 1,100km UAE Union Railway network.

Emirates Aluminium has built a smelter with an annual production capacity of 750,000 tonnes at Taweelah, which it aims to expand to 1.5m tonnes a year. Abu Dhabi hopes Emal will be an “anchor” for other related companies,

Indeed, state-owned Abu Dhabi Basic Industries Corporation has announced plans for several large downstream product plants at the site. “These projects will create around 1,000 jobs and will make use of aluminium from Emal,” says Jamal Salem al-Dhaheri, chief executive of Adbic.

But the KPIZ blueprint was drawn up before the financial crisis, causing some to question the assumptions that underlie many aspects of the project.

“Pragmatism has been integrated into the decision-making a lot more in the past 18 months,” says Christophe Mariot, regional head of structured finance at BNP-Paribas. “Every project is being thought over a lot more carefully now. They might not be delayed, but they are testing all the assumptions of profitability and sustainability.”

Chemaweyaat, Abu Dhabi’s flagship petrochemicals group, plans to build a gargantuan chemicals complex at Taweelah, but progress has slowed.

“We are aware of the global economic setbacks,” says Khaled Salmeen, head of the port’s industrial zones unit. “We have been reviewing the market and have already adjusted our estimates twice over the past couple of years and demand remains very healthy.”

Moreover, some Abu Dhabi companies will continue to be based in Mussaffah, the emirate’s current main industrial centre, while others prefer a more central location. Emirates Steel has reportedly decided against a plant at Taweelah and Advanced Technology Investment Company, which plans to develop a chip-making and technology cluster in the emirate, has also ruled KPIZ out. The company says: “It was under consideration but was not chosen in the end. It had extremely good points, but given the importance of proximity to social infrastructure, we chose somewhere closer to town.”

ADPC stresses that KPIZ is a long-term project that will be developed gradually over the next two decades.

“Nothing has changed with the underlying vision of economic diversification, and KPIZ will put down essential infrastructure to service manufacturing in Abu Dhabi for the next three generations – not just the next few years,” Mr Douglas says.

Indeed, despite the immediate challenges, economists largely support the rationale behind developing industries dependent on oil and gas – at Taweelah or elsewhere – despite similar plans in other Gulf states.

“The underlying logic is very strong,” says Simon Williams, chief economist at HSBC Middle East. “The advantages the region enjoys in energy-intensive industries are so strong that regional duplication isn’t really a problem. It’s the international producers that should be more worried.”

The Financial Times Limited 2010.

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