How profitable could the JV in “The Kingdom” be for Dow?
The Saudi Aramco – Dow Chemical (DOW) joint venture at Ras Tanura will have a plastics processing zone, and area of petrochemical processing the Saudi’s covet diversification to, hence the recent purchase of GE Plastics (GE). Saudi Arabia is one of the most sought after destinations for petrochemical investments because it offers the lowest priced ethane in the world.
According to Dev Corp International, which is involved in developing plastics projects in the Kingdom, land is not a problem and companies have a choice of setting up facilities either on the east or the west coast and options include Jubail, Yanbu and the Plastic Valley in King Abdullah Economic City near Rabigh.
How much is the savings doing business in Saudi Arabia?
Land is available for lease at $0.27/square metre/year, .
Power costs are as low as $0.03/KWh.
Funding should also not be a problem as soft loans are available from the Saudi Industrial Development Fund to cover up to 48% of the project cost. As the upcoming “white paper” from Dow will illustrate, the JV strategy enables the projects to be self-funded.
One chief concern that has been voiced was the availability of skilled labor for the facilities but the Saudi government is reported to have set up institutes to train operators. They have a goal of producing 300 skilled operators every year.
There is a worldwide rush to get into Saudi Arabia now and Dow is the first to get it’s foot in the door in petrochemical processing and it is doing so on an unprecedented scale. What this will do is take the raw material costs which now stand at over 50% of Dow total cost structure and lower that dramatically, throwing more cash to the bottom line.
Based on recent history, that cash will be well taken care of for us shareholders.