With the announcement earlier this week that the privatisation of Abu Dhabi's electricity generating and distribution sector was set to accelerate over the next six months, investors and analysts were widely predicting spin offs from this in a number of related sectors. Principle among these was aluminium, with the announcement coming at the same time that a major expansion in this area was going full-speed ahead.
Regarding electricity sell offs, Abdullah Saif al-Nuaimi, director of privatisation for the Abu Dhabi Water and Electricity Authority (ADWEA), told the Gulf News on December 12 that "Private placements in the Abu Dhabi Distribution Co. and Al-Ain Distribution Co. are under consideration. A final decision will be taken by the first quarter of next year."
These two companies were formed during the restructuring of Abu Dhabi's water and electricity generation and distribution systems back in 1998. Distribution and supply to customers was subdivided between the Abu Dhabi and Al-Ain distribution companies, according to municipality boundaries.
After oil and gas, power and water are the most important sectors in the emirate, with rapid growth in demand being experienced by both. This is a phenomena not merely confined to Abu Dhabi either, as population grows, consumption per capita increases and more water is needed for irrigation. A recent government report predicted an additional 7000 MW of power generation would be required over the next 10 years for the UAE as a whole. This should generate investment in these sectors of around $30bn over the next 5-10 years.
Aware of this growing demand and seeking ways in which to finance it, Abu Dhabi decided to introduce the private sector into power and water production - with the later being concentrated largely on the creation of water desalination plants. Back in 1998, ADWEA ended its monopoly position and split its operations into 11 licensed companies. To begin with, some 32% of the emirate's power generation and desalination capacity was privately owned. This was scheduled to rise to 54% by the end of this year for power generation and 42% for water production and desalination. Full privatisation of both is expected by 2006.
Thus the interest in al-Nuaimi's statement. However, "We are looking at allowing only minority stakes in these two companies," he continued, "without any public offering of shares." The sell off campaign then, still has some way to run before the sector is truly private.
Meanwhile, however, ADWEA has been active elsewhere. Al-Nuaimi also mentioned to the paper that an agreement on the company's involvement with the Omani Sohar Aluminium smelter was expected to be signed in the first quarter of 2005. ADWEA is to take 40% equity in the smelter, which will have a capacity of 500,000 tonnes per year, and includes a 1100 MW power plant.
"There is no date fixed, but the signing may take place next year, within three or four months," al-Nuaimi said.
Closer to home, aluminium smelters have also been in the news, with an announcement from the Dubai Aluminium Company Ltd. (DUBAL) that its Potline-7 expansion plan is surging ahead.
This expansion is taking place at the Jebel Ali smelter, already considered one of the largest single site aluminium smelters in the world. With work on the additional electrolytic cell, the Dh748.7m ($204m) Potline 7, reported ahead of schedule, the smelter looks set to achieve its production target of 761,000 tonnes per year ahead of its fourth quarter of 2005 completion target. Production is currently around 686,000 tonnes per year.
"The expansion is in accordance with the directions of Sheikh Hamdan bin Rashid al-Maktoum, deputy ruler of Dubai, the UAE finance and industry minister and Chairman of DUBAL, who intimated that our output should be on a par with the ever increasing international demand for aluminium and finish the expansion within its projected schedule and budget," Abdulla Kalban, DUBAL's Director of Operations, told reporters on December 11.
"We are also exceptionally proud that the project is being conducted under the expert supervision of DUBAL's in-house trained UAE nationals," he continued, "which is also in line with DUBAL's management directions."
This was an important point for Kalban to make. The company has put much effort into developing its own electrolytic cell technologies, which as a result has meant less dependence on outside help and a faster production schedule.
As Mohammed E. Nagib, general manager of engineering and maintenance, put it to the Gulf News the same day, "Apart from the obvious freedom to update our technology without interference from outside parties, our own in-house cell technology has been of principle benefit in our expansion of Potline 7. Through its use, we have made the process of expansion even more efficient, as well as ensuring the continuing reduction of our operational costs. DUBAL will greatly benefit from this expansion, once the venture is completed."
All in all, a pleasing conclusion. Aluminium also promises much to investors in power generation, given its high electricity needs during the production process. If it continues to expand - and with orders coming in from right across the world, it seems highly likely to continue growing - then the need for power will rise with it. If that can be successfully integrated with efforts to develop the Emirates' labour skills base and technological know-how, then that would be even more pleasing still.