Exclusive interview: Tasnee chief Saleh Al-Nazha

Saudi National Industrialisation Company (Tasnee) is the first Saudi joint-stock company wholly owned by the private sector, and has rapidly become one of the leading industrial companies in the Kingdom. “We are the second largest petrochemical company in the country, and we are the biggest private petrochemical company in the Kingdom, also we are one of the biggest companies in the region,” says Saleh Al-Nazha, president of Tasnee petrochemical complex.

The company receives its feedstock gas from Saudi Aramco, but the Saudi Arabian government is set to increase the price of allocations by 2011, which will act as blow for the competitiveness of the industry, and is a particular concern to private operators.

“If we lost the competitive advantage of feedstock, it would certainly have an impact, but we have to remember that this is a very strategic move for the Kingdom. Creating heavy industries is something the government is really working on,” says Al-Nazha. “It was proven to the European Commission that this is not a subsidy, but a discount, because of the local usage of the material. That has really put us ahead of other producers and we hope that nothing will happen to that discount,” he explains.

Recently the company achieved a major operational milestone when it started cracking ethylene from its subsidiary, Saudi Ethylene and Polyethylene Company (SEPC). “I think the biggest achievement of the company to date is the completion of SEPC and the start up of the cracker, just under a year ago. We have also acheived performance which is considered to be the best in the world,” beams Al-Nazha.

“Starting up a cracker in less than 36 months has never happened here, and we did it in 34 months,” he explains. SEPC is a joint venture between Tasnee and LyondellBasell. It produces 1 million t/y of ethylene, 800 000 t/y of polyethylene and 285 000 t/y of propylene.

“We conducted the performance test five months ago and it was perfect. Recently, we started the HDPE and the LDPE plant. They are the largest units of their kind in the world. Of course, that was a major challenge by itself, to operate such big plants with success,” he says. Just like any other project of this size and scope, the company has not been without its own start-up problems. Al-Nazha concedes that there were some teething problems at the HDPE plant, but the company managed to solve the issues onsite relatively quickly. “What’s important is the fact the plant is the largest of its kind and has been running 104% of its designed capacity over the last few months,” he adds.

“The 400 000 t/y LDPE plant has also faced a small mechanical problem in one of the compressors, but it had nothing to do with the technology, and we could begin exporting the product when the plant was operating at around 90% capacity,” the president of the complex explains.

Al-Nazha says he is not concerned by LyondellBasell’s US problems, and the call for chapter 11 bankruptcy protection. “All of our relations and business activities are with the European and Asian offices, and that has been the situation since the beginning of our joint venture with Basell, so it is business as usual,” he says.

The crunch

The downturn affecting the global petrochemical industry has engulfed Tasnee as well, but Al-Nazha remains upbeat about a turnaround in fortunes. “Of course, Tasnee is one of the international players and we sell our products in foreign markets. Like everybody else, we have been affected by the downturn, and depressed commodity prices, but we think about the business model of the petrochemical industry in Saudi Arabia, and that remains very solid looking ahead,” says Al-Nazha. The president seems to be confident about the performance of not only his company but also the whole downstream business in the region. “The petrochemical business in Middle East was well positioned to cope with a downturn,” he says.

“The industry has always been cyclical by nature, and we were prepared to see downturns as well as the boom times, and prices will go up again,” he explains. Cheap feedstock has put the company in a better position compared with competitors around the globe, but to fully capitalise on this head start, Al-Nazha says the company is always looking to improve the efficiency and to reduce unnecessary costs.

Thinking big

Despite the previling market conditions, Tasnee has stuck to its hugely ambitious investment plans. The US$1bn Saudi Acrylic Monomer Company, a joint venture with Dow Chemical (previously Rohm and Haas), is one of those megaprojects, and is on track says Al-Nazha.

“We are working on the acrylic acid project with Dow Chemical, this has a project price tag of around US$1bn, and is located at the Tasnee site in Al-Jubail,”
he reveals.

“We signed the joint venture agreement in June 2008, and we have already started the engineering activities. Actually, the design package has been done, and we have awarded a contract to Fluor Corporation to act as project management consultant (PMC) for the project,” says Al-Nazha.

Tasnee expects to award the contracts for Saudi Acrylic Monomer early next year. “We have sent invitations to contractors to bid, and we have already met with some of them. We anticipate awarding the contracts between January and February 2010,” he explains. “We have a consortium of Korean, Far Eastern and Western companies including Samsung, Daelim from Korea, and Linde and Lurgi from Germany involved,” reveals Al-Nazha.

Tasnee also wants to invest in refineries, and has shown interest in Jizzan refinery in the far south-west of Saudi Arabia. “We are preparing to submit in our proposal for Jizzan refinery. I heard that they will start receiving proposals by December so we are ready and moving forward with this project,” he says.

Tasnee is also the owner of National Titanium Dioxide Company (Cristal), one of the world’s largest producers of titanium dioxide following its majority share acquisition of a giant US rival, in a deal valued at around $1.3bn in May 2007.

Titanium Dioxide has a hugely versatile array of applications, from paint to sunscreen to food colouring.

“Cristal has grown to occupy the number two spot in terms of global TiO2 production, largely thanks to the acquisition of 66% of Millenium Inorganic Chemicals,” says
Al-Nazha.

Saudisation

Tasnee focuses on hiring local skilled and freshly graduated employees. “During the last three years, because the whole world economy was growing, there were problems in securing the right people, right now, we don’t face any problems,” says Al Nazha.

“The Saudi Arabian government urges private companies that no less than 25% of staff should be KSA nationals , but we have a ratio above 50% who are Saudi recruits. We are aiming to give our citizens key positions in the company,” he explains. More than 300 of the 1000 or so staff are newly recruited engineering graduates.

End Note

Though the company posted losses during the first quarter, the president is confident about the operations of his company. “It is very important to clarify that the Q1 losses is not operating losses, it was actually losses for a special reason,” he reports.

“The shutdown for the maintenance and the adjusting that hit the quarter from the last quarter 2008, are the two reasons that caused the negative results,” Al-Nazha comments. But even with the losses, since the production at SEPC came on stream, in less than 10 months, the Tasnee share price has doubled on the Tadawul.

Al-Nazha says he is particularly excited about the remaining production coming onstream. When that happens, Saudi Arabia’s largest private downstream company will be churning out 3.25 million tonnes of petrochemicals on an annual basis, and will truly cement its position as a Middle Eastern petrochemical powerhouse.

Tasnee’s major subsidiaries

Saudi Ethylene and Polyethylene Company (SEPC)
Tasnee owns 45.3% of the project which produces 1 million tonnes per year of ethylene, 285 000 tonnes per year of propylene and 800 000 t/y polyethylene.

Saudi Polyolefin Company
Tasnee owns 75% of the project. When the current expansion project is finished the polypropylene production capacity will increase from 450 000 t/y to 720 000 t/y.

Cristal
Tasnee controls 66% of the project in Yanbu, which will increase Saudi Arabian titanium dioxide production capacity from 120 000 t/y to 180 000 t/y when the project comes on stream in 2011.

Saudi Acrylic Monomer Company
Tasnee and Sahara Olefins Company control 75% of the project which will produce 250 000 t/y of acrylic acid.

Tasnee and Sahara Olefins Company
The Jubail joint venture is a major Saudi producer of ethylene and polyethylene. Tasnee controls 60.45% of the company.

Contract Wins

CRACKER
Korea’s Samsung Engineering and Germany’s Linde AG were awarded
the ethylene cracker and utilities project
for the Saudi Ethylene and Polyethylene (SEPC) project.

PROCESS CONTROL
Process and safety controls for the SEPC ethylene plant was awarded to Honeywell in a deal worth $7m back in September 2006.

Contract Wins

EPC
Tecnimont performed engineering, procurement and construction works on the low density polyethylene (LDPE) and high density polyethylene (HDPE).

PMC
Fluor Corporation has been selected as the project management contractor (PMC) for the acrylic acid project, and in the project design packages/FEED for the acrylic acid and esters facility.

Earl Shipp, president of The Dow Chemical
Company – India Middle East and Africa

What is Dow’s plan with the Saudi Acrylic Monomer Company (SAMCo)?

SAMCo will be the first acrylic monomer production facility in the region, and it will supply the long-term needs of downstream businesses throughout the Kingdom of Saudi Arabia and worldwide.

So, we are excited about this project, and about our partnership with the Tasnee Sahara Olefins Company (TSOC). Our objective is to assure a seamless transition of this strategic asset from Rohm and Haas to Dow, and to complete this project on time and within the budget.

Do you have any concerns with this project, and will you remain committed to it?

We are very comfortable with SAMCo and with our new partners. SAMCo strategically aligns with several key Dow business areas including paints and coatings, adhesives, sealants, plastics additives, detergents additives, and in industrial applications. The timing for the project and its first-mover status in the Saudi Arabian market is a significant benefit from our Rohm & Haas acquisition. SAMCo is a win-win-win project for our partners Tasnee and Sahara, for Dow, and for Saudi Arabia.

How do you see your partnership with Tasnee?

Tasnee and Sahara have an impressive track record on previous projects, and so we look forward to incorporating Dow’s capabilities into the mix and to jointly executing this new business enterprise. We want SAMCo to be the start of a long and prosperous partnership, and we are committed to doing our part to enhance this valuable relationship.