GCC Insights: Bahrain poised to become major force in aluminium

Authorities in Bahrain seemed determined to consolidate the country's position as one of the leading producers of aluminium in the world. This follows press reports that aluminium giant Alcoa of the US plans to acquire a strategic stake at Aluminium Bahrain (Alba).

A memorandum of understanding grants Alcoa the option to purchase a 26 per cent stake at Alba. The MoU allows for the addition of the sixth potline at the Bahraini smelter capable of producing 307,000 tonnes per year (t/y).

The final agreement including an arrangement for the Alcoa supplying alumina to Alba could be concluded by mid-2004. Currently, the Bahraini government owns 77 per cent of Alba while 20 per cent is owned Saudi Arabia's Sabic Industrial Investments and three per cent by Breton Investments Germany. Notwithstanding the proposed changes, the government would maintain the majority 51 per cent ownership at Alba.

The new industrial partnership marks the latest in a series of moves by Alba aimed at enhancing its market potential. Already, Alba is in the midst of the fifth plotline expansion by adding 307,000 t/y to the existing 512,000 t/y production level. Due be completed in February 2005, the 819,000 t/y capacity would make the smelter the biggest in the world outside Eastern Europe.

The fifth potline is being expanded at the cost of $1.7 billion, a significant amount since it represents about 20 per cent of Bahrain's gross domestic product. Financing was arranged through a mixture of equity and debt. Of this, $155 millio was to be provided by the three shareholders on a pro-rata basis.

Also, Alba has secured $1.25 billion finance package through four tranches involving a $500 million commercial credit, a $300 million syndicated metals-linked facility, a $250 million syndicated Islamically-structured facility and a $200 million local-currency denominated bond. A fifth tranche of $300 million was being arranged by international export guarantee credits agencies.

International firms have gained the main contracts for the expansion. Bechtel of the US won the engineering, procurement, construction and management contract. Alstom Power of France was awarded the job of generating 655 megawatts to meet power requirements.

Saudi-based Zamil Steel won the contract for the fabrication, supply and erection of structural steel buildings. However, several local firms have won subcontract packages including the civil and structural steel foundation works.

The aluminium industry largely controls Bahrain's manufacturing sector. Manufacturing boasts about 12 per cent of the GDP. Aluminium exports account for an estimated 15 per cent of total exports, and for almost 50 per cent of non-oil exports. Alba alone employs 2,500 people, of whom 90 per cent are Bahrainis and the fifth potline expansion would help create some 2,000 new jobs.

Key objective

Finding new jobs fulfills a key objective namely addressing unemployment, which stands at 15 per cent. Some 18,000 locals are jobless.

Output from the smelter has led to the development of several downstream projects. For example, Bahrain Atomisers International (BAI) produces 7,000 t/y of aluminium powder.
Middle East Aluminium Cable (Midal) has a capacity of 55,000 t/y of aluminium cables. The Bahrain Aluminium Extrusion Company (Balexco) produces some 21,000 t/y of extruded products. All get supplies from Alba.

Earlier in 2002, production began at the 450,000-t/y coke-calcinating plant, built at a cost of $400 million. Alba plans to use 250,000 t/y and export the remainder. The company used to import calcined coke from the US and Argentina.

In 1999, primarily to enhance efficiency, Alba took over the Bahrain-Saudi Aluminium Marketing Co. (Balco), which had formerly provided Alba's marketing services.

Clearly, Bahrain is poised to become a force to be reckoned with in the aluminium world despite the fact that the country lacks alumina, the raw material. The aluminium industry represents one of the few successful industrial undertakings in Bahrain. Maybe, Bahrain needs more companies like Alba.

The writer is assistant professor, College of Business Administration, University of Bahrain