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Sohar Port and Freezone: a success story

Sohar Port and Freezone: a success story



In the right place, at the right time

Sohar Port and Freezone always strives to stay one step ahead, Mark Geilenkirchen, CEO, Sohar Port and Freezone said in an interview with Pummy Kaul

November 2017

Week after week, foreign investments in Oman’s Sohar Port and Freezone are pouring in, signaling that the regional hub is fast becoming a full-fledged industrial zone and a regional export-import hub. Whether it’s Changbao Oman Oil Pipe Company, the first Chinese tubular steel plant to be set up in the Sohar Freezone or a $300 million plant that will produce 75,000 tonnes of finished yarn per annum for export or a new oil storage facility, the project announcements point out to the fast track expansion happening in the freezone, which is aggressively seeking  foreign investments.

“Sohar Freezone is in the right place at the right time,” Mark Geilenkirchen, CEO, Sohar Port and Freezone said while revealing his new plans for the prime logistics hub in an exclusive interview with the Gulf Industry magazine.

Talking about the current expansion project, dubbed Sohar Port South, which envisages the dredging and reclamation of a waterfront area on the southern boundaries of the hub, Geilenkirchen said:

“Sohar Port South will add not only more land for industrial expansion in the port, but also more deep-water berths. One of the new berths will be able to accommodate some of the largest super-tankers currently in service, at 320,000dwt (dead weight tonnage). At Sohar, we always strive to stay one step ahead of our tenants in terms of land availability, infrastructure, energy resources and other requirements. We want to ensure that our tenants and prospective tenants don’t experience delays when expanding or starting their businesses here. In fact, our long-term planning looks at various business development scenarios as far ahead as 2040,” he said.

Last month, as a first step in the implementation of this landmark development, Sohar Port and Freezone floated a tender inviting local and international consultants to prequalify for its contract to provide consultancy services as well as the front end engineering design (Feed) on its Sohar Port South expansion.

The expansion is part of the freezone’s long-term move to grow the vital industrial and maritime hub by as much as 50 per cent, a report said.

Geilenkirchen: striving for the best

Geilenkirchen: striving for the best

“In the Freezone, where the 4,500 hectares of phase-one are practically leased out and we are busy planning phase two to make sure we always have available space and energy for new downstream manufacturing businesses. Work is also progressing fast on the construction of Sohar III, our new integrated gas turbine power plant in the port. The project is valued at over $1 billion and is on track to commence operations by January 2019. With more than enough capacity to power new developments in Sohar Port South and Sohar Freezone phase II, the new plant will have a power output of over 1,700 megawatts, making it Oman’s second largest power station,” he added.

Excerpts from the interview:

 

Investments at Sohar Port and Freezone reached $26 billion, last year. What is the total investment achieved so far, this year? What is the projected for full year 2017 and next year?

In the last few weeks, we have announced two significant projects: a new oil storage facility in the port and the region’s first cotton yarn plant in the Freezone, which will eventually provide another 1,500 jobs. We have already added several billion dollars of new investments this year. The new Liwa Plastics Project alone is valued at over $6 billion and is on track for completion by 2020. It will produce 1.4 million tonnes of polymers a year, which will require around 400 shipping containers for daily volumes to be exported to international markets through Sohar Port. More importantly, the project will open billions of dollars’ worth of business opportunities for downstream plastics manufacturers and service providers in the Freezone and will put Oman on the map as a major plastics producer.

 

It has been reported that Sohar Port and Freezone aims to attract $8 billion worth of new investments over the next five years. How do you plan to achieve this target? What special moves are you making to draw more investors to the freezone?

Sohar Freezone is in the right place at the right time. The mix of factors is critical: it is adjacent to one of the world’s fastest growing logistical hubs, outside the Strait of Hormuz but close to the main markets of the Gulf and Indian subcontinent. It is connected to the port by bonded corridors, with a range of available energy sources and an ample supply of local labour. Add to that 100 per cent foreign ownership, 0 per cent income tax, free repatriation of capital and profits, and a dedicated one-stop-shop team for problem-free business setups.

Last week, for all these reasons, we saw Changbao complete their first tubular steel plant outside China in Sohar Freezone in order to be closer to their expanding customer base in the Gulf.

 

How is the new land reclamation project – Sohar Port South – shaping up? How much land of the Sohar Port South has been leased out and how many tenants have been signed? Which new industrial projects are coming up in this new area? What is the total investment that companies registered as tenants are bringing into the Freezone?

Sohar Port South will add not only more land for industrial expansion, but also more deep-water berths. One of the new berths will be able to accommodate some of the largest super-tankers currently in service, at 320,000dwt (dead weight tonnage). At Sohar, we always strive to stay one step ahead of our tenants in terms of land availability, infrastructure, energy resources and other requirements. We want to ensure that our tenants and prospective tenants don’t experience delays when expanding or starting their businesses here. In fact, our long-term planning looks at various business development scenarios as far ahead as 2040.

The same is true in the Freezone, where the 4,500 hectares of phase-one are practically leased out and we are busy planning phase two to make sure we always have available space and energy for new downstream manufacturing businesses. Work is also progressing fast on the construction of Sohar III, our new integrated gas turbine power plant in the port. The project is valued at over $1 billion and is on track to commence operations by January 2019. With more than enough capacity to power new developments in Sohar Port South and Sohar Freezone phase II, the new plant will have a power output of over 1,700 megawatts, making it Oman’s second largest power station.

 

What is the total investment that companies registered as tenants are bringing into the Freezone? How much of that is foreign direct investment (FDI)? Which nationalities are most represented among the tenants?

Sohar Freezone benefits enormously from its location adjacent to one of the world’s fastest growing ports, facing the Indian Ocean and outside the congested Strait of Hormuz. Existing investments worth billions of dollars are spread across clusters for manufacturing, metals, automotive, ceramics, chemicals, oil and gas, logistics, prebuilt warehousing and innovation. We are within easy reach of over 2.5 billion people and that is a huge driver for business.

Planning is underway for phase two of Sohar Freezone

Planning is underway for phase two of Sohar Freezone

In terms of the area occupied in our current phase-one of the Freezone, the minerals sector occupies the largest area and this is followed closely by our automotive cluster. Sohar is a significant import and regional presales finishing centre for brands including Toyota and Nissan, Rolls Royce and Mini. Then, in terms of area occupied come logistics, oil and gas, and ceramics. Moving forward, the greatest potential growth areas are in food, especially downstream food industries that want to be close to our new Food Zone in the port, the region’s first dedicated agro-bulk terminal. And in a couple of years, you will see a huge growth in downstream plastics industries as our new $6 billion plastics project comes on stream. Our investors come from around the world, including the GCC, China, India, Iran, Europe and the UK.

 

You recently signed a deal with Trescorp Alliance for the development of a new 45-hectare terminal with bunker storage at the Omani port. Why is Sohar Port and Freezone pursuing upgradation and expansion of bunker services? What new initiatives are you going to take in this area?

The availability of new land in the Port thanks to our reclamation works make the crude and fuel terminal technically feasible. There is enormous potential for oil trading and storage activities in the Gulf, the growth forecasts are far greater than the available capacity, which is still relatively small. Furthermore, as one of the world’s fastest growing port developments we want to be able to offer a full suite of marine services to calling vessels, and that naturally includes bunkering.

 

Recently Sohar Port and Freezone announced strong organic growth in most sectors over the first-half of 2017. What throughput did it achieve?

Last year, we passed a significant threshold to average of over one million tonnes of cargo throughput each week for the first time. Our container volumes in the second quarter of 2017 were up 11 per cent from the same quarter last year. Container throughput at the Hutchison-managed Sohar terminal has grown threefold over the past five years, in line with investments to increase efficiency to the highest international standards in our new remote-controlled Terminal C. Dry bulk cargo also grew significantly at Sohar in the first half of 2017, up by 24 per cent in comparison to the first six months of last year. The good news is, by the end of 2017 we should be in a position to report further strong growth from our terminals.

 

What was the number of vessels served in 2016 and September-2017? What is the projected traffic to grow?

In 2016, we welcomed over 2,600 vessels to Sohar. Despite the trend towards fewer and larger ships, traffic this year will increase by around 15 per cent year-on-year, with around 3,000 vessel calls to the port by the end of 2017. Considering that we only saw our very first ship berth here in 2004 that is a phenomenal growth rate. It underscores our optimal location in Sohar, at the crossroads of east and west, outside the congested Strait of Hormuz, yet close to the growing Gulf markets and the Indian subcontinent.

 

What types of cargo dominated  the port in 2017? 

We are now the largest bulk port in the Middle East and South Asia, so in terms of inbound tonnage the biggest share in both years was dry bulk, followed by liquid bulk and our fast growing container business. Sohar is not a transhipment port. We are an industrial port with a growing and seamlessly connected Freezone next door, managed as a single entity. Our aim is always to add value. We import feedstock and raw materials to Sohar and are always looking to attract industries that create products of some kind that we can then export back through the port — that is our long-term plan for the sustainable growth of Sohar and the surrounding Battinah region.

 

What new cargo trends did Sohar Port and Freezone witness over the past few years and what could be the factors behind those trends?

Over the past years, we’ve been busy preparing ourselves to meet future industry demands. Hutchison Ports Sohar, who manage our container terminal at Sohar, recently inaugurated a remote-control crane centre for its post-Panamax quay cranes, designed to handle the next generation of container ships with capacities of up to 20,000 TEU.

Plans are also being developed to build a fully automated container terminal at Sohar, taking our capacity to nearly six million TEU annually. Another major change in the light of overcapacity earlier this year, was the reshuffling of the ocean carriers to form three new mega-alliances that represent around 96 per cent of all east-west container trade. As more lines from Asia start to make more direct calls to Sohar, we are working with Hutchison and our other terminals to increase efficiency and help reduce costs. For example, Hutchison recently introduced an automated truck appointment system to reduce turnaround times and our Port Management System (PMS) is a new online platform that allows agents to access and share real-time information on cargo movements.

 

What prospects does Sohar Port see for the terminal in the next three years?

We have averaged double-digit growth in Sohar every year for the past 12 years. As our throughput tonnages increase our growth will continue unabated. The recent sustained slump in global oil prices has given the Middle East’s plans for economic diversification a shot in the arm. All of the world’s military spending taken together totals around two trillion dollars a year. Meanwhile, our global infrastructure spending is projected to rise to nine trillion dollars a year within the coming decade. Over the next forty years, we’ll develop and spend more on infrastructure than in the previous four thousand years, and Asia and the Middle East will lead the way. All that development and new construction means more goods need to be shipped, and that’s good news for us in Sohar.

 

What will Sohar Port’s focus be in 2018 to develop its business? What plans does it have to achieve significant growth over the next three years?

Plastics will be significant for us in the near future, as the $6 billion Liwa Plastics Project is constructed, and we predict enormous growth of polyethylene-related downstream industries in the Freezone once the main plant is operational. Sohar Food Zone is now under construction and will create many new opportunities for downstream food processing and logistics industries. The Food Zone will help to support the government’s plans for increased food security and will also be a huge boost for the regional food industry. We will import bulk food commodities for local consumption and for trading, but we will also ship out finished food products to surrounding countries in line with rapidly increasing demand for ready meals and other convenience foods, as the region’s demographics change rapidly. Sohar is ideally located as the prime food manufacturing, packaging and distribution hub for the regional markets surrounding Oman.

In our new Innovation Zone, together with private sector companies, international research institutes and some of the world’s top universities, we will be seeking solutions across a broad range of issues that affect our shipping, logistics and industrial hub at Sohar Port and Freezone. The Zone will not be connected to the national power grid, instead getting all its electricity needs from renewable sources, while all waste will be recycled. Over the next few years, Sohar will become the core of an integrated economic area with all kinds of new activities happening. You will see areas with recreational or tourism-related activities, such as resort hotels and golf courses; more office buildings with supporting service industries; and more urban development; as well as new schools and modern retail malls.

 

To date how much has the Omani government spent on infrastructure for the Sohar Port and Freezone? As regards the infrastructure projects now underway, when will they be completed?

Expanding the port is just one part of the puzzle, as our hinterland connections are just as important and the Oman government has been investing heavily in this area. The new Al Batinah Expressway connecting Sohar with Muscat is already half built and will be fully completed this winter. The road will be over 265 kms long, stretching from the outskirts of Muscat to Shinas, and will have four lanes each side. This will make it easier for trucking companies to move containers from Sohar to Muscat and Dubai, while the new road directly connecting Sohar with Saudi Arabia for the first time will further enhance our hinterland infrastructure, reducing the journey time for a container to Riyadh by up to four days. The other big news earlier this year, was the opening of Sohar airport next to the port. With new direct flights to other GCC countries and an initial freight handling capacity of 50,000 tonnes, we can now offer seamless sea-road-air connectivity in Sohar.




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