Newsletter No. 1398
News-Analysis
July 2, 2009

 

NEW JAPANESE BUSINESS DEALS STRUCK WITH SAUDI ARABIA

The month of June was a very good one for Japanese business in Saudi Arabia. There was a drumbeat of major new business deals announced throughout the month.

JGC PetroRabigh Study Deal

The JGC Corporation was awarded the contract for the feasibility study on the expansion of Rabigh Refining and Petrochemical Company (PetroRabigh) mentioned in Shingetsu Newsletter No. 1363. The study is expected to be completed by the third quarter of 2010.

The PetroRabigh project is huge already, but Saudi Aramco and Sumitomo are considering how to expand it even further. In April, Sumitomo said the two firms planned to expand operations at the integrated oil and petrochemical facility by the third quarter of 2014. As part of the expansion, the firms will consider increasing the capacity of the existing ethane cracker and consider building a new aromatics complex. Investment costs for these expansions could total US$3.1 billion to US$5.1 billion.

The value of the JGC Corporation’s feasibility study contract is not immediately clear.

Showa Shell Solar Power Deal

In late June, Japanese oil refiner Showa Shell Sekiyu said it had agreed with Saudi Aramco, the world’s largest state-owned oil company, to “explore the possibility of engaging in a small-scale electricity generation business using solar power.” Showa Shell said in May that solar power was one of the main pillars of its business strategy as domestic oil demand is falling due to the ageing population and efforts to reduce energy consumption. After initial studies, small pilot plants will be built in Saudi Arabia by 2010 to test new technologies.

Saudi Aramco has a 15% stake in Showa Shell Sekiyu, Japan’s fifth-largest refiner.

Itochu Fuel Storage Deal

In early June, it was reported that Itochu Petroleum has leased fuel storage at Saudi Arabia’s Red Sea port of Yanbu, the first onshore storage deal for the trader in the region. U.S. bank Morgan Stanley had previously held rights to the tanks in question, but it did not renew its contract after it expired at the end of April. Reuters quoted an anonymous source as commenting, “[Itochu] have been looking around for tanks for quite sometime now, but the situation here in the UAE is tough… land storage is tight. I’m not surprised they jumped at the opportunity to take up those tanks which Morgan Stanley gave up.” The storage facilities at Yanbu can hold 100,000 cubic meters of refined oil products.

NEW TAX TREATY IMMINENT

A third round of Japan-Saudi tax treaty negotiations were held in Tokyo on June 1st and they went well. On the 26th MOFA announced that a basic agreement had been reached. Obviously, these kinds of tax treaties aim to facilitate mutual investment.

We previously noted the launching of these talks in Tokyo last October in Shingetsu Newsletter No. 1213. The second round was quietly held in Saudi Arabia in January.