Pechiney's $600 Million Smelter Contract for Technip Coflex and Bateman Nails the Deal for South Africa's Coega IDZ Project

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Inductrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). The Coega IDZ and Nqura panamax container port, near Port Elizabeth on the Indian Ocean coast of South Africa are finally in the second phase of business development after Pechiney Aluminum (NYSE:PY, EURONEXT 13290) (Paris, France - Montreal, Canada)) announced this week that the $600 million dollar contract for construction and management of the $2 billion smelter, which will anchor the industrial development of Coega, has been awarded to Technip Coflexip (NYSE:TKP, EURONEXT 13170)) (Paris, France) and Bateman Projects (Johannesburg, South Africa).

The two companies will also be in charge of the supply of equipment and materials and Bechtel will bring technical support to the project. The French aluminum company will be using their latest A50 technology at the smelter which when compared with earlier technologies, lowers capital expenditure, allows shorter construction time, and is more productive. Pechiney is planning to close some unproductive plants with the new Coega plant taking a priority position.

The news of the contract means that the hopes of Canada and Australia to be chosen for the smelter site location are dashed and Coega has prevailed after a nail biting decision process over the past two years. Final agreements on financing are more than 70% complete and include between 35-45% from Pechiney. Intensive auditing and scoping of the suitability of the site by civil, environmental, and supply chain consultants has taken place leading up to the contract decision.

Negotiations with South Africa electricity utility Eskom over power supply, the Ports Authority over tariffs, and the completion date were finalized this week (Feb 6) and a few issues still have to be ironed out with the Coega Development Corporation. The anchor tenant for the IDZ and the cheap electrical power supply for the smelter were mutual lock-ins .The new Nqura port was a plus for Pechiney, but as a panamax container ship facility, situated at a key site on ocean routes, it can justify development as a standalone in its own right.

At a time when civil engineering projects are well under way building the infrastructure and transport access routes of the $3 billion IDZ and the port, commencement of work on the smelter can be scheduled with a degree of confidence for 2004 with the plant being commissioned in 2006.

In addition to Pechiney, Bateman is also a potential investor along with the black empowerment group Sibumbene that is looking for 8% of the project. The South African development Corporation and Eskom are expected to go for a combined 25% stake. There are also negotiations underway with German consortiums that are already involved in the South African arms supply contract offset program. They are being invited to invest in the new smelter.

Meanwhile an application by Pechiney for a multi-million dollar investment incentive from South Africa's trade and industry department is being processed, and is likely to win approval given the government's strong desire to see Coega's anchor project proceed.

The industry group of Technip-Coflex in Paris will work on the project with Bateman Projects, the Johannesburg based subsidiary of Bateman's, a Netherlands registered, a global mining and resource development contractor and privately held company which has exclusive rights to the Bateman corporate image coming out of the vintage South African mining supplies and contract company E.L. Bateman.

Another project that adds to South Africa's Eastern Province ability to look to better times and sorely needed jobs is the IDZ, two hours drive up the coast from Port Elizabeth and Coega at East London, the province's second largest city with an established harbor on the mouth of the Buffalo River. The IDZ has already signed up two tenant deals and has seven in process worth between $1 million and $350 million. The first to sign were German condom manufacturer Condomi with a first phase investment of $5 million and German Brewer Veizengold. Both companies are starting plant construction this quarter. East London already has a new state of the art car loading dock facility built for Mercedes Benz exports. The Port Elizabeth and East London areas are running hard with booming car and auto accessory exports featuring most of the international marques. The initial duty free area of the IDZ will be 250 hectares situated 1.5 kilometers from the airport and 4 kilometers from the harbor.

Locals have given up on trying to keep the region to themselves as Southern Africa's best kept secret'. Big game parks, horizon-to-horizon unspoiled beaches (including the 'wave' at Jeffreys Bay, the international surfers paradise) and marinas, unique flora and fauna, fresh locally produced food of all types and a regional character which has spawned world figures in politics, literature and science. The influx has started, house prices in Port Elizabeth and East London are going up.