ArcelorMittal and Posco may or may not realise their dream of setting up a manufacturing base in India, but the domestic companies that are keen on the ‘plug and play’ concept for overseas ventures have a readymade platform – the Khalifa Industrial Zone Abu Dhabi (Kizad), developed by the Abu Dhabi Government. The stage for the most modern infrastructure zone was set by reclaiming 417 sq. km of land abutting the sea in 2008. In four years, the Government invested about $7.2 billion (Rs 39,600 crore) to develop basic infrastructure on 51 sq. km.
In the first phase, the zone has seven clusters including trade and logistics; paper, printing and packaging; engineering metal products; aluminium industry; midstream aluminium; mixed use and other industries, and food processing. An offshore port island of 2.7 sq. km (the size of about 340 football fields) was inaugurated earlier this month on December 12. It can handle 2.5-million TEU (twenty-foot equivalent unit) containers a year and 12 million tonnes of cargo. Kizad has already attracted good interest from the US, India, China, Korea, UK and Germany, said Khaled Salmeen Al Kawari, Managing Director, Kizad in an interview with Business Line .
Amid the economic slowdown, what was the trigger for an industrial zone?
The entire project was part of the ‘Abu Dhabi Economic Vision 2030’ which envisages shoring up revenue contribution from the non-oil and gas sector. We identified 12 sectors including media, health care, telecom, tourism, trade and logistics, and education for diversification. Investment in these sectors will be facilitated by the stand-alone Government companies.
The objective is to enhance non-oil and gas revenue to 60 per cent of GDP from 40 per cent currently. The sharp increase in revenue from the oil and gas sector was one of the triggers for us to diversify. We did not want to depend on one sector for our economic growth.
What is the impact of the Dubai financial crisis on Kizad?
There was no impact. In fact, it gave us a tremendous opportunity to invest as commodity prices had tumbled after the crisis.
For instance, steel prices fell to $1,000 a tonne from $3,000 a tonne just after the crisis broke out. Taking advantage of low metal prices, we had invested about $60-$70 billion during the crisis to develop our oil and gas infrastructure. Of this, about $42 billion was invested just after the financial crisis came to light.
What are the incentives for investors?
With the basic infrastructure in place, companies can save a lot on their capital expenditure. About 240 services including visa, licences, business contacts and bank account can be availed of at a click of the mouse on our Web site. Uninterrupted power supply is ensured by the 3,500 MW and 50 sub-stations. With expectation of white collar staff travelling from Dubai or Abu Dhabi, we are planning to set up a residential complex to accommodate 5,000 workers. We expect to generate 100,000 high-skilled jobs by 2030 when both phases of the project go live.
With several project clearances getting delayed in India, do you expect companies to look at Kizad?
Delay in project clearances definitely puts off serious investors. But that will not be the only criterion for driving away investment.
Various other factors such as good infrastructure, ease of doing business, quality workforce and better living conditions are an added attraction at Kizad.
We have a transparent process for clearing investments. For instance, South America's largest food processing company has committed to invest $120 million to set up a chicken processing plant at Kizad. We issued 27 approvals in just 90 days. It works out to three approvals a day on an average.
What is the cost advantage?
Both imports and exports are totally exempted from customs duty. Raw material imports will be at least 5-10 per cent cheaper compared to other countries. Besides, tapping the local market is also tax-free.
These two sops alone will result in a saving of 20-40 per cent on the tax front. Power constitutes a major cost for the aluminium industry. Generally, no aluminium project is set up without a captive power plant. But in our zone, companies need not put up a power plant.
This will lower capex plans drastically. Power rates in our zone are 2-3 US cents while it is Rs 6-15 a unit in India. Globally, aluminium production cost varies between $1,400 and $2,500 a tonne. On an average it is about $2,000 a tonne. As per our study, the aluminium production cost in our zone will be $1,500 a tonne. If you are not cost competitive, you will be wiped out.
What is the response from Indian companies?
An industrial park is not a new concept. We had a discussion with an Indian steel company recently. It had acquired a coal mine in Australia. The Indian company’s capex is stretched with no basic infrastructure in place in Australia. It has to now invest heavily to develop the roads and ports before it can extract coal from the mine there. The quality infrastructure and the quick process for project approvals is one of the differentiators that we have here in Kizad, which will attract more Indian companies.