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Buried wealth - RAK developing UAE mining sector

Monday, 05 July 2010 12:24

From the very beginning of RAK's development efforts, it has had to address the fact that it has a limited supply of the hydrocarbons reserves that have fuelled the growth of many of its neighbours. This has both its benefits and its drawbacks. On the one hand, RAK's economy is strikingly diversified when compared to its neighbours, with light and heavy industry, pharmaceuticals, tourism and a nascent financial services sector all contributing to the overall economic picture. This breadth of investment makes RAK more resilient in the face of oil and gas price fluctuations, which can wreak havoc on the balance sheets of less-diversified economies.

However, the emirate has also had to contend with higher energy costs and power shortages. In the summer of 2009, frequent power and occasional water cuts were reported by local press in the Northern Emirates. As the summer months of peak electricity demand have rolled around again, many will be wondering whether RAK's infrastructure has improved sufficiently to keep air conditioners and industrial cooling running smoothly.

This will be of particular concern to RAK's mining industry. The extraction of non-oil minerals has seen a low take-up in the Gulf region due to the relative profitability of pumping oil and gas. Mining minerals and quarrying are water-intensive industries and require extensive infrastructure to be in place to transport the raw materials to export markets. Yet in RAK, quarrying the emirate's significant limestone deposits has already proved profitable, and the potential of RAK's other mineral deposits has attracted the attention of investors. In addition, the country's location on a major international shipping route reduces transit costs.

Exploration and mining is a complicated business which often requires the expertise – and deep pockets – of mining companies that have had success within a particular geological niche. If RAK-based companies can build on the experience they gain as early movers within this sector regionally, they may find themselves in a position to export the technology and expertise developed to neighbours.

A push to diversify throughout the Gulf region is making the mining industry more attractive to governments concerned about their reliance on hydrocarbons. The sector has its drawbacks too, though: minerals, like oil and gas, are subject to worldwide swings in commodity prices. Harvesting these raw materials will eventually allow RAK to supply more sophisticated downstream manufacturing with feedstock at more competitive prices.

RAK's ability to develop its mining sector will depend to a large extent on being able to supply enough power and water to firms interested in setting up shop in the emirate. To that end, the government of RAK has made significant strides, with a number of new power plants planned to supplement the power supplied by the Federal Electricity and Water Authority (FEWA). The 84-MW Al Ghail plant and 45-MW Al Hamra 1 plant were commissioned in mid-2009, and a third, Al Hamra 2, is due to come on-line in 2010. But these projects are dwarfed by a coal-fired plant planned for construction in the Mina Saqr area. The first phase will supply 500 MW of power, which will be expanded to 1000 MW in subsequent years. The coal for the plant will be sourced from mines in the Kalimatan province of Indonesia, which are being developed by a joint venture between the government of East Kalimatan province and RAK Minerals and Metals Investment unit (RMMI), a subsidiary of the RAK Investment Authority.

The coal from Indonesia has a low sulphur content, which makes it relatively clean-burning, and is much cheaper than coal sourced from South Africa or Australia, the main sources of coal for this region in previous years. The volume of coal that RMMI expects to extract from Kalimatan will be substantial, and only a fraction will go to the Mina Saqr plant, with the remainder sold to other markets in the region. This means RAK will be diversifying not only its energy supply but also its revenue stream – developments that bode well for its future.

Global Arab Network

This article is published in partnership with Oxford Business Group

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