Sabic Story



The Kingdom of Saudi Arabia encompasses about four-fifths of the Arabian Peninsula. It occupies approximately 2.25 million square kilometers (868,730 square miles) of surface area, about four times the size of France. It is bounded on the north by Jordan, Iraq, and Kuwait; on the east by the Arabian Gulf, Bahrain, Qatar, and the United Arab Emirates; on the south by Oman and Yemen; and on the west by the Red Sea. The population of Saudi Arabia in 2000 was estimated at 22.31 million, including both nationals and expatriates.
Located between Africa and mainland Asia, with long frontiers on the Red Sea and the Arabian Gulf, and with the Suez Canal near to its northwest border, the Kingdom is strategically positioned. Its situation provides an important logistical advantage to the country
fs economic welfare and in the deployment of its oil and gas resources.
As oil production grew, the Saudi government made plans to shift the country from its almost total dependence on crude oil exports to a broader industrial base. Diversification of industry became a key element in the government
fs economic strategy. The policy has as its primary objective the reduction of the Kingdomfs dependence on oil sales, which account for threequarters of the countryfs revenues. To this end, the government has encouraged the development of a wide range of manufacturing industries.
In the early years of oil production,
natural gas from the oil fields was burned at the wellhead, a practice called flaring. Conscious of the need to conserve energy, protect the environment, and utilize the gas as a valuable raw material, the Kingdom elected to enter the business of manufacturing petrochemicals made chiefly from natural gas and natural gas liquids. In September 1976, King Khalid signed a Royal Decree, creating the Saudi Basic Industries Corporation (SABIC). Its task would be to set up and operate hydrocarbon and mineral-based industries in the Kingdom of Saudi Arabia. It would receive long-term loans from the Kingdomfs Public Investment Fund in order to undertake world class projects. The balance of SABICfs capital requirements would come from its joint venture partners. In addition, SABIC could make use of commercial loans.
With these sources of finance, SABIC would be able to undertake industrial projects considerably in excess of its own initially authorized capital of SR10 billion ($2.6 billion).
This judicious blend of long-range planning, long-term major investment, and the use of public and private sources of finance led to the creation of one of the fastest growing industrial corporations in the world, and one of the most successful. In just 25 years, SABIC came to embrace 18 world scale manufacturing complexes involved in converting natural gas and natural gas liquids (NGLs) into downstream products. With year 2000 sales revenues of SR26.7 billion ($7.12 billion), SABIC now ranks second among the top 100 Saudi companies, exceeded in assets only by Saudi Aramco.
To fully appreciate this accomplishment, consider that when King Khalid signed the decree in 1976, there was no industrial infrastructure whatsoever. There were few individuals possessing the technical skills and the professional management expertise to even imagine such a project. For SABIC, it was necessary to build and staff from zero.

SABIC has become the largest non-oil industrial company in the region. Its manufacturing complexes employ 15,000 Saudis and multinationals. It sells its products to customers in more than 100 countries.
Chief among SABIC
fs products made from hydrocarbon feedstocks are:

E Basic chemicals, which are the building blocks of petrochemicals, including methanol, ethylene, propylene, butadiene, benzene, and xylenes.
E Intermediates, such as ethylene glycol, vinyl chloride monomer, and ethylene dichloride, used in the manufacture of other gdownstreamh compounds, which are themselves the raw materials of finished commodities.
E Polymers, from which are derived most of the worldfs plastics ranging from thermoplastic resins to the polyester fibers. SABIC is one of the very
few companies in the world that produce all types of commodity thermoplastic resins, the most widely used of all plastics.
E Fertilizers, the essential nutrients for increasing crop yields, especially in marginal lands, which are needed to feed growing populations worldwide. SABIC is one of the worldfs leading producers and exporters of urea.
E Metals, chiefly steel and aluminum, the products of a Metals Group that relies on hydrocarbon fuels to turn out flat hot and cold rolled steels, and
manages SABIC
fs two large offshore aluminum manufacturing holdings.

In the span of just 25 years, SABIC has made itself a leading manufacturer and global marketer of hydrocarbon and metal products. It has made a major contribution to the nationfs economy and has led the way into industrial diversification.
In addition, SABIC has created thousands of new jobs, both directly and indirectly, for Saudi nationals and has developed a highly skilled workforce capable of running the company safely and efficiently.
Thanks to the vision and enlightened policies of the Saudi government, led by the Custodian of the Two Holy Mosques, King Fahd Ibn Abdulaziz Al-Saud; His Royal Highness, Prince Abdullah Ibn Abdulaziz Al-Saud, the Crown Prince and First Deputy Premier and Head of the National Guard; and His Royal Highness, Prince Sultan Ibn Abdulaziz, Second Deputy Premier, Minister of Defense and Aviation, and Inspector General, Saudi Arabia is enhancing the quality of life of its citizens and ensuring them a leadership role in the world of tomorrow.

Irreversible Changes


The Industrial Cities

The question of where to locate SABICfs massive plants came high on the list of the Kingdomfs priorities.
Answers were needed. Cities built for the purpose of housing entire industries appeared to be a likely solution.
The Kingdom
fs leaders had long sought an outlet on the Red Sea from which to export crude oil, natural gas liquids, and refined products as a strategic alternative to ports on the Arabian Gulf. Yanbu, on the Red Sea, and Al-Jubail, on the Arabian Gulf, were likely candidates.
In 1973, the Bechtel Corporation, the San Francisco-based engineering and construction company, which had long been associated with construction in Saudi Arabia, was called in to draw up a master plan for an industrial city at Al-Jubail. Bechtel was asked to define infrastructure requirements, locate industries within the site, and set forth land use and community plans, conceptual designs of components, and environmental control measures.
When the master plan was presented to the Saudi government in 1975, the decision was made to establish a Royal Commission for Jubail and Yanbu with Crown Prince Fahd as Chairman. Creation of the Royal Commission proved to be a brilliant move in the formidable task of managing and expediting the multifarious problems sure to be associated with such a large and complex enterprise.
To the scores of entities involved in the job, the Royal Commission provided a place where questions could be answered and unforeseen problems resolved so that work could go forward as planned and on schedule.
To serve as the Royal Commission
fs Director General for the Al-Jubail Project, the government chose Jameel Abdullah Al-Jishi. It was a fortunate choice.
gIn the mid-1960s, I returned to the country from the United States after earning my MS in industrial engineering,h Al-Jishi says. gI had the choice of working for Petromin with its ambitious program of hydrocarbon development, or for the newly established Industrial Studies and Development Center. I chose the Center and was given supervision of the Industrial Estate program carried out by the Center for the benefit of the Ministry of Commerce and Industry. The program included the establishment of three Industrial Estates in Jeddah, Riyadh, and Dammam, which would house small to medium manufacturing industries. That task was the prelude to my work later to direct the establishment of Madinat Al-Jubail Al-Sinaiyah (Al-Jubail Industrial City) in its early phases as a member of the Royal Commission for Jubail and Yanbu.h
Al-Jishi cites several events that culminated in the creation of the Royal Commission.
gIn the middle e70s, with the availability of some liquidity in the hands of the government and with the unsuccessful efforts of Petromin in its negotiations with the international oil companies, the government decided to change its approach,h Al-Jishi says. gSABIC was established. Petromin was given the responsibility for the oil refineries program. Aramco was entrusted to handle the gas-gathering program. And the Royal Commission for Jubail and Yanbu was established to carry out the Infrastructure Program required for industrialization under the chairmanship of King Fahd.
Al-Jishi credits the will and vision of Ghazi Algosaibi at SABIC and of Hisham Nazer, vice chairman of the Royal Commission.
gThe cooperation between these two statesmen was paramount in the success of the program,h Al-Jishi says.
gAny agency would raise a flag if something seemed to be out of kilter, and meetings at the appropriate technical and management levels of the Royal Commission would clear the cloud and correct the deficiency,h he recalls.
Each of the concerned organizations had its own vision and strategy along with plans for achieving them, but each respected the interests and the authority of the other. With Al-Jishi as director of the Al-Jubail program for the Royal Commission and Adbulaziz Al-Zamil and Ibrahim Ibn Salamah heading the SABIC teams, the relationship between the two organizations went smoothly.
Perhaps the first Saudi to go to work for the Royal Commission was Ahmed Al-Mubarak, who was an inspired choice, as he was born and reared in Al-Jubail. His family had long been engaged in shipping goods in caravans along the historic Canary Route and still live in Al-Jubail. Al-Mubarak received his education from high school through college in the United States, earning a degree in manufacturing engineering from Arizona State University. As the Royal Commission
fs Project Manager for Al-Jubail, he joined ten Bechtel employees there in 1977. Their initial task involved earth-moving and leveling on a massive scale to prepare future plant sites.
To tackle the enormous job, the Royal Commission subdivided the area of 1,036 square kilometers (400 square miles) into smaller plots that Saudi contractors could handle. The Royal Commission required that contractors take care of workers and supply decent temporary housing, food, sanitation, and health protection. This was important, because the work force peaked at around 50,000 people from all over the world.
SABIC designated Ghazi Al-Hajjar as their one representative to handle their needs ranging from utilities through housing and hospitals.
To launch the plan, the Saudi government had first to set up a SR45 billion ($12 billion)
Master Gas System to capture the associated gas, then flared in producing the Kingdomfs oil, and to process and distribute it for use as a raw material and energy source. It had to build a major pipeline across the Arabian Peninsula from coast to coast to carry hydrocarbon feedstocks intended as raw materials for petrochemicals. It had to build two industrial cities, Yanbu and Al-Jubail. From the desert floor had to rise an infrastructure not too different from that which took Houston, Texas, three-quarters of a century to build.
There would have to be heavy-duty roads, power stations, water channel systems, desalination plants, feedstock lines, electricity terminals, airports, deepwater ports, and 40 petrochemical plants, not to mention housing, schools, hospitals, recreational facilities, commissaries, and much more for the thousands of people required to install, operate, and maintain the machinery.
Between 1978 and 1986, all this and more was done as planned, on time and under budget. Thus the wild journey from dream to reality passed from concept to reality.
In issuing a decree establishing the Royal Commission for Jubail and Yanbu on September 21, 1975, King Khalid turned a key that energized a great industrial engine. His goal, and that of Crown Prince Fahd, was the creation of a massive infrastructure that would provide the means for diversifying his country
fs economy and propelling Saudi Arabia into the forefront of nations as a world class petrochemical products center.
Within Saudi Arabia, critics questioned the wisdom of investing heavily in petrochemicals.
Mubarak Al-Khafra, who joined the Ministry of Industry and Electricity in 1975, remembers being scolded by other Saudis, who were convinced that SABIC and the industrial cities would be a waste of time and money. He remembers being told by one official,
gYou are going to be taken for a ride.h

Al-Jubail and Yanbu were chosen to become industrial cities partly because there was little there and partly because they were strategically situated.
The larger city would be
Al-Jubail, which had existed by the Arabian Gulf for thousands of years as a home for a few fishermen and pearl divers. Its Red Sea counterpart, Yanbu, 750 miles to the west on the opposite side of the peninsula, would be somewhat smaller. An ancient port with trading links to North Africa, Yanbu is known to travelers arriving during the annual pilgrimage to Mecca.
In 1978, neither village counted for much in the greater scheme of things. But this was to change.
In retrospect, the building of these two great industrial cities became inevitable in 1938 when the Dammam oil field was discovered and came on stream as Saudi Arabia
fs first major petroleum reservoir. Further drilling established the presence in the Kingdom of some of the largest oil and gas fields in the world, most of them in the Eastern Province bordered by the Arabian Gulf. Centrally situated and with deepwater access to other affluent Gulf countries, Al-Jubail would link SABIC with customers in the Middle East and Asia. Yanbu, on the other hand, would become the largest crude oil shipping port on the Red Sea and would help meet the petrochemical needs of customers in Africa, Europe, and the Americas.
The initial master plan for Al-Jubail was drawn up in 1975 by Bechtel Corporation. It was revised in 1976, and in that year, work began.
The Al-Jubail Master Plan divided the development area into five parts:

E To the south are the industrial area and the port, which occupy more than 130 square kilometers (50 square miles) of land. The industrial area itself is divided into three sections for primary, secondary, and support industries.
E To the north, upwind of the industrial zone and covering approximately 170 square kilometers (66 square miles), is the permanent community. Eight residential districts are being developed incrementally, starting with those closest to the coast and the industrial complex.
E In the buffer zone between community and residential areas stands the five-story Royal Commission Building, headquarters for the cityfs administration. Across the street is the sprawling campus of Al-Jubail Industrial College, a training institute for 1,500 students.
E Construction support communities are concentrated along the shoreline east of the industrial area. These are gradually being replaced by private
residential and commercial facilities.
E Approximately 450 square kilometers (174 square miles) of surface have been set aside in the western portion of the Al-Jubail site for the cityfs airport and a large regional park.

When fully developed, Al-Jubail will support a population of more than 250,000 people.
To level the building sites at Al-Jubail and raise the elevation of their foundations by 2.5 meters (eight feet), workers had to move enough earth to build 140 Cheops pyramids or to construct a road nine meters (30 feet) wide around the equator of the globe. It was the largest earth-moving task since the dredging of the Panama Canal. To provide access to Al-Jubail Industrial City
fs 1,036 square kilometers (400 square miles) of territory, builders laid some 2,250 kilometers (1,400 miles) of reinforced concrete roadways. A special 43 kilometer (27 mile) module path was built to permit movement and installation of prefabricated modules, some weighing up to 2,500 tons. In October 1983, a process unit designed for SADAF was rolled on a transporter down the module path. At 2,240 tons, the module and its transporter set a world record for the largest load ever conveyed by land. When it crossed bridges spanning seawater canals, it became the largest wheeled load ever sustained by a bridge.
For electricity, workers built generators with enough capacity to double the total generated electric power in all of the Eastern Province.
For water, engineers turned to the nearby sea and at Al-Jubail built desalination units large enough to fill 720 million one-liter bottles with fresh water every day. They laid down 1,600 kilometers (1,000 miles) of pipes to distribute potable water.
Then they put in a 5,600 kilometer (3,500 mile) water distribution system to permit treated water to be used for irrigation and conventional sewage disposal, a length equal to the distance between Dhahran and San Francisco, California.
By this means, more than 50 percent of Al-Jubail
fs treated wastewater is recycled. Within the plants, pipefitters installed more than 2,250 kilometers (1,400 miles) of internal piping, twice the 1,127 kilometer (700 mile) distance between Dammam and Mecca.
In a series of planned and well-timed steps, the Industrial City of Al-Jubail would over time become home to 14 primary manufacturing facilities representing an investment of more than $19 billion (SR71.25 billion) and turning out, at the end of the year 2000, 28 million tons of products.
Among them are:

E Five ethylene-based petrochemical complexes with a total annual capacity of 5.7 million tons of ethylene.
E Two chemical-grade methanol complexes with a total annual capacity of 4 million tons.
E Three urea complexes with a combined annual capacity of 5.5 million tons per year.
E Two iron and steel plants with an annual capacity of 3.2 million tons.
Beside them would be constructed:
E Nineteen secondary operations and light manufacturing plants.
E Almost 130 support enterprises that would serve the primary and secondary plants.

Process water needed for cooling within the plants during their operation was of major concern in a country which lacks even one river that flows yearround.
Fourteen pumps were installed with a combined rating of 24,500 horsepower to move 10 million cubic meters (350 million cubic feet) of cold Arabian Gulf seawater a day through the system.

On the Red Sea coast of the Arabian Peninsula,
Yanbu lies at the western terminus of the trans-Kingdom crude oil and natural gas liquids pipelines. The original Yanbu master plan was prepared in 1977 by Parsons, an American engineering and construction company. The blueprint covers more than 180 square kilometers (70 square miles), with two-thirds of the land set aside for industrial use. Plant sites are located in two industrial parks in the South Eastern section of the development area. One park is intended for heavy industries which need to be near coolant water; the other park is for light manufacturing operations in which coolant water and transportation requirements are a lesser need.
The city
fs central power and water complex and wastewater treatment plants are situated near the Red Sea. Northwest, and upwind of the industrial area, lies the residential community, which may eventually house 120,000 people. In making Yanbu an industrial city, enough earth was moved to construct 23 Cheops pyramids. More than 644 kilometers (400 miles) of roadway were built, twice the distance from Yanbu to Jeddah.
As Yanbu sits in a flood plain at the base of the Hejaz Mountains, it gets a significant amount of rainfall and is subject to flash flooding. To prevent inundation from the mountains, a flood control system was built around the city
fs entire landward side. Its main feature is an embankment 37 kilometers (23 miles) long and three meters (10 feet) high which diverts floodwaters into collection channels, and safeguards both residential and industrial communities.
fs King Fahd Industrial Port was completed in 1982. Occupying 14.5 kilometers (nine miles) of Red Sea coastline, the port comprises seven terminals with 25 berths, a service harbor, bulk cargo and container handling equipment, and marine support facilities. It is the largest oil and petrochemicals exporting complex on the Red Sea.
Together the industrial cities represent one of the most rapid and coherent industrialization developments of the 20th century.


Friends and Partners

"As we took steps to develop a petrochemical industry for Saudi Arabia,h recalls Abdulaziz Al-Zamil, the first Vice Chairman of SABIC, gwe had as assets the money, the raw materials, and a delivery system. What we did not have was the technological know-how and the commercial experience in the markets of the world that we needed to make a quality product and sell it. For these two assets, we needed to draw from wells of knowledge outside the Kingdom.h
Much of the success of SABIC in its industrial projects, its architects agree, can be ascribed to a sensible policy, applied from the beginning, of enlisting help from afar. To get what it needed, SABIC reached out to multinational companies, all repositories of technical expertise, centuries of cumulative experience, and competence proven repeatedly on the front lines of world markets.
When SABIC men went to Europe and Asia in search of joint venture partners, businessmen there smiled pleasantly, formed committees, and waved polite good-byes. In private, they expressed doubts that Saudis could even understand the technology of petrochemicals, much less manufacture them.
gAll but the Americans,h says Faisal Basheer. gSomehow the American mentality and the Bedouin mentality have something in common. When we talked to people like the late Rod Grandy, with Exxon, we saw that he believed in us.
He and other Americans told us,
eYou donft have any experience. But you can learn. We will help.f And they did. They thought like Crown Prince (now King) Fahd, who said to us, eYou believe in it? Go do it.f So we dealt with the Americans because they accepted us.h
It was a philosophy that has served SABIC well. Ghazi Algosaibi cites the concept of joint ventures with foreign partners as central to the ability of any developing country wishing to expand its economy through industrialization and diversification.
gIn each of our joint venture industrial projects,h Algosaibi says, gwe possess 50 percent and the foreign partner possesses the other 50 percent. Our acceptance of the equal partnership principle means that we seriously examine and accept what is possible and that we evaluate ourselves objectively without exaggeration. We deal with companies that control more in assets than is possessed by many states in the world. ExxonMobil Corporation commands a larger fleet of tankers than Russia possesses warships. General Motorsf income for one year is greater than the national income of both Switzerland and Belgium.
gWe do not deal with these companies from either weakness or superiority, but from a practical and realistic point of view,h Algosaibi says. gWe know that these major oil companies have the worldfs leading technologies, but they need petroleum. We, on the other hand, have the worldfs largest petroleum reserves, but we need technology. So we fairly bartered petroleum for technology. Itfs a straightforward exchange. Each company that invests one million dollars in the Kingdom obtains rights to buy one thousand barrels of crude oil.
gWe at SABIC needed three things they had which we did not. They possessed technology, means of training, and distribution outlets. We lacked all of these. Therefore, the relationship between us was very clear. It was a relation of equal and mutual interests. Neither party exploited the other. Each got what he needed and everyone benefited. Only the naive believe that foreign companies took part in the process as a favor to the Saudi people or out of altruism. As partners, they stood as much to gain or lose as their Saudi partner. We each had a stake in assuring our mutual welfare.h
That said, Algosaibi observes that negotiations with foreign companies were difficult, time-consuming, and complex. Some, initiated many years ago by Petromin, took as long as 10 years to conclude. As early as 1973, Shell Oil Company approached the Ministry of Petroleum and Minerals with a proposal for developing Aramcofs gas reserves, recalls Ron Swofford, then a Shell employee who later became Senior Vice President of SADAF.
fs representative Abdulhadi Taher countered with a suggestion that Shell come back with something in chemicals, which Shell did in April 1974. It was well received, and became one of the joint venture proposals turned over to the newly created Ministry of Industry and Electricity in November 1975.
With the creation of SABIC in 1976, Shell entered a period of extensive revisions lasting four years. But once completed, the resulting contracts for SADAF proved so sound and reliable that never once during subsequent years was it necessary to challenge the language or call into question the intent.
In the interim, SABIC set up a team to visit contractors around the world in order to select one for the job of building SADAF.
gBob Dutton was the project director for Shell,h Swofford says. gHe and I flew to Tokyo to meet Nasser Al-Sayyari and Mohamed Al-Mady, the other members of the team. We visited contractors in Japan, Germany, France, England, and the United States. Late in 1976, we awarded the contract to Fluor.h
By 1978, Shell negotiations with SABIC were still under way, resulting in delays in construction. When Algosaibi visited Houston, Swofford called his attention to losses of up to SR7.5 million ($2 million) a week attributable to delays.
gAlgosaibi said to me, eThat may seem important to you, but we have things going on that make it impossible for us to reach those decisions right now,fh
Swofford recalls. gWe were being impatient Westerners. It later became apparent that we were just not aware of the grand plan. We began building SADAF about as early as was possible.h
Swofford says that delays lasting until 1980 later proved to be beneficial. gHad we proceeded in 1978,h he says, git could have been a financial disaster for Shell.h
The task of finding partners required thorough scrutiny, careful evaluation of their technologies, and just a bit of luck,h says Abdulaziz Al-Jarbou. SABIC sought as partners companies ranked among the worldfs best in both technology and management. They wanted SABIC employees in training to be technicians, operators, engineers, and managers to have access to the latest and best.
But guaranteeing access to quality training for SABIC personnel and assuring transfer of first-rate technology sometimes required determined effort by SABIC negotiators.
Among the first to respond to SABIC inquiries was a consortium of Japanese companies led by
Mitsubishi Gas Chemical Company. Negotiations in the 1970s led to the joint venture named Saudi Methanol Company (AR RAZI) which was established in 1979 to make chemical grade methanol in Al-Jubail. Also in the 1970s, the Taiwan Fertilizer Company joined SABIC in a joint venture called the Al-Jubail Chemical Fertilizer Company (SAMAD). Established in 1979, SAMAD makes ammonia, urea, 2-ethyl hexanol, and di-octyl phthalate.
Bruce Morgan, who was present during what he calls
gthe Klondike yearsh (after a chaotic gold rush in Canada), was involved in designing training programs in collaboration with joint venture partners.
gAt that time, there was no training facility at Al-Jubail as there is now, and Saudis were trained in the United States at Shell facilities,h Morgan says. gNor were there operating plants for people to practice in. So our conclusion was that SABIC trainees had to have experience in a real petrochemical plant. They had to learn on the job in petrochemical plants in Texas or Louisiana or wherever. This worried the foreign partners, because they would be responsible for the welfare of these young, inexperienced, and naive youths who knew nothing of America and could easily get into trouble there. The partners were overly cautious at first. Their solution was to park the trainees in classrooms with some catalogues and diagrams in loose-leaf binders. But that didnft get the job done. The SABIC leaders were alarmed.h
In fact, Al-Jarbou saw the training of young Saudi men for the role they would have to play in their nationfs drive toward industrialization as the most critical element in the achievement of long-term success. It was necessary, he realized, that they learn how to run modern petrochemical plants and make top quality products. If not Saudis, then who? When the foreign professionals had gone home, Saudis would have to take over, do the work, and do it well. It was a view held strongly by Al-Zamil and Ibn Salamah as well.
SABIC leaders feared that their partners were not providing serious training. In 1978, the three men -
@Al-Jarbou, Al-Zamil, and Ibn Salamah - traveled to Houston to meet with Shell executives after exchanging salvos of contradictory messages about training. Al-Zamil told Shell negotiators that he would accept nothing less than the training procedures he had called for in his original proposals.
gAfter that, our young Saudis got real training doing real work,h Al-Jarbou says. gShell came through for us, and so did Exxon and Mobil. They performed a great service for the Kingdom in teaching Saudi men the skills and selfdiscipline they would need to be as good as the best in the field of petrochemical technology.h
Our Exxon hosts proved to be excellent,h vows Al-Nekhilan. gThey trained operators and technicians in Baytown, Texas, and California, where our trainees helped Exxon employees build two reactors like the ones we have here in KEMYA. They worked side by side with the Exxon guys. Exxon taught them all sorts of things. They got computer training, technical training, construction training.h
When the time came for SABIC to start up the first reactor at KEMYA, Exxon proposed to bring seasoned people in from Houston to do it. But Al-Nekhilan wanted his Saudis to handle the challenge. He talked to several Exxon people, such as Rod Grandy, who was involved in the early negotiations with Exxon. Al-Nekhilan maintained that this was the time for Saudis to step forward and take charge. Grandy agreed, and so Exxon-trained Saudi operators started up KEMYAfs reactors. They did so well that later on Exxon borrowed 34 Saudi specialists to help Exxon start up its own plant at Sarnia, in Canada.
gThatfs how good they were,h says Al-Nekhilan. Abdulrahman Al-Shahri, General Manager of Oxygenates, agrees with Al-Nekhilanfs assessment of the quality of SABIC employees.
gMany people outside Saudi Arabia and outside our industry have told me that SABIC has been successful, not because it has cheap gas, or smart partners, or Al-Jubail and Yanbu, but because it has good people. We follow Al-Zamilfs example. We do it right the first time, and we donft waste a single halala. People outside of SABIC tell me that this is what led to SABICfs success. For my part,h Al-Shahri adds, gSABIC may be a small word on paper, but it is a very big word in my mind and heart.h
As the architect of the training programs that enabled SABIC to get into business, Abdulmohsen Al-Asiry played a major role in positioning the company for future achievements. With a master of business administration degree, Al-Asiry joined SABIC in 1977 to take charge of manpower and training. He was employee number 13.
Recruiting among high school graduates, he located young men who showed promise for a career in technology. It was a slow start. In 1977, he was able to enlist just 15 people. Soon, the various training programs operated under his direction were educating some 600 trainees. Most of them were less than 20 years of age.
gWe assembled a mobile exhibit to sell young people on a career with SABIC,h Al-Asiry says. gWe took it into the countryside and visited all the villages.
We handed out brochures, showed films, and supplied application forms. Once the boys enlisted, we sent them to schools in the United States to learn English and get on-the-job training in plants operated by our joint venture partners. It was very successful. Of every 100 trainees we put through our program, at least 80 completed it satisfactorily.
Some of SABICfs trainees were sent to countries that were partners with SABIC in joint ventures, such as Taiwan and Japan.
gEnglish is spoken in those places as the language of industry,h Al-Asiry explains, gso our men got wonderful training.h
At the peak of training in the Kingdom, SABIC and the Royal Commission had 950 young men in school at centers in Riyadh, Jeddah, Dhahran, and Al-Jubail. Over the years, they trained more than 15,000 Saudis for jobs in industry. This was the largest industrial training program ever undertaken in a developing country, and arguably the most successful.
fs training facilities did so well that companies elsewhere in the Middle East asked to send their own students. Industries located in places such as Qatar, Kuwait, and Bahrain sent trainees.
gWhen I go to Al-Jubail and Yanbu today,h Al-Asiry says, gI see those same kids who came to us 20 years ago. Now they are senior technicians and managers and directors. They are running SABIC plants efficiently and safely. They are making a difference in the economy of the Kingdom.h
In 1975, when discussions began with foreign partners, the wisdom of joint ventures was not as apparent to all as it is today. Lou Noto recalls in detail the decision on the part of the Saudi government not to go it alone.
gThey decided to do the joint venture approach with foreign capital,h Noto says. gIn hindsight, it was brilliant. They understood early that if you want the best from a company, the way to do it is to make sure the company has an equity stake in the project as opposed to simply buying the technology or resources.
gNext, they insisted that 10 percent of the money invested come from commercial banks, even though they had access to the Public Investment Fund, which could have handled any debt requirements the project might have. This, too, attracted criticism, but it was smart. It gave SABIC another level of review, another set of eyes looking at the economics to make sure they were okay.
gThird,h Noto points out, gthey realized that on a completely level playing field, nobody would come to Saudi Arabia to build a petrochemical project. Why would they? There was no infrastructure. There were no commercial ports. It was questionable whether such plants could survive in the desert. No one thought Saudis could or would do this kind of work. Prominent business magazines published scathing articles on Mobilfs stupidity in becoming involved in building two big projects in Yanbu.h
Citing strategies to provide incentives for investment, Noto says, gThe Saudis first created a Royal Commission to cut through red tape that would delay construction.
gSecond, they asked, how can we use our natural wealth to facilitate these projects? For example, they offered ethane to builders at 50 cents a million Btu.
gThird, they realized the importance of money and set up the Public Investment Fund.
gAnd fourth, they gave an investor the right to buy crude oil, or eincentive crude,f as we called it. At that time, crude oil supply was a major concern worldwide.
gWithout this bundle of attractions,h Noto says, gjoint ventures wouldnft have looked nearly so good. It would have been a discouraging prospect.
gIn 1976,h Noto adds, gJack Butler, General Manager of Mobil-Saudi Arabia, and I went to Yanbu with Al-Zamil and Ibn Salamah. We stood on the eastern-most intersection of the future refinery and the petrochemical plants, and I took a panoramic picture of them standing there. There was nothing else in sight. Just nothing. These were virgin sites.h
Noto recalls discussions that followed in which it became clear that the Saudi government felt that the availability of hydrocarbons on the west coast could be a strategic advantage should something bad happen on the Gulf coast. That was to be Yanbufs role.
gIn negotiations, the SABIC folks were very difficult,h Noto says. gSABIC was a new organization, and it was dealing with these big foreign companies. I think Algosaibi and Al-Zamil were distrustful of us. They were being prudent.
But the result was that there was more friction in the negotiations than there had to be. The SABIC negotiators were very clear in their objectives. They wanted a world scale plant, they wanted a plant that made economic sense, which in their terms meant one that cost as little as possible, and they wanted it operated and managed by Saudis. We had no difficulty with any of these premises, but were doubtful about how quickly we could ramp up the staff to 100 percent Saudis. We knew the Saudis did not have a lot of industrial experience. So the need for training capabilities was clear to us. SABIC leaders wanted to move faster than we felt was wise, so we compromised on our timetables.
To facilitate training, Noto leased a school in Beaumont, Texas, where Mobil had a big plant. gWe turned it into a campus for training young Saudis,h he says. gIt was a good investment. Today, ExxonMobil has almost no expatriates in Yanbu. SABIC was right. We had underestimated the rate at which we could train Saudis and put them to work in the Saudi Yanbu Petrochemical Company making ethylene, polyethylene, and ethylene glycol out of ethane.
gWe reached agreement with Al-Zamil and Algosaibi about what we were going to build and how we were going to build it,h Noto recalls. gAfter that we had to flesh out the legal parts about engineering services, financing, and the joint venture agreement itself. They were tough. One day, my lawyer stormed out of the room. But by the end of 1978, we reached agreement. When Ibn Salamah and I signed those documents that day, we said to ourselves, eIf we are successful, we will never look at this book of documents again.f Now, every time I see Ibrahim, we say, eThe books are still on the shelves.f I am proud of that.h
The building of YANPET began in 1980. Most of the units were prefabricated elsewhere as modules and were transported to Saudi Arabia by sea. Construction went smoothly and the plant went on line in 1984. Participating in all the stages of design, construction, pre-commissioning, and the start-up of YANPET was Ali Al-Khuraimi, who graduated from King Fahd Petroleum and Minerals College in 1977 as a chemical engineer and immediately joined SABIC. After orientation with Mobil in Houston and Beaumont, Texas, he returned to Yanbu in 1983 to assist with the building of YANPET. By 1986, he had risen to Executive Vice President, and in 1990, he became YANPETfs President.
The joint venture, says Al-Khuraimi, is a model partnership.
gWe and Mobil, and now ExxonMobil, have enjoyed excellent relations with many positive things on both sides,h he says.
fs early successes answered many questions asked by the consumers of petrochemical products around the world.
gThere were those who doubted that Saudis could learn to run a plant in the middle of a desert,h Noto recalls. gYANPET put all those concerns to rest.
gSome of our costs at YANPET were higher than they might have been in, say, Houston, Texas, because there was no ready-made infrastructure. The Saudis knew this, and they offered incentives to offset the shortcomings of the location. But they were not going to give away the shop just to get us. They had to protect their countryfs patrimony. What they did was brilliant.
gFor example, if they had not set up the Royal Commission with authority to negotiate, to enter into contracts, to give quick answers and speedy resolutions to problems, in my opinion industrialization would never have occurred.
Imagine the difficulties of getting into a gas utilization project where you have to talk about processing, production, distribution by sea, distribution by pipeline, delivery and sale to utilities, perhaps 17 places where you have transfer prices and fees to negotiate, 17 different authorities to satisfy. Forget about it. When the Saudis gave us one-stop shopping for answers and permits, they made industrialization possible.
gA foreign investor,h says Noto, gdoesnft want to get involved in internal arguments about the transfer price of gas. He needs someone to cut through the red tape for him. The Royal Commission provided that service to SABIC and its joint venture partners.
gFor example, we attended a ceremony to celebrate the departure of the first shipload of YANPET products. Abdulhadi Taher was there. He was head of Petromin. After the ceremony, we all went home. That night, I got a telephone call that the ship was still in Yanbu harbor. The customs people would not release it because Yanbu had not been authorized for the export of goods from Saudi Arabia. At the time, this was a tragedy. I called Taher and told him of the problem. He got on the phone to the customs officials and authorized the release of the ship. It sailed immediately.
gWhat I liked most about the men of SABIC with whom we negotiated,h Noto says, gwas that once we agreed, once we shook hands on it, then we were partners. That was the deal and we could go forward from there. I give SABIC tremendous credit for that. Once we signed off, we never looked back.
gNor were we ever asked to do anything that we thought was ethically, morally, or legally questionable. Never! Never! Never once was I put into a situation where I felt uncomfortable, either with respect to the principles or policies that we all try to live by, or by the rules and regulations of my company, or the laws of my country. It was never an issue.h
During the same time period in which SABIC and Mobil were negotiating terms for the building of YANPET, Larry Wheeler was serving on Shell Chemicalfs negotiating team evaluating project economics. His relationship with Saudi Arabia began in 1974.
Wheeler recalls that Shell Oil Company needed a long-term crude oil supply for its refineries in the United States. As a crude oil exporter, Saudi Arabia offered to sell its crude oil to those companies that were willing to help the country with its industrialization and diversification plans and in the development of its human resources. This was an opportunity for Shell.
A Shell team was formed under Stan Stiles, Vice President of Transportation and Supplies. In 1974, the team met with Ahmed Zaki Yamani and his Petromin staff. They laid out a proposal for a petrochemical complex based on natural gas. By August 1974, a
gheads of agreementh was signed between Petromin and Shell Oil Company. Wheeler, then a specialist in the economics of petrochemical ventures, was brought in to help Shell understand the economics of investing in a petrochemical complex in Saudi Arabia.
gI discovered that the economics were actually a matter of negotiation,h Wheeler says, gbecause there was little known about building and operating a petrochemical industry in Saudi Arabia. This was virgin territory. We spent a year and a half negotiating, doing engineering, evaluating economics, and convincing ourselves that a petrochemical venture in Saudi Arabia could be profitable while meeting the Kingdomfs objectives for industrialization.h
In December 1975, when Shell was scheduled to sign its joint venture agreement with Petromin, they were notified that there had been a reorganization, but there was no cause to worry. The Shell team was told that the Saudi government had decided to create a new ministry, the Ministry of Industry and Electricity, which would be responsible for the petrochemical portion of the industrialization program. Petromin would retain authority over refining projects along with crude oil and natural gas supply.
In March 1976, the Shell team went to New York to meet Ghazi Algosaibi, the new Minister of Industry and Electricity, and Abdulaziz Al-Zamil, who
represented the Industrial Studies and Development Center. SABIC didn
ft exist at that time.
gAlgosaibi did most of the talking at that first meeting,h Wheeler recalls. gHe told us that they had reviewed the Shell project and wanted it to proceed, but he wanted to start over from the beginning. He suggested that Shell and the Ministry sign an interim agreement under which a new and more comprehensive feasibility study would be funded.h
Shell agreed and signed in July 1976.
At that time, the Ministry assigned its rights and obligations under the interim agreement to SABIC and Al-Zamil, who was appointed Vice Chairman and Managing Director. Algosaibi became Chairman of the board. Key staff members came mostly from the Industrial Studies and Development Center.
gThatfs when we met Ibrahim Ibn Salamah, who was Director General, Planning and Project Evaluation,h says Wheeler. gWe also met Abdulaziz Al-Jarbou, Nasser Al-Sayyari, and Abdullah Nojaidi, who were among the original core staff.
gWe formed a joint team of SABIC and Shell people to work on the feasibility study and chose the Fluor Corporation as managing contractor. We picked engineering contractors because a major part of the study was the development of a comprehensive capital estimate.h
Mohamed Al-Mady was involved on the engineering side for SABIC.
Al-Jarbou headed a SABIC contingent to work on the business side to settle issues of economic feasibility, financial analysis, marketing studies, and procurement and legal issues. The two men were joined in Houston, Texas, by Abdulaziz Al-Auda for financing and Abdulrahman Al-Garawi on economics.
gWe worked closely in Houston for a year,h Wheeler says. gThe name SADAF hadnft been invented then, so we called it the Saudi-Pecten Petrochemical Project. The word pecten means shell in Latin, and was adopted in the name of our subsidiary Pecten Arabian Ltd.h
The SABIC representatives contributed their knowledge of conditions in Saudi Arabia, labor and infrastructure costs, and their understanding of how to get things done in Saudi Arabia.
gWhat we didnft get done was any work on the agreements that we had given the Ministry of Industry and Electricity for review,h Wheeler says. gWe had worked out a package of 12 agreements with Petromin for such matters as marketing, offtake, benzene supply, crude oil, ethane and methane supply, technical service, and pricing formulas. The Ministry and SABIC had been reviewing these. In September 1977, we received a large package from SABIC which contained all the agreements, but they had all been revised from SABICfs perspective. I donft think SABIC expected us to accept all those agreements as written, but it was clear that we were looking at three more years of negotiations on top of the four years we had already spent on the project.h
The Shell team, led by Stan Stiles, included attorney Tom Baker, Ron Swofford from the engineering side, and later H. G. (Jake) Jacobson. Every six weeks they would go to Saudi Arabia and meet for a week with the SABIC team of Ibrahim Ibn Salamah, Nasser Al-Sayyari, and Abdullah Nojaidi. On the fifth day, the negotiators would expand their meeting to include Abdulaziz Al-Zamil. The larger group would discuss the main sticking points and resolve some of the sticky issues.
gIt was slow and difficult because we came from such different cultural backgrounds,h Wheeler recalls. gOur view of what was an acceptable agreement was different from SABICfs view. Our view on liability - what happens if things go wrong - was different from theirs. We spent a lot of time negotiating things that, as it turned out, never came into play at all, but we thought they were important at the time.h
Marketing negotiations proved to be the most difficult. SABIC wanted Shell to take responsibility for marketing all products from the venture and also to provide an offtake of last resort to Shellfs facilities if the product couldnft be sold to third parties. The team had to negotiate a marketing agreement allowing a sale to a third party and an offtake agreement where Shell would buy product for its own use.
gYou can imagine how difficult it would be to arrive at an agreeable transfer price,h Wheeler says. gShell finally agreed to take 100 percent of the product, but with a lot less penalty if we under-performed than SABIC wanted. And SABIC got the right to lift 50 percent of the product, but with no obligation to do so.h
Time proved these concerns to have been irrelevant. Under the leadership of Abdullah Nojaidi, SABIC developed its marketing operation at a much faster rate than anyone thought possible. The result was a shortage of product where a surplus had been feared. Therefore, there was no need for a Shell offtake, and virtually no product was ever sold to Shell.
gWe ended up fighting over the products, so there was no issue of liability for under-lifting,h Wheeler says.
gWe signed the agreements in Stockholm, Sweden, in June 1980, because Algosaibi had to be there on official business. We had another ceremonial signing on television in Riyadh in September. For that, we brought over John Bookout, Shell Oil Companyfs President, who appeared with Algosaibi. We celebrated at a festive party in the desert with a roasted camel and tribal dancers. It was the successful culmination of seven years of very hard work.h
Wheeler points out that the end result of all the time and effort was a joint venture that was fair for both sides.
gIt has stood the test of time,h he says.
After the ceremonies, Shell and SABIC got down to the hard work of building a SR11.2 billion ($3 billion) petrochemical complex, which at the time was to be the largest ever built at one time, in one place, and at a site that really didn
ft have the infrastructure for supporting it. The work went forward, thanks to the Royal Commission, which provided a developed plant site, housing for workers, supplies, utilities, electricity, fresh water, sewage treatment, and all those other things outside the limits of the plant itself, which was given the name of SADAF.
gThere were two Japanese steel companies that built and assembled the SADAF plant in modules,h Wheeler says. gThey were huge things. We hired a Dutch company to transport the modules from Japan to Al-Jubail and offload them onto transporters that rolled on special roads to the site. There they were reassembled. The Japanese had done an amazing job of quality control.
They all fit together. The engineers did a great job; the plants came in ahead of schedule, 15 percent under budget, with costs and products sold out from day one. We began commercial operation in 1985.
During the 1970s, with oil reserves declining and prices rising, the managers of international oil companies sought to nail down dependable supplies of crude oil at reasonable prices. At the time, some wag suggested that there was no other recourse but to move Texas into Saudi Arabia somehow. When Saudi Arabia offered to guarantee the delivery of impressive amounts of crude in exchange for joint venture participation in petrochemical projects, Exxon, Mobil, and Shell chiefs were tempted. Representatives of each of the companies admitted later that had it not been for the lure of goil entitlementsh at an attractive price, their companies would very likely have declined to participate in proffered joint petrochemical ventures. As it turned out, their concerns proved groundless. Within a few years, prices fell and world reserves and supplies of crude oil increased, making the oil entitlements of little value. Meanwhile, profits from the joint venture projects added impressively to the bottom lines of both partners.
A somewhat different motivation led to participation by
Japanese companies, who viewed investment in SABIC as one of great strategic importance to their country. Having no domestic oil reserves, Japanese companies needed crude oil from anywhere they could get it. Moreover, the Japanese government and its businessmen anticipated contracts for building petrochemical plant modules in Japanese shipyards for translocation to Al-Jubail and Yanbu. As low bidders, they were not disappointed.
On the other hand, major chemical manufacturers, such as
Dow Chemical Company, did not want crude oil entitlements. Their representatives came to talk when invited, but without enthusiasm.
gWe were very keen on Dow,h recalls Abdulaziz Al-Zamil, gbut they were not keen on us. They became convinced that the climate for investment in Saudi Arabia was not good.h
At a meeting in Riyadh, Dow announced their intention to withdraw from the PETROKEMYA project, even though SABIC wished to proceed. By mutual agreement, the venture was called off.
Ibrahim Ibn Salamah reminded Dow representatives that if they backed away, SABIC would own rights to all the engineering and plans. But Dow persisted in their decision, leaving
SABIC in sole possession of PETROKEMYA.
The decision to build PETROKEMYA on their own was one of SABICfs best. It proved to be as successful as all of SABICfs operations. From the very first day of operation, each has earned a respectable profit, a tribute to the tenacity and vision of SABICfs negotiators.
Samir Abdul-Hadi recalls an example of this tenacity. Employed in 1977 as one of SABIC
fs first engineers, a graduate of the University of Manchester in Science and Technology with a MS in petrochemicals processing, Abdul-Hadi was assigned in 1978, along with Abdullah Nojaidi, to the technology side of a joint venture project under way with Dow Chemical. The plan was to make ethylene, polystyrene, butene-1, propylene, butadiene, and benzene, the product line of PETROKEMYA today.
gDow engineers had already selected a technology they wanted to use for the manufacturing process,h Abdul-Hadi recalls. gBut we felt that partners should pool their resources and be equally involved in technology selection.h
Dow was dubious, but Abdul-Hadi insisted that SABIC be a partner in the technology selection process. He saw it as an important element in knowledge transfer and technology acquisition that would be valuable later in other joint venture negotiations.
gWe worked out a compromise where the joint venture would acquire the technology, but we would develop it,h Abdul-Hadi says. He recalls the technology-sharing concept as gthe vision that ultimately led to the development of SABIC R&T (Research and Technology).h
In other negotiations regarding acquisition of a key technology, Abdul-Hadi recalls long uncomfortable hours arguing with Andre Deprez, who was a tough negotiator for Scientific Design, an American company.
gIt was summer,h Abdul-Hadi says, gand we were working in a portable cabin on the roof of our headquarters building. The power kept going off and our air conditioner would quit. The heat was bad and it was Ramadan, so there was no water to drink. Deprez never complained at the time, but six months later, he scolded me for my brutal negotiating tactics. He thought I had brought him to the desert in August during Ramadan just to put pressure on him to agree.h

Laying the Foundations @1976-1983

From the inception of SABIC in 1976, Abdulaziz Al-Zamil served as the companyfs Vice Chairman and Managing Director. Among the first responsibilities assigned to him by Ghazi Algosaibi, Minister for Industry and Electricity, was the forming of a task force to sort through various product studies and proposals transferred to SABIC from the Ministry of Petroleum and Mineral Resources (Petromin).
Among the likeliest of the inherited projects was that of developing and enlarging the existing Steel Rolling Company (SULB) in Jeddah. Next in order of priority came expansion of the fertilizer manufacturing capabilities of the
Saudi Arabian Fertilizer Company (SAFCO), which was already in business in Dammam.
gThere was talk about transferring the Master Gas System to us, but it stayed with Aramco,h Al-Zamil says. gIt was a matter of negotiation and discussion, but one by one these projects were transferred to SABIC.h
When the transfers became official, SABIC opened joint venture discussions with Shell, Mobil, Exxon, Dow, Mitsubishi, Lurgi, and Korf-Stahl.
In the meantime, a handful of young men were laboring to create the organization named SABIC, initially as 100 percent owned by the government, but with plans to capitalize it and, ultimately, to sell 75 percent or more of its shares to the public.
gIt took some time to write the by-laws and to make sure that SABIC had plenty of stability and a strong capital base,h Al-Zamil says. gThis gave us credibility and strength at the bargaining table.h
In approaching negotiations with foreign companies, Al-Zamil told his young colleagues that they must maintain the highest standards of business ethics.
gI pointed out to them that projects like this in other developing countries have failed because the people involved took bribes. When corruption came into it, the project floundered. To succeed, we must have a culture that values honesty and integrity, not only for us, but for our business partners as well.
gWith a culture that is morally correct, you can acquire the necessary elements for your products such as raw materials, feedstocks, money, manpower, technical know-how, and marketing capabilities. Without these things, nothing can be accomplished. We got the raw materials thanks to the government. With the cooperation of the Minister of Finance and the Public Investment Fund, we got financing. Our partners gave us knowledge and skills and competence.
This, I think, is one reason we succeeded where other countries have failed. Others thought they could do it alone. But we were not afraid of the Americans or Europeans or Japanese.
They had what we needed and we negotiated to get it on terms that were fair and reasonable for all of us.
gThe steel project was high priority,h Al-Zamil says. gSteel prices were high then, but we also knew that once we started making steel, prices would come down. We expected that. But it took some time to convince a medium-sized foreign steel producer to enter a joint venture with us. Major steel producers werenft interested because they wanted to export steel products to Saudi Arabia and not to help us make it here.
gWhen we started, the foreign exporters reduced their prices to make it difficult for us. But we had plenty of capital to wait out the onslaught. They found out that therefs not much point in just losing money, so they went back to prices that were more sensible.
gMost of our negotiations were fairly straightforward, with two exceptions,h Al-Zamil continues. gWhen we negotiated the AR RAZI (Saudi Methanol Company) project, we had eight partners, not just one. When you deal with one partner and you disagree, then he goes back to his employer, gets another position, and you agree. With eight partners doing this, it took a lot of time and effort to get a consensus. But that was nothing compared to negotiations to create SHARQ (Eastern Petrochemical Company). This was a big account for the Japanese, and there were 52 partners in it. It was very time-consuming and discouraging. But we found that if we signed with some of the partners, things would start moving and soon the others would agree.h
Two formidable negotiators led the negotiating team for Mitsubishi Gas Chemical Company. One of them, Hisashi Kazama , was a graduate of Tokyo University. He had joined Nihon Gas Chemical Company in 1954, prior to the changing of its name to Mitsubishi Gas Chemical Company (MGC). Upon retirement from MGC, Kazama was named Chairman of the Japan Saudi Arabia Methanol Company.
Kazama recalls that in the early stages of what was to become the
AR RAZI joint venture project, he became convinced that the future for methanol production in the world would require a change in location to favor natural gas producing nations. At that time, this was an original idea. He set out to investigate the producers of natural gas.
gI surveyed many locations in the world before arriving in Saudi Arabia, where SABIC was seeking joint venture partners,h Kazama says. gAt the time, AR RAZI was the smallest project planned for Al-Jubail, but we thought we should try for it as it would be a good example of industrialization in Saudi Arabia.h
When the joint venture agreements were signed, Kazama says, AR RAZI became the first case in the world of shifting methanol production away from a developed country to a natural gas producing area.
gToday,h he adds, gwe are honored and pleased to be a partner in what has become the largest methanol factory in the world.h
Another graduate of Tokyo University, Wakichi Nagano, played an active and important role in obtaining for MGC its partnership in AR RAZI. He recalls the pleasure he took in dealing with SABIC negotiators who were both effective and businesslike. Nagano subsequently was named President of MGC and later its Chairman. In 1989, he retired as Vice Chairman of AR RAZI, but continues his post as senior advisor to MGC.
gTheir rational approach helped us to build solid foundations for the establishment of AR RAZI,h he says. gAt the time of our feasibility study, we were able to confirm quickly that the costs of AR RAZI methanol would allow the company to compete successfully in the world market. We made our decision quickly to sign the joint venture contract and gain the honor of becoming the first of SABICfs foreign partners to conclude an agreement.h
The MGC process for technology was adopted and Mitsubishi Heavy Industries (MHI) chosen as constructor of the plant itself. MGC likewise accepted the responsibility for training Saudi operators for the plant that would be built in Al-Jubail.
Careful planning and well trained operators resulted in a flawless start-up.
gIt was the most unforgettable moment in my life,h says Nagano, gwhen I attended the ceremony at the newly built King Fahd Industrial Port and watched the first shipment of AR RAZI methanol destined for Japan.h
From that time forward, the company has performed up to the highest standards, even when two calamities, the Iran-Iraq War and the Gulf War, threatened not only production, but lives as well. gI am pleased to say that plant operation was never interrupted,h Nagano says.
With three major expansions making AR RAZI one of the largest methanol facilities in the world, Nagano advocated its continued growth as being in the best interests of SABIC and MGC and their customers throughout the world.
AR RAZI was followed by the founding in 1981 of the
Eastern Petrochemical Company (SHARQ), another joint venture between SABIC and a consortium of Japanese companies led by the Mitsubishi Corporation.
Keizaburo Yamada, who represented the consortium as Senior Corporate Counselor, recalls meetings in 1971 with Abdulhadi Taher, Governor of Petromin, on plans to construct an oil refinery in Riyadh. Yamada says that these negotiations
greassured us that the Kingdom would be a reliable partner willing and able to fulfill agreements and obligations. The development of trustworthy relationships with Saudi Arabian leaders was a key to our later successes.h
Yamada later became the first President of SHARQ.
Meetings with Taher were followed by other discussions with Ghazi Algosaibi in his role as SABIC
fs Chairman.
gI have vivid memories of how passionately Algosaibi talked of his plan to develop the Kingdom,h Yamada says. gHe asked us to join SABIC in a joint venture to utilize the associated gas separated from their crude oil.h
The proposal was greeted with enthusiasm in Japan, where both public and private sectors were keenly aware of the nationfs need for building greater energy security through an amicable and trusting relationship between Japan and the Middle East, most particularly, the Kingdom of Saudi Arabia.
Akira Miura, Chairman of the Mitsubishi Chemical Corporation, says that from the outset, the SHARQ project was viewed in Japan as a national project having solid governmental backing and vital to the country
fs welfare.
gOur basic challenge,h says Miura, gwas that of carrying our negotiations through to a successful conclusion. At the same time, we had to gain understanding of the proposal and support for it from all those in Japan who had a stake in the outcome. It was demanding work. I have the highest admiration for our Japanese negotiators, who had to persuade and unite everyone against all odds in order to complete the project.h
As General Manager, Engineering, and later Vice President, Operations, for SHARQ, Mutsumi Choji was directly involved in the design and construction of SHARQ. He was there when the plant came on line for the first time. The start-up was flawless as polyethylene and ethylene glycol emerged on specification, just as planned.
The experience left me with the conviction that nothing can stop a multinational team of young-hearted and enthusiastic people eager to meet challenges and solve all difficulties,h Choji says. gThe construction and operation of a huge, advanced, and fully automated petrochemical plant designed to run continuously in safety in a harsh and hostile environment was their challenge, and they met it. I was confident that nothing could stop the eager people of Saudi Arabia and Japan from succeeding,h Choji says.
Recruiting, training, and careful preparation, Choji feels, were key elements.
Newly recruited trainees took lessons in English and basic science in a suburb of London,h Choji says. gThen they received two years of hands-on training in Japan learning plant operations, maintenance, and delivery. Each Saudi was paired with a Japanese expert. Together, they checked and confirmed every procedure of the SHARQ start-up.
At SHARQfs polyethlene plant, specification products were taken out on the second day after catalyst infusion. At the ethylene glycol plant, specification products were taken out on the third day after oxygen infusion. After start-up, the plant operated continuously for a record 76 days. Today, SHARQ manpower is 83 percent Saudi, a tribute to the skills mastered by Saudi trainees,h Choji says.
SHARQ management continues to emphasize technological innovations, improvements in quality and quantity of products, and rigorous maintenance of the plant itself. As a result, SHARQfs products, linear low density polyethylene (LLDPE) and ethylene glycol, have found such ready markets that the original plant has been enlarged twice. It is the largest joint project ever undertaken by the people of Saudi Arabia and Japan.
I sincerely hope that the sense of affinity and cooperation between the Kingdom of Saudi Arabia and Japan will continue unchanged into the 21st century, gsays Miura.
Along with the external pressures of negotiating with foreign partners, Al-Zamil had to deal with internal pressures as well. gNot from the government, which was behind us all the way,h he says, gbut from the internal demands of complicated logistics. Once you start something rolling, other parts of the project have to be ready at the right time to avoid delay. Let one piece of it get out of line, then all of it stops. We had some early problems because some people were not used to working at this speed. They felt no sense of urgency. For example, we had our first shipload of products ready to leave Al-Jubail, but we didnft have an export permit. The paperwork hadnft been processed. But we kept on pressing and keeping in sight where we wanted to go and what we had to do to get there.h
Al-Zamil knew that negotiations with Western companies would be complicated.
In a year or so,h he says, gwe wrote long contracts, some more than 1,000 pages, then went right to work. In the 20 years from 1975 to 1995, there was never a need to go back to the original agreement and rework it. We had a minor problem or two, but they were easily resolved, because both partners wanted the project to be successful and profitable.
The result was that by 1985, everything was finished and on line, 10 years earlier than we had contemplated.
Of course not all negotiations could be successfully concluded. The withdrawal of Dow Chemical was unsettling.
gWe worried that Dowfs departure might change the investment climate for SABIC, and there were news stories that questioned the viability of the project,h Al-Zamil says. gSo we took immediate action to build PETROKEMYA ourselves as 100 percent SABIC owned. It was a lucky break for us, because PETROKEMYA has been one of our most profitable companies and the role model for all the others,h Al-Zamil notes.
gThat gave us a lot of confidence. There was talk of doing more projects alone, but I discouraged that idea. I said, look, we can do it alone, but this is a risky international business. Itfs better to do joint ventures because you can do more of them, and that spreads your risk and protects you against unforeseeable losses.
gOur people from top to bottom felt validated in their achievement with PETROKEMYA,h says Al-Zamil. gThey were enthusiastic about it, and so things got done. It was possible because we enjoyed that kind of leadership from King Khalid and Crown Prince Fahd. They set out the objectives for SABIC and gave us the job of meeting them. At the same time they did not interfere. The King said, eGet me the results.f That is why Saudis now are so proud of SABIC. We had the freedom to accomplish things and actually change everyonefs lives for the better. SABIC has shown the importance of caring about people. The people in turn have demonstrated the value of integrity and honesty and working hard.h
Al-Zamil makes the point that SABIC schooled people to participate in the private sector, stating, gThis is good for the Saudi economy. I tell employees, this is the real world. It is not just a drill. If someone finds an opportunity outside of SABIC to provide products and services that are needed, I tell them to go for it. As long as you are contributing positively to the Saudi economy, you are doing a good thing.h
Among those central to SABICfs early success was Idris Tairi, who was the first Director General for Finance and Investment. He was brought aboard in 1977 as a specialist in cash management, loans, investments, and banking. His expertise guided the company in its formative years in those critical money matters that turn ideas into reality.
gOur first capital infusion from the government amounted to 10 billion riyals ($2.67 billion),h Tairi recalls. gIt was my job to manage it. I also negotiated the loans from the Public Investment Fund and most of the commercial loans from the commercial banks.
gThose were magnificent loans,h Tairi says. gHuge! But they were made because the government was behind the whole project. The government wanted it and supported it. They wanted us to have enough money to do the job right.
gWhen we started, we were careful not to spend the money foolishly,h Tairi says. gWe had a very modest headquarters building. There were just a few of us and we worked long hours. I said to Algosaibi, eYou should compensate us for all the time we put in.f And he said, eCome on, guys. You should work hard. You will be compensated, just not today. Be patient.f At the time, that was the right thing to do. We were able to control overhead from the beginning.
The environment was that of a family of people who love each other and want to do what is best for the family. So we worked six days a week for fourteen hours a day.
gAt the beginning, I was unsure of myself and my job,h Tairi recalls.
gAl-Zamil told me, eYou should go and negotiate service agreements with Mobil.f I said, eMe?f eYes,f he said. eYou. Once you finish, come to me and I will solve any problems you run into.f Later he sent me to negotiate with our Japanese partners. I spoke with the Japanese and they appeared to agree to all our terms and conditions, and the numbers, too. But as soon as I got back home, they would come back to us with counter-proposals. So we had to start all over again. But with Al-Zamil leading the way, we reached agreements.h
Language barriers sometimes led to misunderstandings that had to be resolved before negotiations could proceed with potential Japanese partners. The Japanese team leader, who wanted a partnership, told Saad Bin Salamah that SABIC could not execute the SHARQ project without partners. Thinking the Japanese doubted SABICfs ability to do the work, Salamah told him, gI assure you that we will complete the project on time.h The Japanese negotiator, realizing he had been misunderstood, objected, gNo! No!h Salamah repeated, gI assure you, we can do it.h Frustrated, the Japanese leader repeated, gNo! No!h And then he added, gDo you want me to throw myself out the window to prove you need us?fgIt was like a dream come true,h Salamah says.
The dream became SHARQ, the Eastern Petrochemical Company. It came into being in May 1981 as a 50/50 joint venture between SABIC and a large consortium of 65 Japanese investors known by the initials SPDC and led by Mitsubishi. SHARQ went on stream in July 1985, making ethylene glycol and polyethylene, which the investors had foreseen would become extremely important in the global petrochemicals market. Early on, they recognized that petrochemicals facilities in Saudi Arabia would yield competitive advantages in the markets of Asia.
With virtually no indigenous oil production, Japanese investors were attracted by oil entitlements offered by the Saudi government.
From the beginning, SABIC
fs Japanese partners made extensive and important contributions of technology, experience, and sound advice that have enabled both AR RAZI and SHARQ to grow their markets steadily. After several expansions, the two companies now rank among the largest producers of chemical grade methanol, ethylene glycol, and polyethylene.
In 1982, a top corporate executive with Shell Oil Company, Bill Carpenter, accepted the presidency of
SADAF just as ground was being broken for the plantfs construction in Al-Jubail. It was a job he would hold through 1986.
Carpenter recalls his first years as a high-energy time, full of daily challenges, interesting duties, and extraordinary people. The task brought together individuals as strangers who soon became colleagues, among them Mohamed Al-Mady, Abdallah Al-Assaf, Abdulaziz Al-Audah, and Nasser Soubeay.
gWe had a barracks office where we all met,h Carpenter recalls. gWe had policies to develop, recruiting and training programs for young Saudis to get under way. We had operating teams to organize and business strategies to map out. As ours was the most advanced of the projects, Al-Mady and I spent a lot of time in Riyadh conferring with SABICfs leaders. I got to know Abdulaziz Al-Zamil, Abdulaziz Al-Jarbou, Idris Tairi, Abdullah Nojaidi, and of course, Ibrahim Ibn Salamah, SABICfs Vice Chairman and Managing Director.h
Carpenter recalls the newness, the strangeness, and the pace of change. gBut when I look back on it,h he says, gI see that we quickly developed trust, friendship, and respect for the fact that everyone was trying their best. We put into place a solid foundation for a remarkable company that continues to grow and do well.
gOf course, I never had any doubts about it,h Carpenter says. gI knew there would be a tremendous amount of work, but I recognized that it would be a lifetime experience for me and my colleagues. I was pleasantly surprised at how cordial they were and how quickly we gelled and came together as a team.h
Carpenter praises the Royal Commission for building a magnificent infrastructure.
gIt was mind-boggling,h he says. gIfll take my hat off to Jameel Abdullah Al-Jishi. He brought it together and made it work.h A Japanese shipyard built some 230 modules that were giant cubes 30 meters (100 feet) by 30 meters by 30 meters in size, each a segment of a plant. Ships brought over these units three at a time. When they docked at King Fahd Industrial Port, cranes would offload them onto wheeled transporters that would take each to its proper site.
gYoufd have a vast number of pipes sticking out in every direction,h Carpenter recalls. gThen the transporter would arrive with the next module, and it would fit so well that you could just weld pipe to pipe. It was an engineerfs dream.h
Meanwhile Carpenter launched recruiting and training programs for young Saudis. Most of them were just out of high school. They had never had work experience. They didnft know what industry was all about. They had never had the experience of taking orders and following a disciplined schedule. A proper assignment had to be found for each of them.
gSome of these candidates proved better learners than others,h Carpenter says. gWe decided to bring about 200 of them to the United States for on-thejob training at Shellfs facilities in Texas. Abdulaziz Al-Auda took charge of them and did a great job. It required a significant effort to shepherd the group, look after their needs, house them, feed them, keep them from getting into trouble in a strange country, and give them practical skills they would need to be responsible process operators, foremen, and supervisors.
gWe had to set standards and examples for them,h Carpenter says. gWe talked about ethics all the time, insisting that there would be no dishonesty, no theft, no loafing on the job. Mohamed Al-Mady was our leader in building an incorruptible culture. When we had problems, he straightened them out. He insisted on safety as a top priority. He made sure that men followed safe work procedures, wore safety gear, and practiced good housekeeping. No excuses.
He developed standards for these concerns and maintained them strictly.
Al-Mady, Al-Assaf, Al-Audah, and Soubeay all put these systems into place and made things happen. Then they transferred their knowledge and experience to other projects that were going forward.
Each year SABIC and Shell looked at their young Saudis and tried to identify those who could move up if they continued to do well. Most of them did move up, even into the ranks of senior management.
gBecause we at SADAF were doing it first,h says Carpenter, gwe sort of set the standards for the overall industrialization project. In hindsight, that gave me great satisfaction. It was truly outstanding to think that all these different people, different nationalities, different backgrounds, all strangers to one another, could build this rather astonishing project from start to finish in just four years.h
For Carpenter, building SADAF was a magnificent, world class adventure.
gPeople in other parts of the world have a hard time believing what we accomplished,h he says.
In the seven years of Al-Zamil
fs leadership of SABIC, he presided over a robust period of growth and achievement. In 1983, before leaving SABIC to assume the post of Minister of Industry and Electricity, Al-Zamil was honored by the presence of King Fahd in a major ceremony in Al-Jubail celebrating the start-up of the HADEED, AR RAZI, and SAMAD plants. During his tenure as Vice Chairman and Managing Director of SABIC, all of SABICfs joint venture manufacturing companies had been formed and built, and some had commenced operations.
Moayyed Al-Qurtas, after joining SABIC in 1978 as a chemical engineer, became one of the first of SABIC
fs people to go to Taiwan for negotiations that led in 1979 to the joint venture known as SAMAD.
gWe borrowed computers from the Ministry of Finance to run our calculations and to make our presentation to the board of directors of SABIC,h Al-Qurtas says. gWhen it was approved, we chose SAMADfs own board of directors and picked Kellogg as our managing contractor. Our project manager and I went to Al-Jubail to have a look at the building site. We couldnft get to it because there were no roads. So we borrowed someonefs four-wheel-drive car and made our way to the spot. We stayed on schedule and kept costs under control, but we had a considerable challenge in recruiting and training operators and technicians.
SAFCO helped us by taking over some of the training.
The engineer in charge of training would tell me,
eToday we have 10 trainees.f And a few days later, he would say, eToday we have 12 trainees, because we hired four and two left.f What a contrast to what you see today with trainees numbering in the hundreds!h
During 1983, SABIC began negotiations with the Korean firm Lucky Goldstar and formed a joint venture with them called IBN HAYYAN. Ibrahim Ibn Salamah, Abdullah Sadhan, and Al-Qurtas were in the first delegation to visit Lucky Goldstar in Korea.
Another milestone in 1983 was the decision to float to the public 30 percent of SABIC
fs shares, with the government retaining a 70 percent share. The offering in 1984 was oversubscribed, demonstrating the pride and faith that Saudi citizens felt in this new company.
Furthermore, these model plants were setting standards for safety, seamless performance, low-cost operations, and healthy profitability. Joint venture projects likewise were expanding through the concept of
gdebottlenecking,h which meant finding ways to eliminate constraints in plant equipment and operations.
Concern for plant security, worker safety, and fire protection led SABIC to appoint Ali Al-Ayed as Director General for Safety and Security. As one of his responsibilities, he took over a small Fire Fighting Training Center originally set up by the Royal Commission. Expanded to a major facility, the center trains SABIC employees in the essential skills of fire-fighting and first aid. Today, Al-Ayed serves as SABIC
fs Vice President for Industrial Security.
The outbreak of war between Iran and Iraq in 1980 brought threats to shipping in the Arabian Gulf. Saudi Arabia was not involved in the hostilities.
Nevertheless, because the Kingdom and Iraq were both Arab nations, the military leaders of non-Arab Iran suspected collusion and sought to shut down all shipping in the Arabian Gulf. Missile-carrying Iranian gunboats were sent to attack ships.
Saad Al-Sayyari, a SABIC mainstay from 1977 and Executive Vice President of Communication and Audit, had the job of keeping SABIC
fs products moving to customers during the eight years of the conflict.
gThe Arabian Gulf was a dangerous place for SABIC ships coming from and going to Al-Jubail,h Al-Sayyari says. gGunboats attacked nine of our ships with missiles, but they didnft stop us. We kept our customers happy.h
Understandably, seamen were reluctant to ship out on SABIC vessels. When the crew of the Havglimt jumped ship, Al-Sayyari found a Polish crew eager for the work and the bonuses for the danger it entailed. They were lucky as well as fearless.
As the Havglimt was leaving Al-Jubail loaded with highly corrosive sodium hydroxide bound for India, an Iranian gunboat attacked with missiles and scored several hits. Al-Sayyari instructed the captain to take the ship into dry dock at Bahrain, where shipwrights welded plates over holes in the hull. Emergency repairs completed, the Havglimt resumed its voyage to India.
On arrival in India, Al-Sayyari recalls, an Indian customs agent had the cargo hatches opened so that samples of the crystalline white soda could be obtained. He spotted a strange object and called the Havglimt
fs captain.
gThe captain saw an unexploded Iranian missile just sitting down there in the cargo hold,h says Al-Sayyari. gIt had been there during the entire voyage.h
The Indian customs official called the Indian Navy, whose men cut open the deck of the ship and lifted out the missile without incident. An explosion would have been a major catastrophe. The Havglimt returned safely to Al-Jubail.
gThe attack was costly,h says Al-Sayyari, gbut at least there were no casualties.h
Good timing, political stability, and a little luck are all useful when you are delivering products to overseas customers,h Al-Zamil points out. By the end of 1983, Al-Zamil and his SABIC team had completed a most successful first year of manufacturing with steady growth in sales and effective containment of costs. They laid the foundation for SABICfs subsequent growth and development. HADEED, AR-RAZI, and SAMAD, projects all commenced commercial operations successfully during this watershed year.
The nature of this success led to plans for a second generation of chemical plants. There would be AR RAZI II, a larger IBN SINA, a second ethylene cracker at PETROKEMYA, and expansion for SHARQ. Al-Zamil wanted to see to it that SABIC
fs presence in the worldwide chemical industry would grow.
As the first President of Saudi Petrochemical Company (SADAF), the joint venture between Shell-USA and SABIC, Roy Gerard came to grips with various roadblocks of the sort that arise in the early days of any large enterprise.
One of them had to do with the misperception that SADAF was a foreign company and not a Saudi company.
gThere was a rule,h Gerard says, gthat required SADAF to buy from the lowest bidder, even if the supplier were foreign. We ran into trouble when we needed materials that would cost 20,000 riyals in the Kingdom, but we found we could get it delivered from Japan for 15,000 riyals. A Saudi supplier insisted that we had to buy from him. I told Al-Zamil, eMy hands are tied. My contract says that as a Saudi company, we are to buy from the lowest bidder, no matter where it comes from.f So he had to come to our rescue. Later, someone on the Royal Commission told us that we did not have the right to buy land and build houses in Saudi Arabia because we were foreign. Again, we had to remind them, SADAF is Saudi, not foreign. Ultimately, we were able to buy property from the Royal Commission and sell it to Saudi employees.h
SADAF opened its first headquarters in Dhahran, but soon elected to move to Al-Jubail, where the plant was going in.
gWe leased a warehouse from the Royal Commission and partitioned the space,h says Gerard, gbut it gave us zero privacy. One day Al-Mady came to visit and agreed that we needed more privacy. So we cut up some of the space into private offices.
gMeanwhile I was not happy with the way negotiations were going in the licensing of technology for SADAF,h Gerard recalls. gSo I asked a Shell guy to come over and be our purchasing vice president. He arranged for some extremely attractive licenses for SADAF.h
Gerard worried about plans for a salt mine that would supply salt as feedstock for the caustic and chlorine manufacturing process. Rather than digging it out of the ground and loading it onto trucks, SADAF engineers decided to dig a hole through the salt bed and fill it with water. The salt-saturated water would be transported 48 kilometers (30 miles) through a pipeline to Al-Jubail, where the salt would be extracted. Worries about maintenance problems caused by saltwater came to naught. The system worked well.
gManpower was another concern,h Gerard recalls. gWe hired young men from all over the Kingdom and began training them in Al-Jubail. But they didnft understand what we wanted them to do, and we were not equipped to tell them. For SABIC, training was a high priority and we were under pressure to get on with it. Ibrahim Ibn Salamah and I had a loud argument over training one day. He wanted to speed it up. I kept saying it has to be done right, because if you donft train them right, one of themfs going to get himself killed, and I am not going to allow that to happen. Ibn Salamah says, eBut we have to get this done.fh
Gerard admits that Ibn Salamah was right. gBut I was right, too,h he says.
gActually, it turned out okay.h
Exxon Chemical was an important contributor to training success, partly because of the companyfs willingness to give trainees on-the-job exposure.
fs Grandy accepted both the logic of Saudization and the economic justification for investing in training programs. On his instruction, Exxon cooperated fully with SABIC in establishing worthwhile training programs. Exxon, now ExxonMobil, is SABICfs joint venture partner in KEMYA.
Among the many young men to receive vital training from Exxon was Mohammad Al-Bat
fhi, now General Manager for SABIC Americas. Newly hired by SABIC in 1981, he was sent to Exxonfs Baton Rouge plastics plant as a procurement representative. His experience taught him that Saudis are eager to learn, capable of learning, and committed to success.
gWe learned how to work as a team,h Al-Batfhi says. gWe arrived early and stayed late to get the work done. Exxon asked their people to work with us Saudis, and they did. It was the kind of attitude that brought about the Saudization of KEMYA, which was one of the first plants to Saudize not only their operator and technician forces, but their management staff as well.h
During the seven years of Abdulaziz Al-Zamilfs tenure, SABIC expanded from an idea on paper to a proven company structured to compete successfully in the competitive world of petrochemicals. Its vital components of technology, manpower, finance, and marketing strategies were now in place. This solid foundation gave SABIC the culture and confidence that it could meet the challenges that lay ahead.