Modern, well-run and efficient, Sokhna Port is setting a new standard for Egyptian port operations and has been quick to meet international benchmarks. However, from the outset it was never intended to just be a port, merely transferring cargo from ship to shore and vice versa.

Rather, it is crucial piece in a bigger puzzle, which is to establish the port and adjacent land as an integrated manufacturing and logistics hub, where all the factors of production – land, infrastructure and labour – are optimally situated and configured.

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To achieve this, industrial land is being developed both inside the port and next to it, in the 9000-hectare Suez Special Economic Zone, to provide investors with an attractive location in which to establish operations. Basic infrastructure is provided by the Egyptian government, including road and rail links, and power and water, all of which are carefully planned to link seamlessly with the port. In addition, since the special economic zone is a free zone, investors enjoy a number of tax and customs benefits.

Logistics hub

Sokhna Port has a significant part in this. It has been designed and built to be a logistics and trade hub, offering various cargo services. Rather than just being a transshipment point for finished goods, it is envisaged that Sokhna will also handle increasing volumes of raw materials, semi-processed bulk cargo and half-finished goods to be further processed by firms in and around the port. Once processed, finished goods will then need to be efficiently warehoused and shipped, both requirements that Sokhna has been specifically designed to meet.

The challenge, of course, is that what sounds easy in theory is more difficult in reality, particularly to get it right in the context of a 20-year master plan for the port and the complex choreography of different industrial projects with different needs, all at various stages of development .

“Truthfully, we don’t know what logistics will look like in 20 years,” says Randy Baxter, vice president for projects at Amiral, a leading shareholder in the Sokhna Port Development Company (SPDC) [and parent company].

“What we have done is incorporate flexibility into the planning, meaning we can respond to the changing needs of the industry and our customers. That gives us great confidence that we can develop the port to more than adequately meet customers’ needs.”

Because the port is a public-private partnership between SPDC and the Egyptian government, it has two objectives: the first is to generate a satisfactory return on investment for SPDC and its shareholders and the second is to contribute effectively to the government’s economic development plans for the region.

The two objectives are complementary. As Mr Baxter explains, Sokhna Port’s commercial viability is essentially tied to the throughput of cargo; increasing cargo volumes is a factor of providing facilities and services – at an appropriate price – that meet the needs of customers. By seeking synergies between customers, economies of scale can be unlocked, so utilisation rates increase, feasibility improves and Sokhna can extend competitive pricing to customers. It is a virtuous cycle, says Mr Baxter.

Customers’ needs

Simply put, the success of Sokhna is tied to industrial tenants in the port and the neighbouring Suez Special Economic Zone using the port. As Mr Baxter points out, given the early stage of its development, Sokhna is strongly positioned to develop around its customers’ needs.

A number of projects are at different stages of completion: a $750m magnesium smelter is at an advanced stage of feasibility study, with Sokhna already selected as the location for the plant; a $550m methanol plant is less advanced but has strong government backing; and a $120m sugar refinery is proceeding with backing from Saudi investors. Other projects include a livestock handling terminal, which includes future plans for an abattoir and meat-processing facilities; grain silos; and a wool scouring facility.

Diesel plant

The most innovative project is a biodiesel plant that will process plant oil into environmentally friendly diesel. The project is indicative of the strategic philosophy that underpins Sokhna. It is an industrial process that benefits from its location within the port, both for receiving inputs and for shipping the finished product; it uses undeveloped land close to the port (for the growing plantations); it is a technologically advanced process yielding a high-value output that enjoys strong and growing demand from ‘green’ consumers; and it is an environmentally friendly process, in keeping with the overall objective to minimise pollution in and around the port.

“Part of our vision is to be a good corporate citizen,” says Mr Baxter, “The project is an excellent opportunity to enhance the image of Egypt and the region as technologically advanced and environmentally considerate.”

Amiral has partnered with Austrian plant engineering and construction company Power Tech International to develop the project.

Demand for biodiesel is growing. It is both renewable and more clean-burning, meaning fewer emissions. Though worldwide production is still minuscule compared with conventional fossil fuels, biodiesel is typically blended with regular diesel, reducing emissions. Factor in the cultivation of large areas of plantation (to provide the plant oil for conversion to biodiesel), which absorb carbon dioxide from the atmosphere, and the entire cycle is almost carbon neutral.

Demand for fuel

With growing demand for cleaner technologies and fuels, it is likely the demand for biodiesel will only increase. Europe’s appetite for biodiesel is set to grow in the next five years as countries push to meet an EU requirement that biodiesel account for 5.75% of all fuel consumption by 2010. Though the number of production plants has increased, it is not anticipated that producers will be able to meet the predicted demand in the near term.

According to Mr Baxter, the technology needed to convert plant oil into biodiesel is well known and not particularly complex; the viability of this project depends on producing enough plant oil and cost-effectively. To that end, large areas in close proximity to Sokhna Port will be cultivated to grow jatropha, a hardy crop that has proven elsewhere to produce commercially viable quantities of plant oil.

Jatropha is an inedible oil-yielding bush that can withstand high temperatures, grow on marginal land and survive drought. It can prevent soil erosion, increase biodiversity and cut greenhouse gasses. Irrigation will be provided by partly treated sewerage water. Mature fruit is harvested, pressed and eventually processed with recycled used cooking oil into biodiesel fuel. The gradually extended plantation will finally produce 90,000 tons of oil for biodiesel production.

Location within Sokhna is crucial to the project’s viability, utilising port infrastructure to bunker and ship the finished product. But just as important as the infrastructure is the area’s abundance of low-cost labour and plentiful desert farmland to help it undercut world prices. Project managers believe they can price a ton of biodiesel from the plant, including shipping costs, at two thirds of the prevailing price in Europe. Amiral Biodiesel has already contracted to off-takers in Europe.

Two oil-pressing plants will be established at Sokhna Port. Their design is based on proven technology, producing 80,000 tons of oil per year at full capacity. None of the output from the production will be wasted as the press cake is recycled to the plantation as soil improvement and fertiliser.

The biggest project to get the go-ahead is development of a $750m magnesium smelter. Presently in the advanced stages of a bankable feasibility study, the investors hope to begin construction in early 2006.

The project is being undertaken by Egyptian Magnesium Corporation, a joint venture between Australia-based Magnesium International Limited (MIL) and Amiral. MIL is the exclusive worldwide licence holder of Dow smelting technology, a proven process for the electrolytic smelting of magnesium metal, which MIL purchased from Dow Chemicals in 1999.

Following an extensive search in Australia and a number of offshore sites, MIL selected the port of Sokhna in December 2004. The site takes advantage of significant cost benefits, which MIL’s managing director Gordon Galt believes will enable the smelter to become the world’s lowest-cost producer of magnesium metal and magnesium alloys.

Smelter project

The smelter project is supported by a 15-year metal sales agreement with ThyssenKrupp Metallurgie (TKM), a subsidiary of Germany-based ThyssenKrupp. Under the terms of the agreement, TKM will purchase 100% of the smelter’s output for on-sale to the automotive industry and others. The high-quality magnesium alloy market is growing strongly as auto manufacturers seek lightweight solutions to comply with increasingly stringent greenhouse gas emission and fuel consumption regulations.

Construction plans, to be implemented in two stages, will initially involve building a smelter with an installed production capacity of 43,000 tons per year (t/y) to be completed by some time in 2008. However, longer-term plans will include boosting output to 88,000 t/y within three years.

The low-cost plant will benefit from attractive incentives that will include free zone status and no import duty to the EU, a key market for the metal.

Strict criteria

Sokhna met the strict criteria set by MIL. Requirements included the need for logistics capabilities and the ability to handle and rapidly unload large bulk carriers for delivery of magnesite ore.

With the port’s capacity to discharge dry bulk carriers rapidly and move containers at very competitive prices, costs to get ore to the smelter and the finished product to markets will be minimised.

The sugar refinery in Sokhna is being developed by the Savola Group, a leading Saudi food producer, and is called the Egyptian United Sugar Company. Total investment is estimated at $120m, with a refining capacity of 750,000 tons per year. The plant is due to come on stream in late 2006 and leading British sugar producer Tate & Lyle is a partner on the project.

The plant is set to benefit from recent EU sugar reforms which will remove less efficient but protected producers from the supply chain.

The Savola Group supplies edible oils, fresh dairy products and sugar to Saudi Arabia, the Middle East and North African countries. It also owns fast food restaurants and is considered the largest retail food chain in the Middle East.