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Despite oil price headwinds, Saldanha Bay IDZ roll-out progressing

12th June 2015

By: Anine Kilian

Contributing Editor Online

  

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The sharp decline in oil prices over the last year has resulted in questions being raised about the wisdom of South Africa’s aspiration to pursue an aggressive roll-out of an oil services hub in Saldanha Bay, in the Western Cape.

Prior to the decline, there was widespread support for the concept, owing to the rapid growth of upstream exploration and development in West Africa, which resulted in increasing demand for dedicated oil and gas services and a marine repair hub. In fact, a report published by the Saldanha Bay Industrial Development Zone (SBIDZ) Licensing Company last year estimated that Africa has produced around eight-million barrels of crude oil a day, or about 10% of global production.

Against that background, demand for offshore oil and gas platforms and components and repair services is perceived to be strong and growing. South Africa, particularly the Port of Saldanha Bay, is viewed as geographically well positioned to service the oil and gas sector.

But in light of a lower-for-longer oil price outlook, what are the current prospects for attracting investment into the SBIDZ?

SBIDZ Licensing Company business development executive Laura Peinke acknowledges that the decreasing oil price has definitely had an impact on exploration and production activities. But she does not expect the cyclical development to deter investors, who are still showing interest in the SBIDZ as a long-term hub for upstream oil and gas services, marine repair and fabrication.

Peinke notes that the majority of investors focus on the marine and subsea engineering and fabrication industries and that these companies have significant order books.

Government Backing
In addition, the SBIDZ has strong government backing, with the Department of Trade and Industry (DTI) an important champion of the SBIDZ and serious public- sector commitments to developing the infrastructure required to encourage private investment.

Commitment from government to unlock the multibillion-rand potential of South Africa’s oceans is driven by the large-scale initiative, Operation Phakisa, which was officially launched in October last year. It is designed to fast-track the implementation of critical development issues more effectively, such as South Africa’s ocean economy.

Operation Phakisa prioritises new, dedicated infrastructure in the Port of Saldanha Bay and is being rolled out by State-owned Transnet group through Transnet National Ports Authority (TNPA), which is working closely with the SBIDZ to ensure that the infrastructure tenders are put out to the market this year.

“While the current economic climate in the oil and gas sector might not be conducive for embarking on new exploration projects, one has to be mindful that the bulk of existing offshore production remains operational and demand for support for these operations will continue,” TNPA port manager Willem Roux says, adding that these services include repairs and maintenance.

He notes that the lull in exploration activities might provide an opportunity for repair and maintenance work on exploration vessels and equipment.

Roux further states that fleet owners have shown keen interest in establishing a base with dedicated and purpose-built infrastructure for their vessels at the Port of Saldanha Bay.

“This interest is grounded in the location of the port, existing logistics chains and the ease of doing business. Undeveloped land and sea areas provide the opportunity to develop quay, back-of-quay and back-of-port facilities that are in close proximity to major exploration and production activities,” he explains.

More than 26 companies active in the logistics, support services, oil and gas contracting and drilling, marine and rig building, and fabrication and repair, as well as specialist industries, had shown interest in relocating their businesses to the SBIDZ, with eight of these firms developing and finalising agreements with the zone operator, Trade and Industry Minister Dr Rob Davies said at a briefing last year.

Davies outlined that there were no minimum requirements under the IDZ programme – or under the overarching Manufacturing Development Act – for companies or factories wanting to relocate to an IDZ licensed by the DTI.

“The decision to accept an investor lies with the operating company of the SBIDZ, under the overall governance of its board of directors,” he noted.

Customs Control Area
“One of the value propositions of an oil and gas and marine repair and engineering cluster is to provide investors with an ease-of-doing-business model through the offering of a Customs Control Area (CCA) otherwise known as a free port, or free-trade zone,” Peinke says.

The Oilfield Services Complex forms part of the sector-specific focus of the SBIDZ and is intended to be a world-class upstream oil and gas services hub with dedicated infrastructure that targets activities and companies operating in West and East Africa.

“The CCA will allow the seamless flow of goods intended for re-export into the SBIDZ from the port terminals. This includes no time limitations on goods serviced and stored within the zone. This free-port offering supports the ease-of-doing-business model that the SBIDZ Licensing Company sees as the key incentive for investors in terms of reduced procedures and timelines,” she explains.

The SBIDZ’s CCA status is regarded as a key incentive, as it relieves companies operating within the zone of import duties on manufacturing assets, as well as any goods for storage and raw materials used in the manufacturing process. Investors will also be exempt from export duties on goods exported from the CCA to a foreign country and on services rendered within the IDZ.

In addition, no value-added tax will be levied on goods imported for use in the construction and maintenance of the CCA’s infrastructure, or on land acquired or rented in the CCA, or on the electricity and water supplied.

Investors will also benefit from reduced corporate and income tax rates and double-taxation agreements will be enforced to ensure that companies and individuals are not double-charged in different jurisdictions.

Peinke says two components are key to the successful development of the SBIDZ – the land-based development at the back-of-quay and port-based infrastructure that includes the new, dedicated rig-repair facilities, and an offshore supply base and servicing jetty.

The SBIDZ Licensing Company is responsible for the land-based development and has started with conceptual engineering studies and the appointment of service providers for the bulk engineering services, she adds.

The SBIDZ Licensing Company has appointed service providers for the upgrading of the wastewater treatment works, and for the construction and upgrading of bulk services.

Port infrastructure construction is managed by TNPA and construction works to upgrade the existing general maintenance quay into an offshore supply base has begun.

Roux notes that prefeasibility studies, including geotechnical and seismic studies, as well as preliminary designs, have been completed for the establishment of berth 205 – a 380-m-long quay, with a depth of 21 m, that will be dedicated to activities such as rig repair.

The 500-m-long jetty at the Mossgas quay will support vessel and equipment repair, and fabrication activities associated with the upstream oil and gas and marine engineering services.

“Similar studies will be completed by early August in respect of the jetty at Mossgas. While funding has been secured to perform specialist and associated environmental studies, transaction advisers were appointed to provide TNPA with a report on best practice, market analyses and different models for consideration,” he explains.

Job Creation
The mandate of the SBIDZ is to ensure that the development has a regional impact in terms of creating jobs. The majority of the job opportunities will be created by the private sector through their skills requirements; however, local community members need to be trained to enable them to access these opportunities.

Peinke says the SBIDZ has an accountable partnership with the local community, known as the Community Skills & Training Committee, to identify training programmes and individuals who qualify for these programmes in preparation for the SBIDZ development.

“Several key national, provincial and local government stakeholders are involved in these training initiatives, including the Department of Higher Education and Training, the South African Oil and Gas Alliance and the Western Cape Government,” she notes.

The SBIDZ also has a partnership with the local business community through the IDZ Business Forum, which is open to all business-based membership organisations and focuses on establishing a supply chain of local businesses that meet accreditation standards.

“The SBIDZ is expected to have a positive impact on the economy through the attraction of investment, contribution to taxes and growth in gross domestic product,” she concludes.

Edited by Creamer Media Reporter

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