Japan Bank for International Cooperation (JBIC) has signed a loan agreement in the aggregate amount of up to US$1.17bn with Eastern Petrochemical Company (Sharq), a Saudi Arabian corporation, to finance the third expansion of one of the world’s largest ethylene glycol (the largest at one site) and polyethylene production project.

The loan was cofinanced with Public Investment Fund, an official financial institution of Saudi Arabia, and the local and international banks lead by Bank of Tokyo-Mitsubishi UFJ.

This is the second loan that JBIC has provided for Sharq, following the first loan (up to US$750mn) approved in January 1999 to finance its second expansion.

Sharq was set up in 1981 by SPDC and Saudi Basic Industries Corporation (Sabic), with both companies having equal equity stakes. Under the project Sharq will newly construct a production facility of ethylene (annual production: 1.3mn tons) and expand production facilities of ethylene glycol (0.7mn tons) and polyethylene (0.8mn tons) in the industrial city of Al-Jubail situated on the east coast of Saudi Arabia.

After completion of Sharq’s third expansion project, the total production capacity will be more than 10 times that of the initial project.

Saudi Arabia is Japan’s largest crude oil import source country, accounting for slightly more than one quarter of total crude oil imports to Japan.  Saudi Arabia has been pursuing diversification of domestic industries, particularly strengthening the petrochemical industry, while generating employment and foreign currency earnings, as a national policy.

After contributing to the development of the Saudi petrochemical industry for over 20 years since its launch, the Sharq project has become a symbol of economic cooperation between Japan and Saudi Arabia.

Participation of JBIC as an official financial institution of Japan in this expansion plan will support the industrial policy of Saudi Arabia, and serve to further deepen bilateral relations between Japan and Saudi Arabia based on mutual understanding.

In the meantime, the Japanese chemical industry has been seeking to increase profitability by locating plants close to where resources and raw materials are and thereby taking advantage of low-cost competitiveness and scale merit.

JBIC’s support for the industry’s overseas business development is therefore expected to help secure international competitiveness of Japanese chemical industry amid surging crude oil prices.

JBIC’s support for this project as Japan’s official financial institution will serve to enhance an edge in negotiations with the Saudi Arabian government and government agencies, claims the agency.  JBIC is committed to helping the Japanese economy secure strategic resources and maintain international competitiveness through efficient project structuring, reduction of the occurrence of political risk events and risk-taking by making most of its capacity as Japan’s official financial institution. Japanese financial institutions and SPDC have high expectations in this regard, it adds.