Oil storage facility construction delayed

The construction of the $200 million (Dh735m) oil products storage facility in Techno Park has been pushed back to the second half of this year due to the current economic crisis, a top official from the project operator said.

According to Dr Tilak Doshi, Executive Director, Energy, Dubai Multi Commodities Centre (DMCC), the front-end engineering and design (Feed) study will be commissioned in the first half of this year, and the actual project will begin thereafter.

"All the principal parties have agreed that we can proceed. We hope to start the project some time this year," he told Emirates Business. "We have hoped to start the actual project in the first half of this year. But everything is delayed because of the current crisis. We will commission the Feed study in the first half of this year. It should not take more than two to three months. Then the partners will meet together and sign an agreement to proceed with the investment and then within one or two months, we will start," Doshi added.

DMCC together with UAE-based Star Energy Resources Ltd and Tropicana Trading announced its plans to develop the 570,000 cubic metres (3.59 million barrels) facility in March last year. The project – which will store a wide range of oil products, including gasoline/diesel, jet fuel and fuel oil, as well as blending – will mainly service Dubai's new airport.

The project, located near the Al Maktoum International Airport, is expected to service the new airport via a pipeline directly linking the two facilities. Two new oil tanker berths will also be built at Jebel Ali port, with the capacity to accommodate tankers of up to 80,000 tonnes.

The launch of Dubai's new airport, originally scheduled to be launched in the middle of this year, is also pushed back by mid next year due to licensing delays.

Doshi said the facility, once operational, is projected to record 20 to 25 per cent internal rate of return.

"That is a good rate of return in this kind of project. Our partners are happy with the projections of the predicted earnings," he said.

Doshi added: "One of the good things in this project is that even before you start getting financing and start building, you will have people who would have agreed to lease storage space once it is up.

"It is like a building – if you already sold 70 per cent of the building units, you already know 70 per cent of it is occupied. In the storage facility, if a customer says I want a 100,000 standard cubic metres for five years then they have to pay for that five years, if he does not use it he will stay pay for it."

The facility, he said, is estimated to cost $200m to $300m. And although the exact budget can only be determined after the Feed study, Doshi said he is confident that the project will be funded.

"One of the good aspects of the liquidity squeeze is that good projects will be clearly distinguished from the projects that are not very good," he said.

"Before the banks were supporting everything and you never knew what were good and bad projects, everyone is doing everything. This is a good project because it has a good rate of return.

"We all have agreed – the banks and the partners – that this project is good. It will proceed but because of the crisis and the great uncertainty, we are waiting until things settle down."

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