Johannesburg — PORT ELIZABETH Officials in charge of the development of the Coega Industrial Development Zone are optimistic that Canadian group Alcan will build a major new aluminium smelter at Coega.

However, the strengthening of the rand last year, and concerns about weak global demand for aluminum, have put a question mark over the $2,2bn investment.

A team of top Alcan executives visited Coega last month to assess the project, and also met a variety of key players, including Trade and Industry Minister Alec Erwin.

Alcan has to decide on the future of the project after its takeover of French firm Pechiney, which had chosen Coega as the favoured site for the world's most advanced smelter.

"I was very encouraged by what I heard," said Coega Development Corporation business development manager Eugene Heeger. "We are ready for business."

He suggested that the smelter project was not the "only egg in the basket" as Coega was hoping to attract a range of other investors, with a list of possible projects totalling R8,5bn.

"Single projects have never driven Coega," he says, rejecting suggestions that without an anchor project such as the aluminium smelter, Coega would be a white elephant.

Another Coega executive said the strengthening of the rand last year has been a concern for Alcan, as this affected the economics of constructing and operating an export-oriented aluminum smelter.

There was also concern that if the project were to go ahead, it would have to start producing aluminum at a time when the global market was on the upturn.

"You would need a decision by the end of this year, as it will take time to build the smelter," he said. "You need three years to build it, so you can hit the market as it starts turning up."

Rival locations for the smelter include Oman, two sites in Asia, and Australia and at one time Canada had also been under consideration. One planned development which might help to favour Coega is the intention to build a bulk materials handling facility at the port.

This could be used to process not just for aluminium for the smelter, but also for manganese and iron ore exports from SA, with these minerals being railed down from Sishen.

"If we have a big handling facility for bulk minerals, this would lead to economies of scale, and would help cut the running costs of the smelter," said the official.

The building of a new power station at Coega is also being looked at. This would be driven by imported liquid natural gas, which would be re-gassified and used not just for the power plant, but could also be piped to Coega industrial tenants.

"SA is going to be hitting power depletion in the future, and this power plant would create opportunities to expand capacity, and also to generate environment-friendly power, not coal-fired," said the official.

The corporation's planning manager, Kelly Byrne, says that R7,4bn is being invested in setting up the Coega project, with R3,2bn for the port, R2bn on industrial development zone in frastructure and R2,2bn on a power upgrade by Eskom.

Heeger said the corporation had to recognise that it was a challenge to bring business to Coega, as there has been a global decline in investment in the past three years. Nonetheless, there were a number of interested investors, whom he could not name because of confidentiality agreements.

One project being undertaken was an effort to lure a large textiles and clothing industry from Italy, which was considering relocation because of the high costs of doing business there.

"They are making a strategic decision, on whether to relocate to eastern Europe or to the Far East, but with access to the US market under the African Growth and Opportunities Act , we are the perfect platform for this industry. There would also be upstream opportunities in cotton production if such an investment were to take place here."

As well as the potential aluminium smelter, two manganese ferro-alloy smelters are under consideration for Coega, to add value to manganese which would otherwise be exported in an unprocessed state.

A ferronickel smelter would cost R2,8bn. There was also a possible investment in a R560m steel billet plant, an R800m steel precision strip plant and a R640m frozen container plant.

The latter two projects are part of the offset undertaking being put together as part of the arms offset programme by Ferrostaal. There is also a possible R550m plant to make electrolytic manganese dioxide the powder that is used in batteries, and a R200m optical fibre plant.

There is interest in building a R400m aluminum capacitor plant, as one of several automotive projects which are being considered, as well as a R210m polyester recycling factory.