QATAR BOOSTS DIVERSIFICATION AND ESTABLISHES USD

UNCLAS DOHA 000385 SIPDIS E.O. 12958: N/A TAGS: EAGR ENRG ECON QA SUBJECT: QATAR BOOSTS DIVERSIFICATION AND ESTABLISHES USD 3.2 BILLION FERTILIZER PLANTS ¶1. Boosting diversification in its hydrocarbon extraction-dependent economy, Qatar last month began construction on three fertilizer plants valued at USD 3.2 billion. Upon completion of the projects in Mesaieed Industrial City (approximately 40 kilometers south of Doha), Qatar Fertilizer Company (QAFCO) will become the world's largest single-site producer of urea and ammonia. Bank loans totaling approximately USD 1.6 billion will finance the construction costs of the two ammonia plants (daily production capacity of 2,300 tons each) and one urea plant (daily production capacity of 3,850 tons). QAFCO will fund the remaining construction costs by tapping its reserves as well as cash flows generated from other operations. The three plants are scheduled to begin production in 2010. ¶2. Upon completion, the new "QAFCO extension" (named QAFCO 5) will boost the company's annual production capacity of ammonia by 73% to around 3.8 million tons and of urea by 43% to 4.3 million tons. The expected profits from the new operations are considerable, since the launching of this project coincides with a favorable international climate for fertilizer production. Global fertilizer prices rose steadily from 2004 to 2006 and soared in 2007 and 2008, reaching more than USD 600 per ton. Local industry sources tell us fertilizer prices are expected to remain at record levels thanks to a number of factors. These include farmers' higher demand for the product, increased demand for food crops in the production of ethanol and other biofuels, higher energy prices, and China's decision last month to double taxes on fertilizer exports to bolster domestic supplies for its farmers. RATNEY