SINGAPORE: Main-board listed Hyflux is setting up a joint venture company with two Saudi Arabian partners to build and own a used-oil recycling plant located in Jeddah, Saudi Arabia.

The three partners aim to invest S$45 million over three years to turn used oil into high grade base oil for lubricants.

It will be Saudi Arabia's first membrane-based oil recycling plant.

Its partners in the venture are private wealth management firm SEDCO and used oil collector and recycler LUBREC.

The tie-up will give Hyflux a 41.5 per cent stake in LUBREC, and access to a major used lubricant oil market worth some US$140 million a year.

"There's a great demand both within the country as well as outside Saudi Arabia... As in the case of Saudi Arabia, other countries in the region also have not had yet an organised way of recycling used oil. And we hope that this project in Saudi Arabia will serve as a showcase and a springboard for us to replicate the project in other countries in the region," says Yousuf Khayat, Managing Director, Direct Investment Group, SEDCO.

Hyflux says working with experienced collectors is key to growing its oil and solvent recycling business.

Its membrane technology used to filter the lubricant oil is also important.

The water treatment firm says its recycled lube oil can be 20 to 40 per cent cheaper than virgin lube oil, making it desirable even in markets where collectors have to pay companies to recycle their used oil.

Says Olivia Lum, CEO, Hyflux, "In cases like China and India, where energy is in such shortage in these countries, even the companies who are disposing off these used oil charge the collectors some money. In cases like these, unless you have a very competitive technology... you're not going to make money out of this.

"From our studies and findings since we started this business, we found that our technology is able to be competitive enough to still make a business out of it."

Hyflux estimates the used lube oil business in its key markets of Saudi Arabia, China, India and South East Asia to be worth more than US$1 billion today.

Although it could not quantify the amount, the company expects the joint venture to have a positive impact on its bottom line by 2008.

The plant, Hyflux's fifth, will be built in two phases and will yield a total processing capacity of 48,000 tonnes a year.

Phase 1 of the project is slated to be done in the first half of 2008.

Hyflux aims to have its oil recycling business contribute to one-third of its profit in three to five years' time. - CNA/yy