Orascom Construction Industries opted to build the plant in the heart of the Corn Belt over a competing package of incentives from neighboring Illinois, highlighting the tough "beauty contests" between U.S. states for investment from domestic and overseas companies.
Nassef Sawiris of Orascom Construction, which will build a fertilizer plant in Iowa, aided by some $100 million in tax incentives.
Natural gas is a key raw material used to produce fertilizer, particularly for use in growing corn, with demand expected to remain robust as farmers plant more acres amid record prices fueled by the U.S. drought.
The U.S. imports more than half of its nitrogen-based fertilizer, and the Iowa plant is seen by supporters as promoting what they call "food independence."
"This is probably the largest single country with a deficit in nitrogen," Orascom Construction Chief Executive Nassef Sawiris, a member of one of Egypt's most prominent business families, said in an interview.
Orascom Construction is one of the world's largest fertilizer makers, with operations focused in Egypt, Africa, Asia and Europe. It employs more than 72,000 people, with revenue of $5.5 billion in 2011.
Low gas prices have spurred other investments by chemical makers. Deerfield, Ill.-based CF Industries Inc., (CF) another big fertilizer producer, increased its projected capital spending on new nitrogen capacity to $2 billion through 2016, up from a prior forecast of $1 billion to $1.5 billion. Much of the capacity is expected to debut in 2015.
Dow Chemical Co. (DOW) announced earlier this year it will build a multibillion-dollar plant to convert natural gas into the building blocks of plastic in Texas, creating 2,000 construction jobs before the plant is completed in 2017.
That news followed Royal Dutch Shell PLC's announcement it would build a similar, $2 billion chemicals plant near Pittsburgh, above the Marcellus Shale.
Mr. Sawiris said there remains plenty of room for new capacity as farmers in South America try to boost crop yields towards the level seen in the U.S.. He added that natural-gas reserves in Trinidad, a key supplier of nitrogen-based fertilizer to companies such as Koch Industries Inc., are expected to run out within the next decade, which will increase reliance on U.S. supplies. Natural gas is needed to create the reaction between nitrogen and hydrogen that leads to ammonia fertilizer.
He said the company is also "evaluating other opportunities" in the U.S. It announced Wednesday it is acquiring The Weitz Company, an Iowa-based general contractor that generated $681.5 million in revenue in 2011. It also plans a "sizable" expansion of a Beaumont, Texas, ammonia-and-methanol plant it acquired in 2011.
Orascom Construction is investing abroad as its access to cheap natural gas at home is in doubt, with the cash-strapped Egyptian government looking to reduce the energy subsidies that account for almost 20% of total state spending. While cutting the supply of cheap fuel to the poor is politically unfeasible, policy makers see the cut-price gas supplied to profitable industrial businesses as a less difficult target for reform.
Iowa is offering at least $100 million in incentives to secure a plant that will provide just 165 permanent jobs, together with 2,500 during the construction, raising the hackles of some local lawmakers concerned that the state may be overpaying to take advantage of the boom in natural gas from shale deposits.
Orascom Construction has been planning its U.S. expansion for more than a year, and Mr. Sawiris said the relative financial health of the Midwest—which has benefited from a strong farm economy in recent years—played a key role in its decision to build the plant in Iowa, which is slated to start producing fertilizer in 2015.
Iowa boosted its tax-incentive package to more than $100 million to lure Orascom, though state officials said this was still less than that offered by Illinois.
Mr. Sawiris said that it rejected Illinois' overtures because of fears that corporate-tax rates would increase as the state tries to tackle its huge budget deficit. Companies last year threatened to relocate from Illinois before a last-minute compromise on corporate taxes.
"We were quite concerned, honestly, with Illinois' budget," he said. "We didn't feel like Illinois at this stage was the right place for us...so we decided to locate on the other side of the river."
The proposed plant in Lee County is about four miles from the Mississippi River, providing easy access to the Corn Belt.
The state incentives amount to more than $650,000 for each permanent job, said Peter Fisher, research director for the Iowa Policy Project, a nonpartisan think tank.
"It's a lot of investment, but it's not a lot of jobs," Mr. Fisher said. "It wasn't that long ago that people were shocked at $250,000."
Proponents note it is the biggest capital investment in the state's history and that any jobs are welcome in Lee County, which has the state's highest unemployment rate at 8%.
"It will obviously jump-start that part of the state, which has had its challenges, said Tina Hoffman, spokeswoman for the Iowa Economic Development Authority, which approved additional incentives Wednesday.
Ms. Hoffman said state officials were aware of Illinois legislation that had passed the state senate that would have offered more in incentives.
"We were reading all that too, and wanting to stay competitive," she said.
Mr. Sawiris, a scion of Egypt's wealthiest and most prominent family of Coptic Christian businessmen, has long looked to the U.S. as a source of business. His company's construction-contracting business has worked extensively with the U.S. armed forces and has been the major shareholder in Virginia-based contractor Contrack since 1998. His brother Naguib, a billionaire telecommunications magnate, has emerged as one of the country's most outspoken advocates of liberal, pro-Western political movements.
Mr. Sawiris said his outlook for Egypt's economy has improved considerably recently, buoyed by the new government and its talks with the International Monetary Fund on a multibillion-dollar loan. "We have a renewed optimism," he said.
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