Muted reaction to coal plans
Dewa has a lot of work to do to convince bidders and lenders it is serious about latest power scheme
Dubai’s announcement that it is planning to use clean coal to fuel its first independent power project (IPP) has evoked scepticism in the region’s power sector.
Despite coal being a part of the emirate’s long-term energy strategy, the decision to press ahead with the scheme and to structure it as an IPP has surprised both developers and banks.
It does not help that many are still frustrated by the collapse of Dubai’s previous IPP, a more conventional gas-fired scheme, in early 2012. After much work from advisors, developers and banks, the gas-fired plant was shelved just before the selection of a preferred bidder, much to the annoyance of those involved.
In the wake of the global credit crunch and Dubai’s debt crisis in 2009-10, convincing developers and lenders to support that project was not easy. The uncertainty surrounding the future of the emirate’s economy was compounded by payment problems on several major infrastructure projects including the Dubai Metro, on which some contractors had not been paid.
After 18 months of tough negotiations and due diligence work from bidders and advisors, Dubai Electricity & Water Authority (Dewa) pulled the plug on the gas scheme at the last minute, citing a lack of necessity due to increased efficiency of existing plants. The decision to begin another IPP process just 16 months later has left many puzzled.
Attracting interest for another gas-fired IPP scheme would not have been easy, but convincing the market to participate in a pioneering scheme that could cost triple the amount will be a severe test. The revival in Dubai’s economy will help ease concerns about credit quality, but Dewa will need to reassure potential bidders and financiers that the IPP is feasible and that it has the desire to see the project through to the finish this time.
If it fails to do this, the process will just be another exercise in wasting time.