As a cutting edge of economic reform, the power sector cannot be bettered. It provides clearly definable assets that can be ring-fenced for developers and investors. And it is supported by wealthy and stable customers – governments – prepared to guarantee revenue streams in return for reliable services. With the exception of the food industry, no sector is as critical to domestic stability.
A failure to provide adequate power supply quickly disrupts the fundamentals of living in the region, from water supply through to air conditioning and lighting. Such a failure would quickly lead to dissent and social unrest. That is why power and water is traditionally one of the strongest and most consistent investment sectors in the Middle East and North Africa, with capital spending on power projects of about $30bn a year. It is also why fuel and energy prices have traditionally been subsidised by government, to the tune of about $60bn a year in the GCC.
But the traditional patterns are no longer viable. Financially, governments cannot sustain continually rising spending on projects and subsidies, especially when those subsidies encourage extreme over-consumption of energy that accelerates the decline in regional oil and gas resources.
The diversification of energy sources is seeing the development of solar, wind, nuclear and other forms of alternative energy with government feed-in tariffs being introduced to stimulate private investment.
From the private financing of power, water and wastewater treatment plants to the unbundling and sale of state utilities, the opportunities for private investors are abundant and long-term.
It is a seller’s market and the private power sector is set to flourish. Governments can take advantage of power privatisation to build momentum for their wider reform programmes and the privatisation of inefficient state bureaucracies that are holding back the region.