Saudi Electricity Company (SEC) is expected to sign the power purchase agreement (PPA) with the local Acwa Power to develop the planned $1.6bn Rabigh 2 IPP by the end of October.

“We expect the PPA to be signed by the end of the month,” says Paddy Padmanathan, president and chief executive officer (CEO), Acwa Power.

The imminent signing of the contract will mark the end of a protracted tender and negotiation period for the power project, for which Acwa was selected as preferred bidder in January.

MEED recently reported that SEC had dropped plans to rebid Rabigh 2 independent power project (IPP), after it had told the original bidding consortiums in July it would retender the project as a result of a last-minute change in the configuration of the plant from oil to gas earlier in 2013. In April, Riyadh said it would no longer provide oil for new power projects this year, prompting a last-minute change in the configuration of the Rabigh 2 scheme despite SEC having already selected Acwa as preferred bidder this year.

State oil company Saudi Aramco first made its intention to limit the future supply of oil to domestic power plants clear in late 2011, when Aramco’s chief executive officer (CEO), Khalid al-Falih, announced that the state oil major was focusing future investment on conventional gas reserves and expanding downstream refining rather than increasing oil production capacity.

The economic reasons for reducing the use of oil reserves for domestic power consumption are clear. Aramco supplies oil to developers for domestic power production at a rate of about $4 a barrel, with the price of brent crude on the international market averaging just over $111 a barrel in 2012.

The Rabigh 2 IPP will form part of the kingdom’s efforts to boost generating capacity in the coming years to cope with the expected rise in demand. In its 2012 annual report, SEC forecasts that peak demand will grow from the 51,900MW recorded in 2012 to 85,000MW in 2020 and 120,000MW by 2030.