The long-awaited signing of the project agreements for the Al-Zour North independent water and power plant (IWPP) in December has provided Kuwait’s utilities sector with some much-needed optimism for 2014.

On 12 December, the Partnerships Technical Bureau (PTB) signed an energy conversion and water purchase agreement with a consortium led by the UK/French GDF Suez to develop Al-Zour North, Kuwait’s first IWPP.

The plant has long been viewed by those in the projects and finance sectors as a pathfinder scheme for Kuwait’s ambitious public-private partnership (PPP) programme.

Outdated facilities

Like much of its infrastructure, the country’s power sector is struggling to cope with the demands placed on it as a result of a growing population. It is characterised by outdated facilities, with many of the largest installations more than 20 years old. While the signing of the Al-Zour North scheme is a major milestone, there is still plenty of work to be done to meet electricity demand forecasts.

Kuwait has seen a sharp increase in power usage in recent years, with peak consumption growing by about 6-8 per cent a year since the turn of the century. Rising demand, combined with a lack of new capacity being installed since 2000 resulted in the country’s power reserve margin falling to dangerously low levels by 2010. In the summer of 2010, total capacity was only 5 per cent greater than peak demand, considerably lower than the internationally accepted standard of 15 per cent.

We will be there for Kuwait’s next power project, whether it is Al-Zour North 2 or Al-Khiran

Paddy Padmanathan, Acwa Power

Pressure on the power sector eased a little in the ensuing two years, with peak demand growth slowing to 4.7 per cent in 2011 and 5.3 per cent in 2012. The reserve margin was boosted by the commissioning of the 2,000MW Subiya power plant and the completion of the 560MW Al-Zour South steam turbine extension in 2012. However, with peak demand forecast to almost double from the 11,850MW recorded in 2012 to 21,600MW by 2020, the government has its work cut out to ensure adequate capacity can be commissioned in this period.

“Kuwait is planning to increase capacity from [the current] 14,000MW to 31,000MW by 2023,” said Mohammed Boshehri, assistant undersecretary to the Ministry of Electricity & Water (MEW), speaking at a roundtable discussion in Abu Dhabi last year.

Similarly, demand for water in Kuwait has continued to grow apace. As of 2013, plans had been drawn up to install 650 million gallons a day (g/d) of new desalination capacity by 2020.

“Kuwait will have great demand for new power and water plants and associated infrastructure in the coming years,” says a regional source at one of the world’s largest private power developers. “We will be monitoring the market very closely. It is now up to the government to make sure these schemes go ahead as planned, as it has been quite slow to date with the planned private work.”

Private involvement

Following the success elsewhere in the region of using private firms to develop power capacity, in 2008, Kuwait created the PTB, under its PPP law, to oversee plans to bring in the private sector to develop key infrastructure projects including several major power and water desalination schemes.

With the establishment of the PTB, the government decreed all power schemes with a capacity of more than 500MW must be tendered through the PPP model. Prior to this, the MEW had procured projects using engineering, procurement and construction (EPC) contracts.

The Al-Zour North IWPP was launched in 2009, but suffered a series of delays and missed deadlines. After a protracted tendering process, the PTB selected the consortium of GDF Suez, Japan’s Sumitomo and the local AH Sagar & Brothers Group as the preferred bidder in February 2012.

However, the project stalled when Kuwait’s National Assembly (parliament) voted to scrap the scheme the following June. The move was reflective of the challenges facing the country’s entire development programme, with opposing factions in government and cabinet often blocking the progress of key infrastructure projects.

The Al-Zour North scheme will have a power capacity of 1,500MW and a desalination capacity of 102-107 million g/d of water. The scheme will use natural gas as its main feedstock with gas oil as back-up fuel. The construction work was originally targeted for completion in 2015, but is now expected to be finished at the end of 2016.

Progress imperative

The signing of the agreements for the Al-Zour North IWPP is encouraging, but it is imperative that the PTB and the MEW now move forward with the next wave of utility schemes in order to prevent future supply shortages.

“To double the capacity, as is planned over the next 10 years, that will work out as building a project a year, so they need to get going,” says the source at the international developer.

Some progress is already being made. In the last week of December, the PTB invited developers to express interest in the Al-Khiran IWPP, the third of the body’s proposed IWPP schemes.

The Al-Khiran project is expected to have a power generation capacity of 1,500MW and a water desalination capacity of 125 million g/d. The power component will use steam turbines and the facility will operate on low-sulphur fuel oil as its primary fuel stock, with natural gas, gas oil or crude oil as back-up. Developers have until 15 March to submit an expression of interest in the project.

The launch of the tender for the Al-Khiran IWPP follows the invitation in April by the PTB for firms to express interest in the next scheme planned for the Al-Zour North site, the Al-Zour North 2 IWPP, which will have the same power and desalination capacity as the first. The Al-Zour North site is ultimately planned to be developed in five phases.

With the first project finally moving into the construction phase, Kuwait’s IWPP schemes are attracting strong interest from the developer market, with regional and international companies keen to be part of the ambitious programme.

“We will be there for Kuwait’s next power project,” says Paddy Padmanathan, president and chief executive officer of Saudi Arabia’s Acwa Power. “Whether it is Al-Zour North 2 or Al-Khiran, we will participate.”

Meanwhile, the MEW is continuing to procure power schemes with capacities under 500MW using the EPC procurement model, in order to meet a looming supply gap in 2013-16, as a result of the delay to the Al-Zour North IWPP. The ministry is pressing ahead with three fast-tracked projects to expand existing power plants, with a combined capacity of 1,000MW.

To double the capacity as planned, that will work out as building a project a year, so they need to get going

Regional source at international developer

As part of the programme, in mid-June, the local Alghanim International was awarded two deals to supply and install two 225MW gas turbines each at the Subiya and Al-Zour South power facilities. Germany’s Siemens will provide the turbines for both schemes, with completion set for 13 months from the date of the contract award. The third project calls for the Subiya plant to be converted to combined-cycle through the installation of a 200MW steam turbine.

To further bolster generation capacity, the PTB is looking at developing renewable energy schemes. In late September, the UK’s HSBC was awarded the consultancy contract for Kuwait’s first planned solar scheme, the 280MW Al-Abdaliya integrated solar combined-cycle plant, which will have a 60MW solar power component.

The PTB also recently invited companies to submit expressions of interest for the deal to develop the Kabd Municipality solid waste project, Kuwait’s first waste-to-energy scheme.

The facility will be developed under a build-operate-transfer procurement model and will occupy an area of about 500,000 square metres. It is planned to have an initial capacity of 3,000 tonnes a day and will treat up to half of the country’s municipal waste. In the second quarter of 2013, the PTB awarded the transaction advisory services contract for the Kabd project to a consortium led by the UK’s PwC.

Pilot schemes

The Kuwait Institute for Scientific Research (Kisr) is also pressing ahead with pilot renewable energy projects. In June, Kisr invited prequalified international groups to bid for a 10MW wind farm, a concentrated solar power facility and a photovoltaic solar scheme, with an initial deadline of mid-October set for each project.

With Kuwait’s population and non-oil economy set to continue to grow in the coming years, expansion of utilities will form a central part of the government’s infrastructure development programme. Although Kuwait has so far lagged behind its GCC neighbours in utilising the private sector to deliver major power and water infrastructure schemes, its planned IWPP programme is set to offer developers some of the biggest opportunities in the region in the next decade.

As the first IWPP project moves into execution, it is important that the PTB and the MEW are able to ensure the procurement of future schemes is much more streamlined. Kuwait’s government institutions are not renowned for efficient and effective decision-making, but with a requirement to double power capacity in the next decade, it is something they will need to learn.