Peak electricity demand is set to almost double by 2020
In early February, Kuwait’s Partnerships Technical Bureau (PTB) opened financial bids for the construction of an independent water and power project (IWPP) at Al-Zour North. The event was significant as the winning bidder will develop the country’s first IWPP. It also represents a major step forward in the country’s efforts to bolster its electricity capacity.
It is really important to apply the [request for proposals] to these projects. It is very price sensitive
Adel al-Roumi, PTB
Much is at stake for both Kuwait and the bidders. The PTB plans to tender more IWPPs in the future and is keen to ensure its first project is a success. For the potential developer, gaining a foothold in the region’s newest public-private partnership (PPP) market is an attractive prospect.
The Kuwaiti projects sector has a long history of cancellations and rebids. Al-Zour North will test the ability and determination of the PTB to deliver projects and the willingness of the private sector and banks to back them.
Power and water project scope
As a regulated asset with a single offtaker, the IWPP is an attractive first project with which to test the market. Its success will pave the way for future projects in the utilities sector and beyond.
The facility will have a capacity of 1,500MW of power and 102-107 million gallons a day (g/d) of desalinated water. Bids were invited to build the Al-Zour North IWPP in March 2011. Five bids were submitted, but prices from only three of the groups were read out in February.
The lowest price was submitted by a consortium comprising the UK/French IP-GDF Suez, Japan’s Sumitomo and Kuwait’s AH Sagar & Brothers Group with an annual equivalent payment (AEP) value [the yearly payment to the developer over the lifetime of the project] of KD127m ($455m).
|Kuwait power sector|
|Peak load||Installed capacity|
|Source: Ministry of Electricity & Water|
The second-lowest bid was entered by Japan’s Marubeni and Kuwait’s Alghanim. The group submitted an AEP bid of KD133m. Malaysia’s Malakoff International, South Korea’s SK Group and the local National Industries Group submitted a bid of KD172m.
A special-purpose vehicle will be established as a Kuwaiti public joint stock company, which will be 40 per cent owned by the private developer. The remainder will be held by a combination of Kuwaiti public entities and Kuwaiti nationals.
The project is required to achieve early power of at least 200MW by no later than 31 December 2013. At least 400MW is to come online by 15 February 2014 and 600MW by 31 March 2014. The facility is expected to enter full commercial operation by 31 May 2015.
While the PTB has pressed ahead with the scheme and swiftly awarded preferred bidder status to the lowest bidder, the tender has not been without controversy. Two bidding groups were disqualified from the tender.
The commercial prices submitted by Japan’s Mitsui, Kuwait’s Kharafi Group and Kuwait’s Ahmadiah were not read out at the bid opening due to non-compliance with the terms of the tender.
“In the opening session, the Mitsui group was not compliant with the financial [requirements of the request for proposals (RFP)],” says Adel al-Roumi, director general of the PTB. “There were two items that were clearly identified in the RFP and were required in hard copy for the bid opening ceremony. They needed two numbers – the AEP and the share price … These numbers were not submitted in the opening session.”
Another bid, which was submitted by Saudi Arabia’s Acwa Power, Kuwait’s GIC and South Korea’s Samsung C&T, was also disqualified.
“In the end, it came down to the final submissions. In the opinion of the tendering committee and our technical adviser, it was not compliant with the RFP,” says Al-Roumi.
Both groups that were disqualified have complained. Acwa Power says the firm has not received an official response detailing the reasons for the disqualification. But the PTB’s actions show the rigour it is applying to its first test project.
According to Al-Roumi, the decisions were taken with future IWPPs in mind. “It is really important to apply the RFP to these projects,” he says. “It is very price sensitive. If you become lenient … it will affect the prices. So we wanted to be fair and transparent to all.”
In many ways, the first project was expected to prove the most difficult. “Now it becomes an easier process for us. It becomes off-the-shelf,” says Al-Roumi.
Power generating programme
Kuwait is planning a slew of IWPPs to follow the first phase of the Al-Zour North project. The government has adopted the IWPP model for all future power and water schemes above 500MW and is already planning four more projects at the Al-Zour North site.
|PTB power projects|
|Project name||Power capacity (MW)||Water capacity (million g/d)||Status|
|Al-Zour North 1||1,500||102-107||Preferred bidder selected|
|Al-Zour North 2||1,500||102-107||Planned|
|Al-Zour North 3||800||50||Planned|
|Al-Zour North 4||1,000||Planned|
|Al-Zour North 5||25||Planned|
|New Shuaiba South||1,400||50||Planned|
|New Doha East||2,300||100||Planned|
|g/d=gallons a day. Source: MEED|
Phase two will have the same capacity as phase one. Phase three will add 800MW in power capacity and 50 million g/d of water. A fourth phase will add 1,000MW and phase five will add 25 million g/d of water capacity to the site. Phases one and two are expected to be fired on natural gas, with gasoil as a back-up fuel.
Elsewhere, a 2,500MW independent power project (IPP) is planned for Nuwaiseeb. Expressions of interest to build the project will be invited in 2014. Another project, New Shuaiba South, will be tendered in 2016. It will have a capacity of 1,400MW of power and 50 million g/d. In 2017, expressions of interest will be invited for the New Doha East IWPP, which will have a capacity of 2,300MW of power and 100 million g/d of water. The project that will directly follow the first phase of Al-Zour North IWPP will be at Khiran. It will have a capacity of 2,500MW of power and 125 million g/d of water and will be located to the south of the existing Al-Zour South power and water project. The PTB is currently in the process of selecting advisers for the project.
The PTB has said Khiran will be a conventional thermal steam power plant using low sulphur fuel oil, gasoil, crude and/or natural gas. However, gas allocations for the project have not yet been secured.
In December 2006, Kuwait Oil Company (KOC ) agreed to supply the first two phases of the Al-Zour North IWPP with gas. The agreement has not yet been extended to the other IWPPs but “these things change”, says Mohammad Boshehri, at the studies and research department of the Ministry of Electricity & Water Ministry (MEW).
Alternative power schemes
While most of Kuwait’s future power projects will be developed as IWPPs, projects with a capacity of less than 500MW are still allowed to be tendered by the MEW as engineering, procurement and construction (EPC) contracts.
The MEW is currently working on plans to issue a tender to build a 450MW power plant. According to Suhaila Marafi, director of the MEW’s department of studies, the project will comprise two 225MW power generating units. A tender for another 450MW power plant will follow at Al-Zour South, with bids invited by the end of 2012. The PTB is also working on renewable energy projects. Japan’s Toyota Tsusho is expected to build a 228MW thermal solar power and natural-gas hybrid plant at Abdalyiah in Kuwait.
The company is in negotiations with the PTB for the project, which will comprise about 65MW of solar power and around 163MW in gas-fired capacity. It will be developed on a build-own-transfer basis. As Toyota proposed the project and carried out the necessary studies, it is likely it will build the project. However, the firm will still need to compete in a tender.
According to Kuwaiti law, the company will be awarded a five-point advantage over the other bidders and is therefore in a strong position to win the contract.
The solar/gas facility will be 100 per cent owned by the developer. According to a source at the PTB, the project is worth about KD200m. The sponsor will be responsible for financing the scheme as an independent power project. Kuwait also plans to develop renewable energy projects on an EPC basis. Tender documents for a renewable energy park at Abdaly will be issued through the Kuwait Institute for Scientific Research (KISR) by the end of September. The park will include a 10MW wind unit, a 10MW photovoltaic solar project and a 50MW concentrated solar power facility.
In spite of the difficulties encountered at the tendering stage, the PTB is making good progress with its first IWPP, and this bodes well for PPP projects that will follow in other sectors.
There is significant momentum behind the power programme as a result of the urgency of the situation. Kuwait has long grappled with a precariously tight supply and demand balance. With rapidly rising power consumption, Kuwait needs to dramatically increase its generating capacity. Peak electricity demand is set to almost double by 2020.
Projected power demand
Usage peaked at 11,220MW in 2011, while installed capacity stood at just 12,800MW. By 2015, consumption in Kuwait is expected to increase to 15,300MW and 21,600MW by 2020. Kuwait plans to meet this demand by increasing its installed capacity to 17,000MW by 2015 and 25,400MW by 2020.
“The lack of infrastructure in Kuwait has actually become a blessing to us because now it is realised that this is an agenda that has to be applied and has to move as fast as it can. Everyone is supporting it,” says Al-Roumi.
As Kuwait hopes to develop all its future large-scale power plants as IWPPs, the PTB is under pressure to deliver. The successful close of the first phase of Al-Zour North will be an important landmark for the PTB. It will also determine whether Kuwait keeps pace with the growing demand for power or sees a return to the blackouts that blighted the country in the early 2000s.