Budget constraints delay progress in Libyan power sector

28 August 2009

While Libyan leader Muammar Gaddafi is encouraging the privatisation of the country’s power sector, plans for a series of new plants are being hampered by a lack of funding

It is nearly two years since the General Electricity Company of Libya (Gecol) awarded the construction contracts for the 1,400MW Tripoli West power plant, but the project remains on hold.

The four contractors on the scheme have not been paid and there is nothing to suggest that work will begin any time soon. In fact, Gecol is now inviting all four winning contractors -South Korea’s Hyundai Engineering & Construction and Daewoo Engineering & Construction, Turkey’s Gama and France’s Geocean -to revise their original prices downwards.

Tripoli West is merely the most recent example of how budgetary issues have long plagued the development of Libya’s power sector.

“The big problem is the tendering process,” says one contractor. “Gecol does not have the budget for the project in place at the start.”

Gecol only begins to seek funding once a contract has been awarded, which causes delays.

The novel structure of the Gecol deal is also contributing to the delays. When built, Gecol intends to sell Tripoli West to a private investor, making it Libya’s first ever independent power project (IPP). UAE-based Oasis IP will take ownership of the plant and sell its power output to Gecol. The deal is likely to be financed by the Libyan Investment Authority, the country’s sovereign wealth fund, and the Abu Dhabi government.

With Libyan leader Muammar Gaddafi encouraging privatisation of the country’s economy, more power projects could follow the IPP model. The planned 750MW Sebha power plant is one such example. Awarded in late 2007 to a team of Turkey’s Enka Teknik and Gesco, a joint venture of Gecol and South Africa’s Eskom Enterprises, the project has since stalled and the UAE could help fund the scheme. “Gecol is trying to make as many projects as possible into IPPs in line with government policy,” says the contractor.

Industry sources in Libya’s power sector say Gecol has proposed a series of private power projects to the government, including a 750MW plant at Melitah, a 1,050MW plant in the Gulf of Bomba, a 1,400MW plant at Tripoli East, a 1,400MW plant at Benghazi West and a 820MW plant at Zuweitina. This is in addition to the existing 312MW Western Mountain plant and a 750MW project at Misurata.

Despite the plans, there are doubts over Libya’s ability to pull off a private power project. “I do not think the IPP business in Libya is realisable,” says one industry source.

The question of low tariffs will need to be resolved before private investors are interested in the schemes. Residential customers pay between $0.0167 and $0.0417 a kilowatt hour (kWh) of power depending on their consumption level.

If they do go ahead as planned, the seven IPP projects will together produce about 6,500MW of power. This is nearly half the additional capacity Gecol says will be necessary to meet predicted peak demand of 15,078MW by 2020.

Peak power demand in Libya has grown at an average rate of 8-10 per cent a year for the past eight years, from 2,630MW to 4,756MW. Gecol predicts that by 2010 this growth rate will have increased to 10-12 per cent a year.  

Contractor caution

Despite the need for more power generation capacity in Libya, Gecol’s poor track record on pushing projects forward means contractors react warily to news of the utility’s plans. “We have some information about future projects, but nothing is confirmed,” says the contractor.

In addition to generation projects, Gecol is overseeing the expansion of the country’s transmission grid, which extends for 2,000 kilo-metres between the Tunisian and Egyptian borders and for up to 900 km south. It has been working on upgrading from a 220kV to a 400kV network since 2003.

Completing its own transmission network is crucial to Libya’s ability to interconnect with its neighbours, and through them with southern Europe. The Libyan and Egyptian networks have been linked on the 220kV level since May 1998 and a 220kV interconnection with Tunisia is due to be energised this year. A 400kV link between Libya and Algeria has also been proposed, as has a line linking Libya and Tunisia.

How quickly Gecol is able to resolve the ongoing Tripoli West saga should provide a good indication of how serious the company is about implementing the long list of new projects it has drawn up.

  • MEED Insight Power & Water in Libya report briefing, 28 September 2009. This MEED Insight event offers the chance to obtain unique information and analysis to give you a competitive advantage. MEED Insight’s expertise and knowledge of the power and water sector in Libya will highlight risk and opportunity within the sector.To find out more or to register, please email:insight@meed.comor call: +971 (0) 4367 1302.

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