Busy year ahead for power and water developers

21 November 2011

With Dubai and Kuwait set to award their first privately developed power and water projects, and Iraq looking to launch a series of schemes, 2012 is set to be a busy period for developers

The Middle East and North Africa region’s independent water and power project (IWPP) market was buoyed in 2011 by several landmark projects. While the overall capacity that will be brought online from the contracts signed in 2011 will be substantial, the number of IWPP contracts awarded was lower in 2011 compared with previous years.

Kuwait had been the only GCC state not to embrace private power … Dubai was previously reluctant to [do so]

To a certain extent, 2012 will be characterised by the same trend. The big deals in 2012 will be Dubai’s Hassyan independent power project (IPP) and Kuwait’s Al-Zour North IWPP. The contract for Kuwait’s first privately developed utilities project is likely to be awarded by the end of this year or in the early part of 2012. Dubai’s first private power offering is expected to follow the Kuwait scheme next year.

The fact that both plants are first-in-kind projects is significant. Kuwait had been the only GCC state not to embrace private developers and while Abu Dhabi pioneered the model many years ago, Dubai was previously reluctant to follow suit.

If Iraq [revives IPPs] the country would become one of the region’s largest markets for private power projects

Dubai and Kuwait plan to develop many public-private partnership (PPP) projects to follow the I(W)PPs, marking a major change in policy. As regulated assets, utility projects were prioritised, considered the most likely to succeed. The outcome of these projects will determine the future of PPPs in the countries.

In terms of smaller deals, an IPP contract is set to be signed in Jordan and another for an independent water project (IWP) at Al-Ghubrah in Oman in 2012. Both countries have significant experience in private power and water sectors.

Power and water projects flurry

Dubai’s Hassyan project will be constructed on a build-own-operate basis. When complete, it will generate 1,400-1,600MW and will use natural gas/distillate fuel. The project is expected to be commissioned in 2014.

Dubai Electricity and Water Authority (Dewa) has given the project’s 18 prequalified developers until 12 December to submit bids following a deadline extension from 18 October.

The Hassyan scheme is expected to be followed by five or six similar projects as part of Dewa’s private power programme. The project was originally to be built on an engineering, procurement and construction (EPC) basis before it was relaunched as an IWPP, then an IPP.

Five bids were submitted to build the Al-Zour North IWPP in Kuwait at the end of September. A preferred bidder is expected to be named by the end of November/early December and financial close is scheduled for May 2012.

The project, sponsored by the Partnerships Technical Bureau, will have a capacity of 1,500MW of power and 102-107 million gallons a day (g/d) of desalinated water. The project is to achieve early power of at least 200MW, by no later than 31 December 2013. At least 400MW is to come online no later than 15 February 2014 and at least 600MW by 31 March 2014. The project is to enter commercial operation by 31 May 2015.

A special-purpose vehicle will be established as a Kuwaiti Public Joint Stock Company, with 40 per cent owned by the successful bidder. The remainder will be held by a combination of Kuwaiti public entities directly and Kuwaiti nationals.

Kuwait has adopted the private developer model for all future power and water schemes above 500MW and is already planning four more projects at the Al-Zour North site. Phase two is to have the same power and water capacity as phase one. Phase three will add 800MW in power capacity and 50 million g/d, phase four will add 1,000MW and phase five will add 25 million g/d of water capacity to the site.

Plans for additional phases at the Al-Zour site will rely on the success of phase one. The project is also crucial for similar schemes at Khirran South, Shuwaikh and Jeleia.

Long-term power and water priorities

In Bahrain and Qatar the focus is on long-term strategies. The first Al-Dur IWPP in Bahrain is almost complete. At 48 million g/d of water and 1,234MW of power capacity, the project affords Bahrain significant breathing space. Looking ahead, Bahrain intends to expand the Al-Dur plant to a total of four phases with a combined capacity of 4,834MW and 96 million g/d.

The situation is similar in Qatar. Steep power demand projections encouraged Doha to aim high with its power capacity building programme. However, the expected demand has not transpired and a significant surplus now exists between supply and demand.

The Ras Laffan C IWPP was commissioned earlier in 2011. The project has a capacity of 2,730MW of power and 286,000 cubic metres of water. The next power project to be tendered will be Facility D IWPP, with a capacity of 2,000MW of power and 60 million g/d of water.

While power capacity building is on track, the same is not true for water. Additional desalination capacity is needed. Qatar General Electricity & Water Corporation originally intended to expand the Ras Laffan site with new power and water plants. Bids were invited from the developer groups of the three plants at Ras Laffan.

Due to the more pressing need for water, a desalination-only plant with a capacity of 70-90 million g/d will be built at the site. The facility is likely to be developed next to Phase C because there is insufficient space for the unit at Ras Laffan B and one of the developers on the first phase has since decided to exit the region.

Oman Power & Water Procurement (OPWP) Company plans to tender a 300MW power plant at Salalah to stand next to an existing power plant. Tendering of the IPP will begin in 2012 with the request for qualification in the second quarter. Bids will be due in the following year, so that the project can be brought online by 2015.

Power and water needs beyond 2012

At Al-Ghubrah, a 42 million g/d IWP is planned. OPWP is currently at the submission of statements of qualification phase and intends to issue the request for proposals by the end of the year. An award is set to be made by mid-2012 for an operational date of April 2014.

Beyond 2012, additional water projects are planned for Quriyat (40 million g/d) and Suwayq (50 million g/d). The Quriyat scheme will be tendered in 2013-14, while the Suwayq project will be tendered in 2014-15.

Saudi Arabia’s power project market remains the largest in the region. Saudi Electricity Company (SEC) has forecast annual power demand to grow at a rate of about 8 per cent a year to 2020. By then, power demand is expected to reach 77,430MW compared with today. To meet this demand, a combination of EPC and IPP projects are planned.

By 2020, SEC plans to commission at least 12,000MW of additional IPP capacity. These projects will cost SR80bn ($21bn) in total. The largest project will be at Qurayyah. The contract to build the 3,927MW plant has been awarded to the local Acwa Power and financial close on the project is imminent.

Project agreements were signed on 21 September and a project company, Hajr for Electricity Production Company, was established. Qurayyah IPP will comprise six identical groups of equipment, each delivering a net output of 654.5MW. Each group comprises two gas turbines, two heat recovery steam generators and one steam turbine.

The project will deliver electricity to SEC under a 20-year power purchase agreement (PPA) commencing on 30 June 2014. Germany’s Siemens has been selected to provide all major equipment and electrical systems, while Samsung C&T will be the EPC contractor. About 77 per cent of the SR10.69bn project will be financed in debt, split equally between US dollars and Saudi riyals. The dollar facilities will include tranches funded or covered by three export credit agencies: South Korea’s Kexim; US-based Export-Import Bank; and Germany’s Hermes.

The international bank group providing funds are the UK’s HSBC Group, Germany’s KfW, the UK’s Standard Chartered and Japan’s SMBC. The local bank group is Banque Saudi Fransi, National Commercial Bank, Samba and Sabb.

After the Qurayyah IPP, SEC is expected to tender contracts for projects at Rabigh, Dheba, Abu Kamis, Jeddah South and Riyadh (PP13). Dheba will be the first, as SEC’s plans call for the project to be commissioned by 2016.

Political setbacks

Egypt’s Electricity and Energy Ministry planned to develop a 1,500MW IPP at Dairut, which would have the potential to be extended to 2,250MW at a later date. It prequalified companies to bid for the contract in June 2010 before the tender stalled. Protests in January and the subsequent ousting of President Hosni-Mubarak in February have held the project back since.

In Tunisia, the Industry and Technology Ministry is tendering a contract for a 1,200MW IPP at Elmed. It has prequalified seven companies to bid for the contract and a request for proposals is to be issued by the end of 2011.

The successful bidder will develop the project on a build-own-operate basis under a 20-30 year concession. The scheme will comprise a thermal power plant along with a renewable energy component of at least 100MW.

Of the total 1,200MW capacity, 400MW will supply the local utility Societe Tunisienne de l’Electricite et du Gaz (Steg). The remaining 800MW will be exported to Italy through an interconnection project to be built by Steg, in partnership with Italian company Terna.

The project has faced significant delays over several years. The ousting of long-time president Zine el-Abidine Ben Ali in January caused the most recent set-back. The Elmed IPP tender has also been impacted by the cancellation of another IPP at Bizerte. The 350-500MW IPP drew three bids before plans for the project were cancelled in November 2010. Many prequalified bidders are concerned that Elmed IPP will meet the same fate as a result of the regime change.

In Yemen, three small private power projects were planned at Aden, Hodeidah and Al-Mukalla. The projects were close to cancellation before protests began in the country earlier in 2011. The uprising has ensured the projects will almost certainly not be developed.

The situation is similar in Syria. Plans to develop an IPP at Al-Nasserieh are on indefinite hold while the country is enmeshed in protests and increasingly violent clashes between dissidents and forces loyal to President Bashar al-Assad.

Syria’s Public Establishment of Electricity for Generation & Transmission (PEEGT) prequalified 14 firms in October 2010 and had intended to invite bids in early 2011. The plans then stalled and have remained on hold ever since. Even if PEEGT decides to proceed, international developers would need to be convinced to continue to take part in the tender.

Abu Dhabi’s commitment to private power has been strong and looks set to continue. Financial close was reached on the emirate’s latest private power deal in May. Shuweihat 3 will be Abu Dhabi’s first IPP. A Japanese/South Korean consortium of Sumitomo and Korea Electric Power Company (Kepco) is building the project.

Debt funding for the 1,600MW project is split between a $370m Japan Bank for International Cooperation (Jbic) loan; $370m from Export-Import Bank of Korea through a direct loan and loan insurance; and a $360m commercial bank tranche.

Germany’s Siemens and South Korea’s Daewoo Engineering & Construction Company have started construction on the combined-cycle plant, with commercial operations estimated to commence from March 2014.

The next project will be built at Taweelah or Mirfa. The decision is highly dependent on access to gas making Mirfa a more likely location. It may be an IPP or IWPP, although sources at Abu Dhabi Water and Electricity Authority have said the latter is more likely.

Power scheme relaunch in Iraq

Having cancelled its private power programme in May, Iraq’s Electricity Ministry is considering relaunching it. The group of four projects to be tendered has been expanded to five projects and could be built at Samawa, Diwaniya, Shat al-Basrah, Amara and Najebia totalling 3,250MW.

In its original form, seven bids were submitted to build the 500MW Diwaniya IPP in February. The local Almco was in line for the contract along with the 500MW Amara IPP. At least five bids were submitted to build the Shat al-Basrah IPP. Jordan’s Mass Global and Turkey’s KAR Group were said to have been shortlisted. A preferred bidder and second preferred bidder were lined up for the 500MW Al-Samawa IPP in Muthana governorate.

It has yet to be decided whether Iraq will go through with its IPP programme and whether the issues that led to the shelving of it will be resolved. If Iraq does revive the programme, the country would become one of the region’s largest markets for private power projects. And next year could potentially be far busier for developers.

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