International developers, especially those from the US, have been hard hit over the past 18 months by the Californian energy crisis, the economic downturn in Latin America and the fallout from the collapse of Enron Corporation. With many companies holding highly leveraged balance sheets, rating agencies have been quick to react to events, downgrading their coverage, in some cases, to sub-investment grade levels.

The situation has forced nearly all US developers to restructure and rein in their expansion ambitions. And the Middle East has not escaped the retrenchment. CMS Energy set the ball rolling last November when it announced that it was to sell off all its international assets, bar those in the Middle East, North Africa and Ghana, and would not be bidding for any new projects in the region. More recently, PSEG, the foreign developer on the Salalah power project in Oman, has stopped bidding new IPPs worldwide. Finally, AES Corporation, whose regional portfolio takes in the Barka independent water and power project (IWPP) in Oman and the Ras Laffan IWPP in Qatar, is not expected to participate in the tender for the Gulf's next IWPP, the Umm al-Nar project in Abu Dhabi.

With international oil companies showing few signs of bidding for Middle East IPPs, that do not include an upstream gas play the field is open for European, and to a lesser extent Far Eastern, developers to expand their regional presence. On Umm al-Nar, prospective bidders include Belgium's Tractebel, Italy's Enelpower, the UK's International Power and Japan's Mitsui & Company. For the first time on an Abu Dhabi IWPP, two German companies, RWE and STEAG, are also prequalified, although it is unclear whether both will bid.

For regional clients, the reduction in active IPP bidders is likely to have long-term ramifications. 'Whereas five years ago, we basically went for everything, today we can be much more selective about what we bid,' says one European developer. 'Ultimately, those projects that can draw on a proper regulatory environment, have a reasonable risk allocation and offer a sensible IRR [internal rate of return] will work. And in this part of the world, that means the IRR cannot be below the 13 per cent benchmark, set by Abu Dhabi.'