Beijing seeking to increase investments abroad to boost its economy
- Chinese firms signed major agreements in late September to execute major utility projects in Saudi Arabia and Iran
- Chinese contractors are also planning to participate in Egypts ambitious power capacity-building programme
- Chinas economy continues to struggle with a devalued currency and plunging stock market
Chinese firms are stepping up investments in the Middle East as part of efforts to spur profits abroad as Beijings domestic economy cools.
The increasing focus on the Middle East has been clearly illustrated in recent weeks, with Chinese firms signing major agreements in late September to execute major utility projects in Saudi Arabia and Iran.
In Saudi Arabia, Sepco 3 was awarded the main construction package on the 1,755MW PP14 power plant in Riyadh. The contract award followed on from a successful 2014 for Chinese contractors in the kingdom, when Shandong Electric Power Construction (Sepco; a different entity from Sepco 3), was awarded two major deals from state oil major Saudi Aramco for major power projects. Under the contracts, the contractor is building the 2,400MW power plant for Aramcos pioneering Jizan gasification scheme, and is also converting an existing power plant to combined-cycle configuration.
The recent success of Chinese contractors signals a shift in Saudi Arabias power projects market, with South Korean contractors having dominated the sector between 2010 and 2013. Beijing is now targeting for its major companies to make similar inroads into other lucrative markets in the Middle East.
Interestingly, Sepcos agreement with Iran Power & Water Equipment and Services Company (Sunir) also includes financing. With Iran poised to re-enter the international fold, it is in urgent need of foreign investment to assist with major infrastructure projects. Sepco has signed a contract with Sunir to carry out schemes in Iran and also in up to 15 countries in partnership with the Iranian utility.
Under the terms of the agreement, Sepco will fund the contracts to be developed within Iran. Beijing is well placed to benefit from the Islamic Republics impending infrastructure boom, with Irans Deputy Oil Minister Abbas Sheri Moqaddam having recently revealed that China has already invested $21bn in Iran.
The two recent utilities contracts follows Sepcos appointment in March as the main engineering, procurement and construction (EPC) contractor for the Salalah 2 independent power project (IPP) in Oman.
Chinese contractors are also planning to participate in Egypts ambitious power capacity-building programme. In March, Shanghai Electric and Dongfang signed memorandums of understanding (MOUs) with Egypts electricity ministry to build $9.4bn-worth of coal-fired power plants. While details of financing for the schemes have not been released, it is understood that contractor financing will likely be used to get the projects up and running.
While in recent years, as China was enjoying unprecedented growth, its companies and investors were increasing investments into emerging markets in Africa and Latin America, Beijing is now stepping up investment in more developed markets in Europe and the Middle East. The utilities sector will form a central role in this, with Chinese firms preparing to build and finance several major power plants overseas.
Chinas economy continues to struggle with a devalued currency and plunging stock market, and its official GDP growth target for 2015, 7 per cent, is the lowest in 25 years. With economic activity slowing at home, Chinese contractors are pressing ahead with efforts to boost order books abroad, with the Middle East forming an increasingly important role in this.
In addition to the Middle East, Beijing is seeking increased participation in the European power sector, with reports that it is planning to invest £2bn ($3bn) in the Hinkley Point nuclear plant in the UK. News of the planned investment in September was followed by a declaration from UK Chancellor George Osborne that China could build and operate a nuclear power plant in the future. The paving of the way for entrance into the UKs power sector conveys Beijings desire for increased exposure to developed markets where returns are guaranteed.
While the UK and European markets may offer a safer investment climate, the Middle East and North Africa will offer more opportunities, with MEED estimating that installed power capacity in the region will have to increase by 143,221MW to meet predicted demand by 2020. As a result, Chinese participation in the regions utilities market is set to become increasingly prevalent in the coming years.
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