Crisis will free up power and water contractors

24 October 2008

The credit crunch may yet end shortages in contractor resources that hampered so many projects earlier in the year.

It has been an eventful week for the Gulf’s utilities. The global credit crunch has raised serious questions over the viability of project finance. As banks grow less willing to take on underwriting commitments, clients have to find more pragmatic ways to secure funds.

Some are taking pre-emptive action by changing the financing structure for their projects. Saudi Electricity Company has altered the terms of its Rabigh independent power project to allow more local banks to become involved. Even so, bankers and developers say this will make little difference to their ability to provide or secure enough underwriting for the bids.

Meanwhile, Abu Dhabi Water & Electricity Authority (Adwea) is looking for ways to ensure that projects that have already been awarded continue as planned. Short-term financing is now being considered for the Shuweihat 2 independent water and power project, and two sewage treatment schemes.

If market conditions have not improved by the time the short-term funding expires, Adwea may go it alone and provide the necessary funding from its own resources.

However, there are also those who see opportunities in the financial crisis. Dubai Electricity & Water Authority’s decision to cancel bids for the first phase of its P Station project at Hassyan for the second time is indicative. Dissatisfied with the high quotes submitted by bidders, the authority has decided to wait before trying again, hoping that the economic slowdown will work in its favour.

With market activity falling overall, the authority hopes that contractors will be forced to offer lower prices to secure projects in future.

The credit crunch may yet lead to the end of the shortage in contractor resources that hampered so many projects earlier in the year.

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications