Rising consumption rates are piling the pressure on regional generators as they attempt to keep pace with demand. At the same time privatisation is shaking up the way projects are financed and operated. MEED reports on the new prospects this is creating for investors, developers and plant providers

This year's MEED survey of Middle East power markets shows typical demand growth rates around the region running at two to three times the international average. At its most extreme, in some parts of the UAE, electricity demand is rising at 15 per cent a year. At these levels, consumption rates are continuing to rise at a heady rate and show no signs of easing.

Rapid population growth and rising industrial demand are producing these sky-high figures, which are posing a huge challenge for the authorities as they struggle to keep pace. Having provided power supplies in the past at little cost to the consumer, governments throughout the region are having to devise more cost-effective solutions for future provision. Accordingly, tariff rates have been rising to make the utilities more commercially viable although many Gulf consumers are still spared from paying anything like the true cost of supply.

To drive down investment costs, more countries are turning to independent power producers (IPPs) or moving, with varying degrees of enthusiasm, towards outright privatisation of the electricity sector. Having successfully launched its first private project at Taweelah, Abu Dhabi is now privatising an existing plant and inviting offers for a far larger new venture. In Egypt, the switch to IPPs has delivered striking cost reductions and the privatisation of the main power companies is about to begin. Even Saudi Arabia has begun merging and corporatising its power companies as a first step towards an eventual privatisation.

Below, MEED writers report on the latest developments in 13 Middle East markets:

BAHRAIN

THE power sector received a much-needed shot in the arm in mid-July, when the first of two 140-MW gas turbines was commissioned at the $530 million Hidd power and water complex. The new turbine has raised the combined installed capacity at the Ministry of Electricity & Water (MEW) to 1,126 MW. However, not all is operational due to the age of several stations, which are more than 20 years old.

Despite the near-completion of the Hidd project, power demand is still running perilously close to supply. Even though MEW continues to import 275 MW from the 1,505-MW power station at Aluminium Bahrain (Alba), there is still some scheduled load shedding to prevent a total blackout. This summer, MEW advertisements in the local press are urging consumers to cut consumption and give detailed schedules for load shedding, which can run for up to an hour. Peak demand is expected to reach 1,200 MW, up from the 1,157 MW recorded last summer.

Commissioning of Hidd's second gas turbine will allow MEW to proceed with the revamp of two ageing installations in a $180 million programme, largely financed by regional aid agencies. Bids were due to be submitted in early August from five international contractors for the rehabilitation of the Sitra power and desalination plant. The estimated $50 million contract will involve the upgrade of four 25-MW steam turbines, boilers and distillers and instrumentation and control systems. Germany's Fichtner is consultant.

A similar project is to be implemented at the 790-MW Rifaa power station. In late February, MEW appointed the US' Kuljian Engineering Corporation as consultant to prepare designs within 12 months for the upgrade of five 50-MW gas turbines. The project is aimed at extending the life of the station, built by Germany's Siemens in the late 1970s and early 1980s.

Even with the upgrade programme, Bahrain will still require an estimated 560 MW of new capacity by 2006. With funds short, the government is turning to the private sector for assistance. Privatisation is back on the agenda, with the government seeking foreign participation in the operation and expansion of the Hidd complex. The Finance Ministry has issued mandates to Kuwait-based Gulf Investment Corporation (GIC) and the newly-established infrastructure fund of the Islamic Development Bank, being managed by Washington-based Emerging Markets Partnership. They have been invited separately to come up with proposals by 1 September to take over operation of the existing plant and expand its capacity to 930 MW by 2005. The winning bidder will form a 60:40 joint venture with an international power developer to carry out the work.

In addition to the refurbishment work, the MEW is also pushing ahead with plans to reinforce and expand the transmission and distribution network. Bids are due to be returned by 24 August for four of the five packages on a project to install six 66-kV substations at an estimated cost of $80 million. The four packages cover the supply of switchgear, transformers, cables and installation work. Package five, for civil works, will be tendered by the end of the year. Two substations are to be installed in the industrial area of Alba and one each at Bahrain International Airport, Awali, Sar and Salamabad. Ireland's ESB International is consultant.

EGYPT

PRIVATISATION has been readily embraced by the Egyptian power sector, and rapid progress is being made on all fronts. Financial close has been reached on the first IPP, and contracts are being finalised for the second and third. A group of banks, consultants and legal advisers has also completed the first stage of evaluation of the seven state-owned generation and distribution companies, and shares in as many as three of them are due to be offered to the public in the next few months.

The Egyptian Electricity Authority (EEA) put into effect its privatisation strategy in the mid-1990s, when it became clear that it could no longer rely on aid to finance the new projects which were needed to meet demand for electricity which is rising by 7-8 per cent a year. The process of bringing in private investment was helped by the fact that since the mid- 1980s, the utility had steadily squeezed most price subsidies out of the system.

The first IPP project entails the addition of two 340-MW units (3 and 4) to the Sidi Krier power station, west of Alexandria. A group led by InterGen of the US signed all the relevant contracts in July 1998, and exactly one year later achieved financial close of credit facilities for the $480 million project. InterGen had been aiming to close the deal in December 1998, but found it needed more time to settle all the details. InterGen officials put the delay down to the fact that it is the first project of its kind in Egypt, and to the problem of dealing with two clubs of arranging banks, one local, the other international. However, they say one year is not particularly long by international standards, and emphasise that with the first deal done, the next ones should be easier.

The EEA and the Electricity & Energy Ministry were praised for their handling of the Sidi Krier project. For their part, they were pleased that the price to be paid InterGen for the power it will produce was so low, at just $0.026 a kWh. The plant is due for completion at the start of 2001. Engineering and procurement work has been going ahead smoothly despite the delays in reaching financial close. ABB Alstom Power is to supply the turbine generators, Babcock & Wilcox of the US the boilers.

The next two IPP schemes were offered together, involving 650-MW plants at Suez and East Port Said. Bids came in even lower than at Sidi Krier. Electricite de France (EdF) was picked for both projects based on its proposals to sell power at $0.0237 a kWh from 2002. One of the reasons for this low price is the cheap gas that will be provided by the Egyptian Gas Company (Gasco). The gas is priced at úE 0.14 ($0.041) a cubic metre, equivalent to $1.04 a million British thermal units (BTUs).

EdF has been anxiously watching the progress of InterGen's project, and the French company is likely to be mightily relieved that financial close at Sidi Krier has finally been achieved. The French firm should wrap up its contracts with EEA within a few weeks, and is looking to close the financing much more quickly than was the case with InterGen. EdF says one factor in its favour is that the two plants will be 100 per cent subsidiaries of the French company, and so there will be no need to co-ordinate between several partners. ABB Alstom is best placed for the estimated $75 million contract to supply turbines for the two plants, and six bids are under evaluation for the estimated $80 million boilers contract.

The next IPP project is expected to be a 650-MW plant for Sharm el-Sheikh, for which bids are expected to be invited towards the end of the year. About 10 more IPPs have been listed by EEA to be issued for bid up to 2005. They are mainly thermal gas-fired power stations, but also include a pumped storage scheme and a wind farm.

EEA has also appointed Lahmeyer International of Germany to prepare tender documents for a hybrid fuel IPP, which will run on solar energy by day and gas by night.

Power equipment suppliers have a further opportunity in the coming months on the Naga Hammadi barrage and hydroelectric power project, which is being financed by more than $200 million in loans from Germany's Kreditanstalt fuer Wiederaufbau and the European Investment Bank. This project, which includes a 64-MW hydropower plant, is being carried out by the Public Works & Water Resources Ministry. Prequalification is now under way.

The other major development in the power sector is the privatisation of the seven regional generation and distribution companies, which have been valued at some úE 40,000 million ($11,700 million). The government at the end of July gave the go-ahead for initial offerings of shares in the three companies serving Cairo, the Canal Zone and Middle Egypt.

The decision to go ahead follows the resolution of the problem of debts to and from the seven companies. They are reported to be owed some úE 9,000 million ($2,635 million) by public sector clients and to owe about úE 4,900 million ($1,435 million) in taxes. It appears that part of the debt has been wiped out by cancelling the taxes, and that other arrangements have been found for dealing with the remaining debts. These include one of the biggest debtors of Cairo Electricity - Egyptian Iron & Steel Company - paying its bills in the form of steel to be used for pylons.

The government is also planning to set up an independent agency to regulate electricity tariffs in light of privatisation.

IRAN

THE Energy Ministry is moving ahead with its recently-completed plans to nearly quadruple power generation capacity over the next quarter century, but is setting aside special funds to prevent anticipated electricity shortages at the turn of the century. The power sector has seen a number of substantial construction and equipment supply contracts awarded since mid-1998.

The ministry unveiled its long-term plans in 1998 which called for nearly quadrupling the capacity of the national grid to 96,000 MW by 2022. Current capacity is about 29,000 MW, including 4,600 MW provided by private generators (Special Report, MEED 14:8:98). The additional 72,000 MW planned by 2022 will include nearly 15,000 MW of hydroelectricity. Natural gas will also contribute more to the fuel mix, and combined-cycle facilities will receive priority.

Power plants under construction and due for completion by 2002 will add 13,000 MW to the grid. Some 8,000 MW will come from hydroelectric dams, but the proportion of hydroelectricity will drop in subsequent years. Since the grand strategy plan was finalised, a number of projects have been given the go-ahead and others have been prioritised. Zurich-based ABB Asea Brown Boveri was in late 1998 awarded a contract worth more than $70 million for supplying mechanical and electromechanical equipment for the extension of four dams: Karun-1, Karun-3, Karkheh and Masjid-e Soleiman.

Tendering for two small dams was speeded up in mid-1999, with suppliers hopeful of a contract before the end of the year. The local Mahab Qods Consulting Engineers had in July opened documents for the 165-MW Ostour dam on the Sefid Rud, near Miyaneh, and similar progress was expected on the smaller Mollasadra dam, on the river Tang-e Boragh, in the south, by the end of August. European, Canadian, Chinese and local consortia are bidding for the schemes.

Late 1998 saw the start of operations on the first 250-MW phase of a combined-cycle plant in Khoy, West Azerbaijan.

The most substantial recent power contract went to Italy's Ansaldo Energia in July 1999. The $840 million order by the local Iran Power Plant Projects Management Company (Mapna) involves 30 gas turbines with a combined capacity of 4,700 MW. The turbines and associated equipment will be supplied in three phases over six years - to be distributed among seven plants.

The turbine order is believed to be linked with a strategy of preventing shortages and blackouts in the first few years of the next decade when a 3,000-MW gap in supplies may develop.

Work on the 1,000-MW Masjid-e Soleiman dam in the south continues with greater vigour following Japan's decision in mid-1999 to release the second tranche of a three-tranche, Y150,000 million ($1,307 million) untied soft loan. The amount immediately involved will be about $100 million, but bigger amounts will be forthcoming if Tokyo's decision does not attract too much US opposition.

Activity in the power sector in the coming months will depend to a great extent on access to foreign finance. The order for 30 turbines comes under a $1,200 million credit line extended by Italy's Mediobanca, but the Energy Ministry is hoping, perhaps unrealistically, for substantial direct foreign investment in the power sector, especially through build-operate-transfer (BOT) deals. Private sector involvement on a BOT basis is a central feature of the 25-year strategy.

There is continued talk of Russian help in building further nuclear reactors in addition to the 1,000-MW reactor now being completed in Bushehr. Russian officials say there is in-principle agreement for at least two more reactors.

But there are serious doubts about whether even the first reactor will be completed, as scheduled, over the next three-four years. The cost of the first reactor, left incomplete in 1979 by Siemens after an investment of nearly $4,000 million, is likely to exceed the $800 million contract held by Russia's Ministry of Atomic Energy (Minatom). By the time transmission and alternate emergency supply costs are taken into account, the overall cost could be about $2,000 million. Including the pre-revolution expenditure, the 1,000-MW Bushehr reactor could have cost Tehran about $6,000 million. This compares with an estimated hard currency cost of less than $500 million for each 1,000 MW of conventional installed capacity.

It is difficult to envisage the government of President Khatami, which will have to deal with increasingly urgent economic and financial issues within a couple of years, being able to justify such an expensive form of power generation in an oil and gas-producing country.

JORDAN

JORDAN's economy maybe in recession but demand for power is still rising steadily. The National Electric Power Company (Nepco) annual report for 1988 shows a 6.7 per cent rise in total consumption to 5,633 GWh, up from 5,281 GWh in 1997. The largest increases came from a 12.3 per cent rise in commercial use, while domestic use rose by 9.3 per cent and industrial by 5.7 per cent.

Nepco, which provides 93.4 per cent of local electricity production with the major minerals industries providing most of the balance, has been tackling the need for increased generating capacity with construction of the second stage of the Aqaba thermal power station. A consortium led by ABB PGL Baden of Switzerland and ABB SAE Sadelmi of Italy started work on installation of three 130 MW units in mid-1995 (MEED 18:10:96).

The project is now substantially behind schedule, with the starting date for commercial operation of the first two units slipping from late 1997 to late 1998 and the third unit now expected to come on stream during 1999. The new units will boost Jordan's installed generating capacity to 1,658 MW and will meet estimated electricity needs up to the end of 2001.

The next major expansion in capacity is due to come from the private sector. Bids for Jordan's first independent power project (IPP) were received on 19 July with offers coming from just two of the 11 companies originally prequalified. They were US-based ABB Energy Ventures, with Italy's Snam and Amoco Power Resources, and Belgium's Tractebel (MEED 30:7:99; 23:7:99; 9:4:99). The 350-400-MW power station will be located at As-Samra, north of the industrial city of Zerqa.

The government has asked for two bids - for a combined cycle gas turbine and for a heavy fuel alternative, to allow for possible use of gas in the event that a planned project to pipe gas from Egypt go ahead. Evaluation of the technical offers is expected to take about two months. The IPP will not be operational before 2002 and Nepco will now have to find an estimated extra 100 MW of power to cover the gap.

Nepco's other major infrastructure project is the interconnection of the national grid with Egypt and Syria, part of a wider five-nation grid connection that also includes Turkey. The Jordan-Egypt connection was inaugurated in May and the link with Syria is due for completion before the end of 1999. ABB Power Automation of Switzerland now has a contract from Nepco for supply and installation of a fibre optic telecommunications and switching system for the control and monitoring of the interconnection links.

Changes in the institutional structure of the power sector have also advanced. As of 1 January 1999, Nepco's activities have been divided between three separate companies. The Central Electric Power Generating Company (CEPGC) now handles the generation and transfer of electricity to Nepco which is responsible for transmission of power throughout Jordan. The Electric Power Distribution Company (EPDC) is responsible for distributing power outside the concession areas of the privately-owned Jordan Electric Power Company (Jepco) and the Irbid District Electricity Company (Ideco) which supply Amman and surrounding areas, and north Jordan, respectively (MEED 15:1:99). Both CEPGC and EPDC are slated for privatisation while Nepco will remain a purely government-owned company.

Other substantial private power generators could follow the first IPP. The Energy & Minerals Resources Ministry is considering awarding a concession agreement for the exploitation of Jordan's massive shale oil deposits in southern Jordan (MEED 16:7:99). Both the shale oil scheme and the long- negotiated project to bring gas from Egypt would open up possibilities for the establishment of new generating capacity to serve major minerals projects at the Dead Sea and possibly even new industrial estates in the Jordan Valley area (MEED 11:6:99).

KUWAIT

POWER consumption in Kuwait is growing at between 7-9 per cent a year, which is much higher than the 3-4 per cent world average. In early May, Hamoud al-Anazi, the assistant undersecretary for power stations and water distillation projects at the Ministry of Electricity & Water (MEW), warned that if growth rates are not reduced, MEW will soon lose the 20 per cent of reserve capacity that it maintains at its power plants.

The situation has prompted MEW to consider cutting supplies to government offices, ministries and mosques during peak hours in the afternoon. The ministry plans to appoint a consultant to carry out a study to identify government offices and ministries whose operations would not be affected by cuts. Another proposal is to charge nationals between KD 20-40 ($64.5- 129) a kW for the electricity they consume over and above the 50 kW supplied to them free of charge.

Al-Anazi also said that MEW needs to build a new power station by 2003 if it is to maintain reserves for emergencies and plant failures. Total installed capacity is set to rise to 9,298 MW by the end of the year with the completion of the 2,400-MW Subiya plant being built by Japan's Mitsubishi Heavy Industries (MHI). However, the 2,400-MW power plant planned at Al- Zour remains on hold due to budgetary restraints, and the decision-making process at MEW has been slow over the last 12 months.

A number of substation contracts are still awaiting award several months after the submission of bids, and the tendering process for new contracts has also fallen behind schedule. Contracts still to be awarded by MEW include the 132/11-kV substation at Sabahiya for which Hungary's Transelektro is low bidder at KD 4.02 million ($13.9 million). Germany's Siemens is low bidder at KD 4.3 million ($14.1 million) for the supply and installation of a 132/11-kV substation at Mina Abdullah F, and Italy's Ansaldo Trasmissione & Distribuzione is low bidder at KD 7.9 million ($25.5 million) for two 132/11-kV substations to be installed at Salwa C and Qortaba B.

The only contract awarded by MEW in recent months is for a 132/11-kV substation at Yarmouk B. The KD 4.5 million ($14.6 million) contract was signed on 27 July with the Austrian/Dutch Elin Holec High Voltage. MEW has invited bids by 24 August for the supply and installation of another 132/11-kV substation, known as Zahra-B. Twelve companies have prequalified to bid for the contract.

LEBANON

LEBANON'S electricity supplies remain inextricably bound to the fluctuating state of the peace process - a point driven home at the end of June by Israel's bombing raid on substations at Jamhour and Bsalim that supply the capital. Former Israeli prime minister Benjamin Netanyahu chose his target carefully in inflicting new damage on the country's recently restored power infrastructure. Over the past couple of years, Beirut's long-suffering residents have got used to round-the-clock electricity. Israel attacked where it knew it would hurt most.

Electricite du Liban (EdL) claims to have completed most of the repairs to the substations and is set to end the strict electricity rationing that had seen the capital reduced to supplies for around 12 hours a day only. This still leaves many parts of the country still subject to power cuts that are unrelated to the activities of its southern neighbour. Aside from frequent power outages, there are problems with the 220-kV transmission system, poor payment collection rates and illegal connections to the grid.

The country is currently operating at around 80 per cent of its 1,700- MW installed capacity - in itself low for a country with a population of more than 3.5 million. Construction of two combined cycle power stations at Zahrani and Beddawi with a capacity of 900 MW was completed last year by Italy's Ansaldo Energia and Germany's Siemens. Both power stations are only providing 200 MW each at the moment, largely because of the inadequate 220-kV transmission. 'Capacity is not the issue. The problem is in the transmission,' says a senior Beirut contractor in the power sector.

Adding more capacity alone is unlikely to solve the country's power problem unless more work is done to boost the transmission grid. A number of contracts for upgrading the network and installing substations which were awarded in 1998 have not yet been completed. EdL has also yet to award a contract for construction of a national control centre which would allow the entire power network to be operated from a single site. However, a decision is expected before the autumn. Negotiations are meanwhile continuing between EdL and Zurich-based ABB Asea Brown Boveri for the construction of a substation at Bsalim. France's Alstom is the low bidder on two substations at Sidon and Baalbek.

Part of EdL's failure to move quicker on upgrading the transmission system has been caused by the impasse induced by the looming prospect of privatisation of the power sector. The government of Prime Minister Selim Hoss is considering plans to sell a number of state-owned assets as part of its five-year economic plan. Power is likely to head the list of sectors to be privatised. Analysts expect the government to divide the sector into three, with generation and distribution offered to the private sector and transmission kept in public hands as it does not generate revenues for EdL.

The government is understood to be considering an option to hand over billing and revenue collection to a private operator, though it is likely that under a typical build-operate-transfer (BOT) scheme it would require minimum revenue guarantees that the government would find difficult to provide.

Poor revenue collection rates outside the Greater Beirut-Mount Lebanon area are contributing to EdL's mounting debts, which are estimated at $200 million a year. In effect, Beirut customers subsidise the rest of the country's electricity use.

Aside from privatisation, the government must also decide on the fuel for its power generation needs. An option to supply between 1 million-2 million tonnes a year of liquefied natural gas (LNG) from Qatar has been rejected in a feasibility study commissioned by EdL. The favoured option is to import supplies of Syrian gas, though these are likely to prove insufficient to fulfil the country's growing demand for power.

As an interim measure, EdL is likely to propose that the Syrian gas supplies only the Beddawi plant near Tripoli. An initial contract was signed in 1998 to buy 3.5 million cubic metres of day of Syrian gas. This would be piped along a 225-kilometres line between Homs in Syria and Beddawi. A further option would be to transport the gas from Beddawi to the Zahrani power station south of Beirut, either through an offshore link or an onshore pipeline skirting around the capital. If the revival in the peace process bears fruit, a third option to import Egyptian gas via Israel could also be considered.