The collapse in the regional project finance market had a profound impact on the GCC private power and desalination sector in 2009. Offtake agreements were signed for just two conventional projects, the lowest level of activity in the developer market since 2004. With independent water and power projects (IWPPs) being delayed and even cancelled across the region, there was scant opportunity for developers to build up their regional portfolios.

A challenging year for power and desalination developers in the GCC

Even for the largest international power and desalination developer in the GCC, 2009 proved a challenging year. GDF Suez of France experienced a year-on-year fall in its total equity capacity of about 10 per cent to 3,876MW and 160 million gallons a day (g/d), according to MEED Insight’s latest annual survey of the GCC developer market. The decline reflected the sale of its equity stake in Oman’s United Power Company (UPC), a reduction in its shareholding in Bahrain’s Addur IWPP and the divestment of a 20 per cent interest in Abu Dhabi’s Shuweihat 2 to Japan’s Marubeni Corporation.

While US companies have been leaving the region, Asian developers have been stepping up their presence

The sales did not represent a loss of regional appetite by the Paris-based developer. This was underlined in March 2010, when a GDF Suez-led consortium was named preferred bidder for the PP11 independent power project (IPP) in Riyadh. Rather, they were driven by necessity. In the case of UPC and Addur, capacity restrictions set by regulators were behind the sell-offs. As for Shuweihat 2, the need to access low-cost, available finance from the Japan Bank for International Cooperation (JBIC) resulted in the share sale to Marubeni.

Despite not winning a new project in 2009, the UK’s International Power (IP) maintained its second-place position on power and third on desalination. It also provided a clear indication of the growing importance of the Gulf market to international developers. Its preliminary annual results, released in March 2010, showed operating profit in the Middle East climbed by almost a quarter to £85m ($132m) in 2009.

In contrast to GDF Suez and IP, Marubeni and Saudi Arabia’s Acwa Power boosted their portfolios in 2009 and consolidated their positions among the top-five developers in the region. Thanks to the acquisition of a 20 per cent stake in Shuweihat 2, Marubeni’s power assets rose by 15 per cent to 2,244MW and its desalination interests by a quarter to 100 million g/d.

Much greater growth was recorded at Acwa Power, where equity power capacity was up by more than 50 per cent and desalination by almost 10 per cent. In 2009, Acwa Power added two new assets. It maintained its winning streak in Saudi Arabia, as part of the successful consortium on the Rabigh IPP. It also ventured overseas for the first time acquiring the stake held by AES Oasis in Oman’s Barka 1 project company.

Institutional investors may have lost out to Acwa Power in the Barka 1 auction, but they had success elsewhere. The Mena Infrastructure Fund, backed by HSBC, acquired GDF Suez’s 32.8 per cent stake in Oman’s UPC. In Bahrain, a three-strong local consortium bought a 30 per cent stake in the Addur project after GDF Suez abandoned plans to bring in a Japanese partner.

The divestment by AES Corporation in Oman provided yet more evidence of the demise of the US developer in the region. A decade ago, AES, CMS Energy, and PSEG were among the most active and successful bidders. But over the past four years, they have beaten a retreat.

First was PSEG, which sold its stake in Oman’s Dhofar Power Company to Dubai-based GCC Energy Fund and Malaysia’s Malakoff in 2006. Next in 2007, CMS’ regional assets were purchased by Abu Dhabi National Energy Company (Taqa). Then AES confirmed its departure from the region in April 2010, when it sold its remaining stake in Ras Laffan Power Company to Qatar Electricity & Water Company (QEWC). The sale left Massachusetts-headquartered but majority GCC-owned BTU Ventures as the last US developer in the GCC, through its 10 per cent stake in Abu Dhabi’s Taweelah B plant.

Asian companies ones to watch in the GCC power and water sector

While US companies have been leaving the region, Asian developers have been stepping up their presence. In 2009, Korea Electric Power Company (Kepco) became the latest to secure a GCC asset, partnering Acwa Power on the Rabigh IPP, while Singapore’s Sembcorp won its second IWPP at Salalah in Oman. From a contracting point of view, both projects broke the mould being the first in the region to have Chinese contractors on board.

The next two years promise more opportunities for international developers in the GCC, especially if the project finance market continues to recover. In 2010, about 4,700MW of new capacity will be contracted from the private power market. As for 2011, up to 10,000MW could be awarded, though this will depend on Kuwait and Dubai implementing their inaugural IWPPs.