Independent power project bidders blinded by potential

07 May 2012

The risk associated with calling Dewa’s bluff and ignoring the Hassyan IPP had to be seen as greater than taking part in the bidding

A striking aspect of the Hassyan debacle is that Dubai Electricity & Water Authority (Dewa) went to the market and attracted several competitively priced bids before cancelling its plans. This happened in spite of the project being the first of its kind in the emirate and the first to test new regulatory frameworks.

The two lowest bidders are rumoured to have secured very competitive pricing for their engineering, procurement and construction agreements from South Korean and Turkish firms. Looking at the overall prices offered for power from the project, this is likely to be the case.

The key, it seemed, was to convince bidders that the Hassyan IPP was the first of many

While doubts that the Hassyan independent power project (IPP) would come to fruition were evident from the start, sceptics were hushed as developers and contractors piled in to secure a role. The risk associated with calling Dewa’s bluff and ignoring the Hassyan IPP had to be seen as greater than participating and wasting time and money. The key, it seemed, was to convince bidders that the Hassyan IPP was the first of many. No international developer could afford to close the door on a brand new market.

According to one developer: “[Dewa was] clever. They said that not only would this be the first project at Hassyan, but five or six projects would follow. People were blinded by the possibilities, thinking that if they got the first project, they would also get the ones that followed.” This may have been the case, particularly after Saudi Electricity Company decided to double the size of its IPP at Qurayyah when a competitive bid was submitted for the original scheme.

While there are concerns that Dewa’s future attempts to build an IPP will be adversely affected by the experience of bidders on the Hassyan project, bids will nevertheless be made. This is important. Companies will continue to believe in Dewa’s plans and if not, make convincing noises that suggest that they do. Maybe the most important thing is that the market wants to believe in Dewa’s plans.

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