Kuwait commits to private power

16 March 2011

The extent of Kuwait’s power generation plans has led the government to seek the involvement of the private sector and embark on an ambitious programme of independent projects

Key fact

Al-Zour North will have a capacity of 1,500MW of power and 100 million gallons a day of desalinated water

Source: MEED

Kuwait is the last GCC market to embrace private investment in its power sector. The state originally issued individual contracts for each package of work on its power projects, before adopting the engineering, procurement and construction (EPC) model.

The government then set about creating an environment that would attract private capital. The Partnerships Technical Bureau (PTB) was founded in 2008 and a series of projects were declared public-private-partnership (PPP) schemes.

Ultimately, it is the size of Kuwait’s upcoming power generation plans that necessitates the participation of the private sector. Demand projections suggest that installed capacity will need to grow from 11GW to 28GW by 2030. Electricity usage is currently growing at a rate of 7 per cent a year.

The country’s first independent water and power project (IWPP), Al-Zour North, is leading the first phase of PPPs. The plant is set to host 4,800MW of capacity in total through the development of multiple phases. PTB expects to develop its second IWPP at a site in Julaya.

As a regulated utility, the choice of an IWPP to launch the private sector drive was a natural one. The government has since reinforced its commitment to private power by enacting Law 39, which stipulates that all future power projects over 500MW must be developed as independent projects.

High hopes for indepent power projects in Kuwait

Kuwait’s PPP programme is ambitious and much rides on the Al-Zour North project. “It is the first IWPP in Kuwait,” says Adel al-Roumi, director general of the PTB. “We are keen to make it a success.”

The PTB prequalified 11 groups to bid to build the plant. The winning bidder will construct the gas-fired project on a design, finance, build, operate and maintain basis. It will have a capacity of 1,500MW of power and 100 million gallons a day (g/d) of desalinated water.

Power and installed capacity
YearInstalled capacity (MW)Peak load (MW)
e=Estimate; F=Forecast. Sources: Electricity & Water Ministry, MEED

The developer will take a strategic stake in the facility and the project will be listed on the stock exchange. While the original plans placed the risk of the initial public offering with the developer, this was recently changed so that the government is responsible for this aspect.

Despite independent water and power projects being developed successfully elsewhere in the region, not everyone in Kuwait is pleased that the country has followed suit. “The government has enough money. Why go to the PPP market? Developers want to make a profit. It might make sense for governments without money. But it doesn’t make sense for Kuwait,” says a contractor based in the country. “The PTB still doesn’t have a clear idea of how PPP works,” he adds.

Not all local contractors are against the changes. “We feel it is a move in the right direction,” says a source at Kuwait-based contractor Alghanim. “It has been put in place in countries such as Qatar and Saudi Arabia where it has worked well. The processes have become more efficient. We feel it is going to increase the quality and pace of project delivery.”

Subcontracts sought

Local contractors are keen to pick up work from the developers of private power projects through subcontracts. Such benefits are important in Kuwait, often criticised for the slow speed at which government ministries work.

The strategy offers other benefits, too. “The issue is not just about finance – it’s also the structure,” says the Alghanim source. “A special purpose company has to be started. It will need to have a majority of Kuwaiti staff, [providing] an opportunity for local employment. This is also [a chance to entice] international developers and financiers into the country and bring their experience of new technologies and efficiency [to the state].”

The private power tenders are likely to draw more interest from bidders than those for EPC projects. When the Subiya power project was tendered, six companies were prequalified, but only three submitted bids. The Al-Zour North IWPP tender has drawn many more. “We were surprised how much attention [from developers] this project has received,” says Al-Roumi.

While it is true that Kuwait has enough cash to finance its upcoming projects as EPC deals, doing so would mean the country would miss out on the benefits of private sector participation. Nevertheless, the argument is set to continue as the Kuwaiti power sector landscape evolves and a handful of existing local companies remain cautious of the results.

A MEED Subscription...

Subscribe or upgrade your current MEED.com 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