Lower oil prices will not mean more private power schemes

09 June 2015

Focus is on cutting costs

  • Lower oil prices will not mean governments turning to independent water and power projects
  • Model used for IPPs needs to be studied and improved
  • More stringent power purchase agreements are needed

Lower oil prices and their effect on government budgets will not result in more independent power and water projects (IWPPs), agreed panellists speaking at MEED’s Mena Power conference.

“The IPP [independent power project] market doesn’t have much relationship with the price of oil,” says Fareed al-Yagout, president of Saudi Arabia’s National Power Company. “The appetite from banks is still open, but governments have taken different decisions from previous years. They are looking back at how IPPs in the past have performed. The low prices offered are not a good sign for continuity and continuing performance.”

The model for IPPs around the region also needs to be studied and improved.

“If Kuwait uses Abu Dhabi’s model like Saudi Arabia has, it’s not a good sign,” says Al-Yagout. “We need stringent conditions for prequalification and power purchase agreements, and to look at how quality is guaranteed. This should not be dumping responsibility from the government to developers, but an ongoing commitment.”

“There is more focus on improving the bottom line and cost-cutting,” says Tauseef Farooqi, commercial director at the UAE’s Taweelah Asia Power Company. “[Oil prices] won’t have a real effect on IWPPs and how much the government will spend. We have been asked to reduce costs by 10-15 per cent and the focus has shifted to improving efficiency.”

Subsidies and demand-side management will rise up the agenda as governments look to reduce spending without affecting consumers. Governments can also save money by expanding existing IWPPs.

“Now we are looking at expanding existing IWPPs as the land and infrastructure are already there, and extending contracts,” says Farooqi. “You can bring efficiencies and have a hodgepodge by including reverse osmosis capacity. We can install additional capacity for a 40 per cent discount compared with a greenfield site.”

Any changes in the organisation of the sector are more likely to originate from the policy side.

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