It is the third time in a year that the firm has taken an equity stake in a project in the Gulf region, having previously preferred to operate as a contractor. Although present throughout the Middle East, traditionally Japanese trading houses such as Marubeni, Mitsubishi Corporation, Mitsui & Company and Sumitomo Corporation have proved risk averse when it comes to investing in projects. The firm’s recent activity might be the start of a growing trend.
Marubeni’s investments in the Gulf power sector form part of a much wider long-term strategy. ‘We are increasingly seeking to invest in Saudi Arabia, Qatar, the UAE and Bahrain,’ says Hirohisa Miyata, president for Europe, the Middle East and Africa at Marubeni. ‘Our aim is to enhance bilateral ties and act as a bridge between Tokyo and these countries.’
Although Marubeni was started in December 1949, the firm traces its origins to 1858 when Chubei Itoh, its founder, set up a linen trading business in an area now known as Toyosato-machi in the Shiga Prefecture of Honshu, the mainland of Japan. Like other ‘sogo shosha’ (general trading companies), Marubeni’s business grew to cover a variety of sectors. The firm has interests in sectors including food and agriculture, pulp, paper and chemical industries, healthcare and financial services.
But its main focus is on energy. By investing in power and water projects, and building close relationships in Gulf countries, the firm hopes it will be able to get more involved in the oil and gas sector, which remains the preserve of US and European companies.
Tokyo has a long-standing relationship with the Gulf, and energy is at the forefront of that relationship. With almost no indigenous oil resources, Japan’s economy relies on a guaranteed supply of crude oil from the Gulf. Currently, 62 per cent of all crude oil exports from the UAE are shipped to Japan.
The continued rise in demand for independent power projects (IPPs) across the Gulf has focused the attention of Marubeni’s power projects division. In terms of its global equity power capacity, the Middle East and Africa account for 2,149 MW, or 36 per cent of its IPP generation portfolio.
Its first acquisition in the UAE and the Gulf region was the $3,000 million Taweelah B independent water and power project (IWPP) in January 2005. ‘In the past in the Middle East, we were cautious over the political risk involved, but we invested in Taweelah in the UAE to get to know the country,’ says Miyata. ‘We learned a lot more about the mentality and the region, and our success on Taweelah proved an important milestone that gave us an insight into the power and water sector.’
Over the past two years, the firm has made a concerted effort to build on its Gulf portfolio. In October 2006, Marubeni was awarded the $2,000 million IPP scheme at Mesaieed in Qatar by Qatar Electricity & Water Company. This was followed by an alliance with the UK’s International Power (IP) and the award in August of the $3,500 million Fujairah 2 IWPP by Abu Dhabi Water & Electricity Company.
Then in October, Taqa announced it had sold Marubeni a 40 per cent stake in Emirates CMS Power Company, the project firm that operates the Taweelah A2 plant. The sale was significant for the privatisation process in Abu Dhabi because ever since Taqa bought the US’ CMS Generation, which ran both plants, for $900 million in February 2007, speculation has been mounting that the state-run firm will have to sell some of its 94 per cent stake in the A2 plant because it runs contrary to regulatory rules (see feature, page 40).
But so far, the firm’s strategy on IWPP projects has been hard to discern. At Mesaieed, Marubeni went it alone, but on the Fujairah 2 scheme it entered into a partnership with IP.
‘We look at things on a project-by-project basis,’ says Miyata. ‘On Mesaieed we made a decision to take control on the project, but we are flexible.’
Marubeni is also among several prequalified developers looking at the Salalah IWPP in Oman, the Ras Laffan C plant in Qatar and the Ras al-Zour IWPP in Saudi Arabia.
Yet despite its recent series of investments in Qatar and the UAE, the company adopts a slow and steady approach. It has often taken on projects as an engineering, procurement and construction (EPC) contractor to build up experience in a target market.
‘We sometimes act as an EPC contractor, but like so many contractors this is often a one-shot deal and not long-lasting,’ says Miyata. ‘In the power sector, we would increasingly like to act as a medium and long-term partner with Gulf countries.’
In August 2005, Saudi Aramco awarded Marubeni a 25-year build-own-operate-transfer contract to develop the captive independent water, steam and power project to serve the estimated $8,000 million integrated refinery and petrochemicals complex at Rabigh. This is the kind of project Marubeni is increasingly seeking in the Gulf.
Like most developers, the lack of EPC contractors and the difficulty in booking up turbine equipment suppliers is one of the main challenges the firm faces in making headway in the market.
‘[The US’] GE and [France’s] Alstom are all busy,’ says Miyata. ‘In the US and the Middle East it is a sellers’ market. Securing EPC contractors is an on-going problem because with all the activity in the construction market, it has been hard for these contractors to focus on the power sector.’
The past year has been a busy period for the company, and with the Gulf power market showing little sign of slowing, there are plenty of opportunities for Marubeni to boost its portfolio. It is joined in its search by a growing number of Japanese firms looking for a longer-term role in the power sectors of the Gulf states.
Marubeni: key facts
Head office: Tokyo, Japan
Incorporated: 1 December 1949
Annual revenue*: $31,007 million
Net income*: $1,011 million
Total assets*: $41,299 million
Employees: 3,677 plus 1,646 employees
Overseas offices: 117 offices in 71 countries
* as at 31 March 2007
TABLE: IPC generation portfolio – regional net capacity
|Middle East/ Africa||2149||36|
Source: Marubeni Corporation