Muscat looks to repeat success in power sector

30 September 2010

Oman is now looking extend its successful model of private power production to its transmission and distribution network. The move will be a first for the GCC

Oman was the first country in the region to adopt private power, with the launch in 1994 of the Al-Manah independent power project (IPP). Since then, it has appointed developers for eight more private projects.

In total, power purchase agreements have been signed with private developers for 5,480MW of power generating capacity, and Muscat remains firmly wedded and committed to the private power model.

Better connection

This approach to procuring power capacity has served the sultanate well in the main interconnected system (MIS), which covers the northern half of Oman, including Muscat, and the Salalah system, which takes in a smaller area around the southern port city. Supplies in these areas have been able to remain above the peak demand curve, although reserve margins have recently slipped to below 10 per cent as the economy and population have grown.

The Oman power sector enjoys a relatively robust regulatory and independent system

As a result, in the main areas of population the sultanate has experienced a relatively small number of power disruptions. Those that have arisen have primarily been caused by technical faults either at power plants or in the transmission system. Most have been isolated and fixed within a few hours. The most serious came in August 2007, when an incident on the 132kV overhead transmission line between Wadi Jizzi and Shinas led to a 10-hour blackout.

Oman power factfile, 2009
Installed generating capacity (MW)4,040
Peak power demand (MW)3,721
Growth in peak power demand (%)13
Reserve power margin (%)8
Largest generatorSMN Barka 
Number of power customers600,000
Number of IPPs/IWPPs concluded9
Additional capacity requirement by 2019 (MW)5,200
Estimated cost of required capacity ($bn)6.2
IPP=Independent power project; IWPP=Independent water and power project. Source: MEED Insight

But, the biggest disruption to power and water supplies occurred in May 2007 when Cyclone Gonu hit the sultanate. Strong winds and flooding knocked out power and water supplies in the Muscat area and it took almost five days for utility services to be fully restored, although it would be difficult to find another utility that would have fared better.

The Oman power sector enjoys a relatively robust regulatory and independent system that harnesses both government and private sector participation. The Oman Power & Water Procurement Company (OPWP) has had a good reputation in terms of long-term planning and commissioning of new capacity, although there were delays in the award of the Salalah IPP.

Power demand growth has remained robust despite the global economic downturn. In 2009, OPWP estimates that peak demand rose by 13 per cent. This has led to a rush to build new capacity. In addition to the under-construction 445MW Salalah IPP, OPWP is preparing to fast-track its biggest IPP to date, a 1,500MW plant at Sur. The request for proposals was issued to developers in September, with the concession due to be awarded in early 2011. OPWP aims to have the plant fully commissioned in mid-2014.

The rush to award Sur underlines that Oman’s power demand/supply balance is becoming increasingly tight, especially in the MIS region. OPWP issued in August 2010 a tender for 617MW of emergency power to be installed in the MIS grid to cope with peak demand in 2011. This followed on from a similar contract awarded in late 2009 to the UK’s Aggreko for 115MW to be supplied for a minimum period of three months to cover the summer of 2010. The provision of temporary generating capacity gave the sultanate an extra reserve cushion during the peak summer months.

The procurement of temporary power has long been a feature in rural areas where the Rural Areas Electricity Company has the challenging task of providing power for thousands of small villages spread over wide and frequently remote geographical areas. Unsurprisingly, there are often issues with the thousands of kilometres of transmission lines that are required. Power outages are sometimes an inevitable consequence.

Small sections of the sultanate’s power grid already have private sector involvement. United Power Company, the developers of Al-Manah, owns 170km of 132kV transmission line which delivers power to the Nizwa and Muscat regions. In the south, Dhofar Power Company is the owner and operator of the Salalah power system.

Privatising transmission

However, a decade after it was first considered, Muscat is now looking to privatise its transmission and distribution (T&D) networks, which would mark a first for the GCC. Under the proposed programme, the monopoly provider of transmission services, Oman Electricity Transmission Company (OETC), is to be privatised, along with several distribution companies belonging to the Electricity Holding Company. The programme, for which KPMG is the adviser, was put on hold in 2009 as a result of the global financial downturn, although it is expected to be reactivated in 2011.

It is anticipated that any potential investor will be incentivised to ensure that service levels are enhanced. There are likely to be penalties for disruptions to the service and any other failings. Overall, the expectations are that the extension of the private model to the T&D network would confer the same kind of positive benefits on Oman as the privatisation of power production has done.

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