Power and water sector enjoys strong growth in 2012

04 February 2013

Saudi Arabia is set to remain the region’s largest power and water market next year

The Middle East and North Africa’s (Mena) power and water sector enjoyed a strong 2012, with $37.8bn of contract awards issued up to 5 December, an increase of 8 per cent on the $34.8bn awarded in 2011.

The sector is set to remain lucrative in 2013, with $306bn-worth of power and water projects in various planning and bidding stages. With more pressure on governments to deliver adequate power and water capacity for their people following the Arab Uprisings, and Iraq looking to rebuild much of its infrastructure, the region’s utilities sector should offer plenty of opportunities for contractors and consultants in 2013.

Market leader

Saudi Arabia is set to remain the region’s largest power and water market in terms of new projects in 2013. In 2012, $12.4bn-worth of construction contracts for power and water projects were awarded, 57 per cent more than the $5.3bn awarded in Iraq, the second biggest market.

The growth of Saudi Arabia’s power and water market is being driven by population and industrial growth. The kingdom’s population has grown by 2-3 per cent a year for the past decade, and with this rate of growth expected to continue over the next five years, it is estimated that an additional 1.6 million homes will be required by 2015 to meet the demand. The new homes will lead to a sharp rise in demand for additional electricity and water capacity.

By 2020, Saudi power demand is forecast to rise to about 88,550MW from 57,440MW today. It is estimated that about SR303bn ($80bn) of investment will be required in electricity generation, transmission and distribution to meet the expected demand.

The actual new-build requirement is likely to be much higher as an increasing amount of existing capacity will have to be replaced due to aging infrastructure. In the past, Riyadh has talked about the need to decommission 5,000MW by 2015.

In 2012, a number of major engineering, procurement and construction (EPC) contracts were awarded in the kingdom’s power sector. The two largest contract awards were for the Saudi Electricity Company’s Jeddah South plant and Saudi Arabia’s Saline Water Conversion Corporation’s (SWCC) Yanbu 3 power plant, both of which were won by South Korean firms.

In October, Hyundai Heavy Industries (HHI) was awarded the $3.2bn contract to build the Jeddah South thermal power plant. The facility will comprise four conventional thermal generating units, each with minimum capacity of 600MW. The Jeddah South plant is scheduled for completion in 2017. When operational, it will be able to produce enough electricity for 2 million residents, the equivalent of 5 per cent of the kingdom’s entire power generation capacity.

Top 5 contract awards in Mena power and water in 2012
Project Client Value ($m)
Jeddah South power plantSaudi ArabiaSaudi Electricity Company (SEC)Power3,120
Yanbu power plant: phase threeSaudi ArabiaSaline Water Conversion Corporation (SWCC)Power1,500
Safi IPPMoroccoOffice National de l’Electricite (ONE)Power2,100
Riyadh PP12 combined-cycle power plantSaudi ArabiaSECPower1,260
Yanbu 3 desalination unitSaudi ArabiaSWCCWater1,000
IPP=Independent power project. Source: MEED projects

The kingdom’s investment in new power plants is set to continue in 2013, with several facilities in various stages of planning and bidding. In October, SEC received bids for the Rabigh 2 independent power project (IPP), planned to have a 1,700MW capacity. Construction of the plant and associated facilities is scheduled to begin no later than 31 March 2013, with a projected commercial operation date of 1 April 2017.

The growth of Saudi Arabia’s market is being driven by population and industrial growth

The IPP model is planned to be used for several additional projects in the kingdom’s industrial power sector. Saudi Aramco has invited contractors to bid for the contract to build three new power and steam plants. The plants will be built at Abqaia, Hawiyah and Ras Tanura using the IPP model. 

The kingdom’s water and desalination sectors will also offer lucrative opportunities in 2013. As with power, the kingdom is facing a number of challenges in the desalination sector, with demand for desalinated water growing by about 3-4 per cent a year.

The largest desalination contract awarded in 2012 was the estimated $1bn deal granted by SWCC to South Korea’s Doosan for the desalination component of the Yanbu 3 project. The project will have a capacity of 550,000 cubic metres.

Saudi Arabia’s National Water Company (NWC) was created in 2008, and is set to become a key player in the kingdom’s water and sewage sector in the coming years. NWC is planning to spend $2.4bn a year on water projects until 2028. The spending will include an average of $600m a year on treated sewage effluent (TSE) projects.

With $66bn-worth of power and water projects either at the planning or bidding stage, Saudi Arabia will remain the region’s most important power and water market in 2013.

Iraq reconstruction

Iraq emerged as the region’s second largest power and water market in 2012, as the government pushed ahead with plans to build new facilities and rehabilitate aging power sources. Sanctions during Saddam Hussein’s regime and damage caused during the US invasion and occupation left Iraq’s utility sector urgently requiring extensive investment. An allocation from the Iraq Reconstruction Relief Fund (IRRF) alleviated the problem in the short term, but between 2006 and 2010, power demand grew six times faster than capacity.

One of the biggest disappointments in 2012 was the delay of Kuwait’s first independent water and power project

Some of the biggest awards include the $500m Al-Shamal power plant in Mosul and the 500MW Amara power plant, also estimated to be worth about $500m. In addition to building new power plants, Iraq’s government is investing large sums in upgrading existing power plants, many of which rely on outdated and inefficient technology. In April, France’s Alstom was awarded a contract to rehabilitate two units at the Khor al-Zubair gas-fired power station in Basra. The French firm is also currently building the 728MW Al-Mansuriya gas-fired plant in the Diyala governorate, located northeast of Baghdad.

A key challenge that remains for Iraq’s power sector is securing access to natural gas for power plants. As with all areas of Iraq’s rehabilitation programme, slow and bureaucratic decision-making will also need to be improved if Iraq is to meet development targets. If it is able to do this, Iraq will remain a key market for contractors and power providers into 2013 and beyond.

Kuwait market

Despite a slow 2012, Kuwait’s power sector is also set to offer some major contract opportunities in 2013, with $23.4bn-worth of power and water projects at various stages of design or bidding. The country’s utilities sector recorded a 37 per cent fall in contract awards in 2012 due to a number of delays to tenders for some major power projects.

One of the biggest disappointments in 2012 was the delay of Kuwait’s first independent water and power project (IWPP), Al-Zour North. Kuwait’s Partnerships Technical Bureau (PTB), the body formed in 2008 to implement Kuwait’s PPP programme, opened financial bids for the project in February, but the scheme stalled in June when the parliament voted against awarding the contract.

As the PTB’s first scheme, the Al-Zour North IWPP is seen as a key project for the future success of Kuwait’s PPP market and will also represent a major step forwards in the country’s efforts to bolster its electricity capacity. Despite the setbacks, the PTB has said it is working towards financial close for the scheme and a contract award is expected in 2013. The PTB is also planning major projects in Kuwait’s water and wastewater sectors.

The largest of these is the $1.6bn Umm al-Hayman PPP wastewater plant, which will have an initial capacity of 500,000 cubic metres a day (cm/d). The PTB, together with the Public Works Ministry, has prequalified six consortiums to bid for the wastewater project, and is expected to issue tender documents by the end of Q1, 2013. The initial phase of the plant is scheduled to be operational by 2015.

If the PTB is able to bring Al-Zour North to a financial close in the first half of 2013, and Kuwait’s new assembly allows government-funded schemes to pass unhindered, the country’s power and water sector will be one to watch in 2013.

Oman is another Gulf state that is investing heavily in upgrading its power and water sectors. By early 2012, there was 3,800MW of new capacity under construction. One of the largest projects completed in 2012 is the Salalah IWPP, which is currently undergoing commissioning. The $1bn Salalah IWPP will add $445MW to the grid. In July, the UK’s PricewaterhouseCoopers was appointed as adviser for the Salalah 2 IPP, which will add an estimated 250MW of capacity to the Salalah scheme.

Oman’s desalination infrastructure is also currently undergoing large-scale development. The Oman Power & Water Procurement Company (OPWP) appointed a consortium for the 191,000-cm/d Ghubrah IWP in November. It is planning to tender the Barka 1 extension and Suwayq IWPs in 2013. OPWP is also planning to invite advisers to bid for the Quriyat IWP in 2013, which will have a capacity of 40 million gallons a day.

In the wastewater sector, Oman Wastewater Services Company (Haya) is planning to invest a further RO1bn ($2.3bn) developing new water projects in the sultanate until 2018. The firm currently has 12 projects with a total value of RO700m in Oman, and this figure is set to rise to RO1.7bn by 2018.

Bahrain investment

Despite seeing no major contract awards in 2012, Bahrain is a Gulf state that will need to divert significant investment into its utilities sector in the coming years as it seeks to quell unrest by improving living conditions for its residents.

As the smallest country in the GCC in terms of geography and population size, Bahrain’s wastewater needs are much smaller than its neighbours. However, years of insufficient planning and construction have resulted in a strained wastewater system.

Muharraq progress

After a number of delays, financial close on the Muharraq PPP wastewater project was achieved in September 2011 and construction work is under way. Another major project that is planned is the expansion to the existing Tubli wastewater plant, which will increase the capacity of the treatment plant from 200,000 cm/d currently to 400,000 cm/d. The Works Ministry is hoping to tender the project as a design, build, operate contract by the end of 2013.

If political stability is achieved, Egypt’s utility sector will offer opportunities over the next five years. Cairo is planning to spend $8.45bn building power plants over the next five years as it seeks to provide electricity for its rapidly expanding population. The projects will include 3,000MW of combined-cycle capacity at Giza North, plants 1, 2 and 3 and Benha, and 3,900MW of steam turbine units at Suez, South Helwan and Safaga.

In addition to power schemes, Cairo is expected to invest heavily in upgrading its water and sewage treatment capacity. In August, the Cairo and Alexandria Potable and Wastewater Agency received bids for the contract to build the 500,000-cubic-metre second phase of the Gabal el-Asfar wastewater treatment plant in Cairo.

Egypt’s PPP Central Unit is planning to build the Abu Rawash wastewater plant, which will be under a 20-year PPP agreement for the design, financing and construction of a secondary treatment stage, sludge management facilities and cogeneration unit. Seven companies were prequalified for the tender in March 2011, but the project is currently on hold due to political instability and changes to the design of the scheme.

2012 potential

Rapid population growth and a drive to upgrade infrastructure will ensure the Middle East and North Africa’s power and water sector will continue to offer opportunities for contractors and consultants in 2013. Saudi Arabia is set to remain the region’s key power market. Progress of schemes in other key markets will depend on the ability of the governments to achieve political consensus to ensure contracts are awarded.

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