Power in private hands

07 August 2004
Bahrain's decade-long quest finally came to an end on the morning of 31 July. In the auditorium of the Ministry of Finance & National Economy (MoFNE) building, a consortium led by Belgium's Tractebel signed the key project agreements for the Al-Ezzal independent power project (IPP), paving the way for the kingdom to become the fifth GCC state to join the ranks of private power producers, in April 2006. By the time the 1,000-MW plant is fully commissioned a year later, more than a third of Bahrain's electricity consumption will be privately generated.

The signing ceremony capped a frenetic month for international power developers in the Gulf. On 11 July, developer proposals were submitted in Abu Dhabi for the Taweelah B project, the largest independent water and power project (IWPP) so far. On the same day, bids went in for Qatar's second IWPP. Nine days later, another Tractebel-led consortium signed up for the 585-MW, 33 million-gallon-a-day (g/d) Sohar IWPP in Oman. And on 29 July, the long-awaited request for proposals (RFP) was sent out in Saudi Arabia for the Shouaiba IWPP.

The flurry of activity highlights that private power projects are now the norm, rather than the exception, in the Gulf. Indeed, with only Kuwait and Dubai shunning the build-operate model, 2004 looks set to be the first year that new generating capacity contracted from private developers outstrips conventionally financed capacity.

The Bahrain experience demonstrates just how far acceptance and understanding of the IPP concept has come. In the second half of the 1990s, at least two attempts were made to introduce private sector participation into generation through the privatisation of the Hidd power complex. Both foundered on a lack of political consensus and transparency.

Then last year, MoFNE was handed a strong mandate to implement the Al-Ezzal IPP as a first step in a wider restructuring of the electricity and water sector. In what is now the accepted procedure, pioneered by Abu Dhabi and Oman, an international team of consultants was hired, an open and transparent bidding process adopted and a project schedule rigorously adhered to. The results were dramatic. Not only did Al-Ezzal attract strong developer interest, but the price submitted by Tractebel and its partner, Kuwait-based Gulf Investment Corporation (GIC), was judged to be one of the most competitive ever offered on a Gulf IPP.

The timing of the recent surge in regional opportunities has coincided with a recovery in the international developer market, which was badly mauled by the Enron scandal, the bursting of the Californian gas bubble and the currency crisis in South America. In 2002, the only IWPP tendered in the Gulf - Abu Dhabi's Umm al-Nar - attracted just two bids, raising fears that the upcoming wave of new projects could be derailed by a dearth of developers.

Developer turnout this year has gone some way to assuage those concerns. Al-Ezzal attracted five bids, the Sohar IWPP four and the massive Taweelah B project three. Only two groups are participating in the Qatar IWPP, although that is simply because just a couple were prequalified.

Bidders have been a mixture of the old and new. Existing Gulf asset holders - Tractebel, the UK's International Power and Dubai-based AES Oasis - have each priced three out of the four projects tendered so far this year, as they look to build up their Gulf portfolios. After their successes on the Umm al-Nar IWPP and Saudi Aramco's Tihama IPP programme, Japanese developers have been more active participants: on the brownfield Taweelah B IWPP, a consortium headed by Marubeni Corporation has submitted the highest bid for the existing plant.

Several new faces have also appeared on bidding lists. Korea Electric Power Company (Kepco) came in second on Al-Ezzal, Singapore's Sembcorp was among the Sohar bidders and US-based BTU Power Compan

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