Now president of DB Projekt Bauof Germany, Bay was for three years until earlier this year chief executive of Lahmeyer Internationaland for 20 years before that an executive with Fichtner. In this period, he worked extensively in the Middle East.
Bay said that 19 Middle East countries needed to install 105,000 MW of additional capacity in the next 10 years and this would require $100,000 million-worth of investment. ‘The question is how do we manage this huge financial task?’ Bay asked.
Bay said that in practice power privatisation had produced the perverse result that the output of new independent power projects (IPPs) was being subsidised by older state-owned power stations in some developing countries. He also railed against those arguing against the use of subsidy in the power sector. ‘The people who are against subsidy have to answer the question how can energy be made affordable to poor people?’ he said. ‘Subsidy is part of the system of almost every country. I don’t know one energy market where there is not a system of subsidy.’ In a question-and-answer session, he accused the World Bank of behaving ‘ideologically’ and forcing privatisation on poor countries too weak to resist the bank’s approach as richer countries like Saudi Arabia had been able to do.
Bay said that the electricity had to be profitable, but there was more than one route to this objective. ‘ If you ask DEWA [Dubai Electricity & Water Authority] why don’t you go for private finance, they will answer that export credit funds are two-four points more expensive than their own finance through government bonds,’ he said. The DEWA approach contrasts with that adopted by the Abu Dhabi Water & Electricity Authority (ADWEA) which has led the way in encouraging private investment in power.
‘There is a spectrum of reasons why some have made progress, why some have not made progress and why countries like Saudi Arabia have adopted a wait-and-see approach,’ Bay said. ‘The one who has gone first with privatisation is not necessarily the one who has done best.’ Bay cited the case of Pakistan which he said was forced to privatise power by the World Bank with disastrous consequences.
Bay said there is a need for transparency in the power privatisation process. He also noted there was a return to turnkey approaches to construction and carrying out projects on an engineering, procurement and construction (EPC) basis. Bay argued that power planning is a government business and this meant the transmission system had to be dealt with in a special way. Government guarantees were also important in making IPPs successful.
‘There is no single recipe for success in developing the power sector,’ Bay concluded. ‘Every country has different options. For this reason, you are seeing different speeds and different structures across the region. And we can see we are returning to the roots of our business. The contractor builds plants, the operator operates facilities. The government does best by setting the structure and organising the rules.’