Power retender is right decision

04 July 2013

A competitive retender for the Rabigh 2 scheme will ensure Riyadh retains confidence of contractors in the power sector

The decision to retender the planned Rabigh 2 independent power project (IPP) on the Red Sea coast of the kingdom will be welcomed by developers and contractors active in the Middle East’s power sector.

While it is unclear exactly which companies will be invited to rebid on the tender, a competitive process for the new configuration will ensure that the power sector retains confidence in the kingdom’s tendering processes.

The award of the contract for the 2,000MW power plant was approved in January to a consortium led by the local Acwa Power, however in April the configuration of the plant was changed from oil-fired to gas-fired. Following the decision to switch the fuel source, the client remained in negotiations with the preferred bidder, which angered other bidding consortiums due to the significant changes to the scope for the project.

A change in configuration from oil to gas may reduce the cost of the project by up to $700m. A decision to stick with the original preferred bidder would have raised questions about the ethics and transparency of the kingdom’s tendering processes for major projects.

Despite offering exciting opportunities and lucrative contracts, many local and international developers and contractors have not found Saudi Arabia’s projects market an easy one to operate in. Slow decision-making, restrictions on visas for foreign workforce, and Riyadh’s renewed Saudisation drive have increased frustration and costs for companies. The decision to reopen the bidding for Rabigh 2 will ensure international firms can be confident in the fundamental bidding procedures for major projects.

The retender is positive for the client. While a fresh bidding process will inevitably delay the Rabigh 2 scheme, the long-term benefits make it the right decision.

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