The development of the power and water infrastructure is crucial for Bahrain as the need for new capacity borders on the desperate. Current demand for electricity has risen to within 150 MW of the system's potential peak capacity, and water consumption has already had to be capped. The situation is made all the more urgent by Bahrain's need to diversify its industrial base. With much less oil income than its neighbours and unemployment unofficially estimated at about 15 per cent the promotion of new industries and foreign investment is viewed by government, the business community and independent analysts as the only way forward. To make this happen, a reliable and adequate supply of power and water is essential, as Electricity & Water Minister Abdullah Juma fully recognises. 'Power and water is a major factor for both industrial and commercial development,' he says.

The facts of the matter provide eloquent testimony to the urgency of the situation. Peak demand for power during the summer of 1996 reached 1,050 MW while the government has access to 1,200 MW, which includes 240 MW supplied by Aluminium Bahrain under a 10-year agreement. The ministry now predicts that demand will reach 1,280 MW in 2000 and 1,600 MW by 2005. As Juma puts it, 'Things will be very tight for the next few years.'

Groundwater depletion

It is not only power capacity which needs to be extended - water resources are also a cause for concern. The government currently limits consumption to 70 million gallons a day (g/d). Half of the water provided is drawn from groundwater resources, while the rest is desalinated. However, the quality of the ground water is deteriorating rapidly and some water experts believe that the local aquifer's useful life will end by 2000. The ministry predicts that water demand will reach 100 million g/d by 2005, implying an increase in desalination capacity of around 65 million g/d. Juma concedes that the condition of Bahrain's power and water supplies may have caused reservations among some potential investors, but he believes that recent progress has allayed such concerns. 'With the new project moving ahead those [reservations] have now been resolved,' he says.

The core of the government's solution to the problem is a new power and desalination plant to be built on reclaimed land at Hidd. If successfully brought on stream by the target date of 1999, installed capacity will be able to meet demand, assuming government demand predictions are accurate. The new plant will have a capacity of 260 MW and 30 million g/d. The government has awarded the $375 million construction work to a consortium of Zurich- based ABB Asea Brown Boveri, Japan's Hitachi Zosen Corporation and Black & Veatch International of the US and plans to sign the contract by the end of November.

Causeway possible

In addition to the power station itself, infrastructure will be needed to deliver gas and seawater to the plant and take power and desalinated water away. A consultant has been appointed for the development of a substation. Bahrain National Oil Company (Banaco) is expected to provide the necessary gas infrastructure and plans are afoot for the construction of a third causeway, under the auspices of the Works & Agriculture Ministry, to provide a direct link to carry cables, pipes and industrial traffic. No final decisions have yet been taken on the causeway.

The whole project has gathered pace this year due to the final approval of plans for financing it. The government held long and intricate talks with British Gas about developing the plant on a build-own-operate (BOO), or similar basis, but in the end came down against a private project. The decision was purely financial, says Juma. 'A private project would have required guarantees on the purchase of the power from the developer and in the end the price per megawatt was just too much.' Critics contend that more was at stake than a purely financial calculation. 'A private project would certainly have been more expensive in the short term,' says one western diplomat. 'However, privatisation has to be taken on board and the government has rather missed the boat with this decision.' The government insists it was not a policy decision and private sector involvement is still a possibility. 'Time was getting very short and we decided that alternative [financing] options will have to be considered later with a possible view to the plant's second phase,' says Juma.

Despite the rejection of a private option the government is minimising the amount of capital it will have to raise for the project. The financing plan for the $375 contract envisages the consortium raising 85 per cent of the cost in the form of export credits. Further costs are to be covered by commercial debt and the consortium is to be paid back by the government over 12 years. If it proves to be successful the unusual financing package could well be replicated to finance a second phase of the power plant which would double capacity. 'The second phase could be financed using a similar method,' says Juma. 'But private finance is also still an option.'

It is hoped that further finance, for associated infrastructural work, will be forthcoming from Bahrain's neighbours. 'The government is negotiating with various funds at the moment, ' says Juma. 'And, so far things are going well.' Juma estimates the likely cost of the power and water transmission networks needed for the Hidd project at about BD 45 million ($119 million).

While the overall development package is pieced together the government is moving ahead with a number of short-term water projects which will help alleviate the situation and avert a crisis. Three desalination plants are due for renovation work and upgrading of the transmission network has reduced losses through leakage to 12 per cent. The ministry is also working on ways of restricting water consumption - from 1997 tariffs will be charged for agricultural water use. The government has emphasised, however, that domestic tariffs are not under consideration.

Such measures can only make a small contribution to controlling demand. The essential thing is to ensure the Hidd project moves forward during 1997. If it does, then the beneficial effects should be considerable. 'If the power and water scheme goes ahead a number of industry projects are likely to follow,' says one local industry source. 'And that will boost the construction and service industries and promote overall confidence.'