The Middle East, with its long-term purchase agreements, is a major target area for the firm.
“An IPP investment is a middle-risk, middle-return project,” says Takeshi Noguchi, general manager of Sumitomo Abu Dhabi.
Regional head: Takeshi Noguchi
Equity power capacity (GCC): 572MW
“Our total assets are not sufficient for us to be aggressive on merchant power projects like the ones in the US. So we are aiming to build up a critical mass first then go more into the merchant market.”
The company aims to develop a mixed portfolio of brownfield and greenfield projects.
“We have to evaluate operational records, look at the technical issues and make a proper assessment of what a plant is worth, but we will be quite aggressive in acquiring such existing assets,” says Noguchi.
As part of that strategy, in September Sumitomo bought a 20 per cent shareholding in Shuweihat CMS International Power Company, owner of the Shuweihat 1 IWPP in Abu Dhabi.
The stake was acquired from Abu Dhabi National Energy Company (Taqa) for an undisclosed amount.
The deal also involved Sumitomo buying a 50 per cent stake in Shuweihat O&M, the company that is responsible for the operation and management of the plant.
The other 50 per cent is held by International Power. International Power and Sumitomo are already accustomed to working together in the Gulf: the two firms co-own the brownfield Hidd IWPP in Bahrain, together with Suez.
Sumitomo has yet to win a greenfield project to develop in the Middle East, but it is in the running for the Ras al-Zour IWPP in Saudi Arabia, which is expected to be awarded in the next few weeks.
As a general trading firm, Sumitomo says it does not focus on winning individual projects but rather considers its approach to a specific country as a whole, building on business relationships that are already in place.
“Our involvement in a country should be built up step by step,” says Noguchi. “If there is a low-return but stable project, and that investment will create a long-term relationship with a utility, that is good for us because we are also doing EPC jobs, such as transmission lines and substations.”
At present, Sumitomo is focusing on the UAE, Bahrain and Saudi Arabia.
With the EPC element often determining who wins a tender, Sumitomo says the best development partners are EPC contractors or manufacturers.
“If we are not partnering with them but keeping the relationship as an owner and contractor, it will probably not be successful,” says Noguchi.
Despite being an EPC contractor itself – engaged in building coal-fired and combined-cycle power stations in Southeast Asia – Sumitomo does not intend to take on such work in the Middle East, as the offtake agreements make development work far more attractive for the company.