Private participation rises in Oman's power sector

18 October 2011

Private companies have invested $6.7bn in Oman’s power sector

In terms of private investment, Oman’s power sector has proved itself ahead of the curve. In December 1999, the Council of Ministers approved the restructuring of the electricity and water sector in Oman and a new law was enacted in 2004.

The law provides the framework for the sector and was designed to make Oman an attractive destination for investment. Since then, it has succeeded in doing so. The amount of power generated by independent power projects has risen from less than 2,000MW in 2004 to 7,000MW in 2011.

In total, about RO2.6bn ($6.7bn) has been invested by the private sector in power generation. Private companies have developed projects at Barka, Sohar, Salalah, Rusail, Al-Kamil and Manah and contracts for new independent power projects (IPPs) continue to be hotly contested.

The contract for Oman Power & Water Company’s (OPWP) latest power project at Sur drew strong bids from five groups of international developers. The Marubeni-led group was selected for the contract in July and financial close is imminent. Once constructed, Sur IPP will have a capacity of 2,000MW. Not all international developers were satisfied with the bid process, but the award was made regardless.

There is also scope for private investment in existing projects. Oman’s IPPs are wholly-owned by the developers for an initial period, following which an initial public offering (IPO) is held through the Muscat Securities Market. The original investors are required to retain a certain level of ownership, but 35 per cent of the project can be floated on the stock exchange once the IPP has entered commercial operation.

The development company behind Sur IPP, Phoenix Power, will be listed in April 2012, while the development companies of the Barka 3/Sohar 2 projects, Al-Suwaidi Power Company and Al-Batinah Power Company, will be floated in April 2013.

This divestment is much-needed for GDF-Suez, the lead developer of Barka 3/Sohar 2 IPPs. Since the French developer merged with the UK’s International Power earlier this year, it has exceeded the level of ownership of power projects permitted by the sultanate’s regulator. Selling off some of its ownership stake, coupled with rising demand and supply of power, will allow the combined company to participate in future IPP tenders.

The IPOs are also a good opportunity for investors with low-risk appetite as the assets are operational when they are listed. For instance, Oman’s Qalhat LNG has said that the company will be watching the IPOs closely with a view to purchasing a stake in the projects. It already holds a stake in the first IPP at Sohar and is looking to purchase a further 5-10 per cent ownership in another power company.

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