Riyadh has said it will no longer provide oil for new power projects in the kingdom, prompting a last-minute change in the configuration of the Rabigh 2 power plant, despite the contract already being awarded.

Sources in the kingdom say the change has come from Saudi Aramco, which no longer wants to waste oil that could be more lucratively exported. Instead, the state will provide gas for future power plants.

“Aramco has said there will be no more liquid fuel for power generation,” says one source in Riyadh. “They don’t have an issue with providing gas for power production, the gas shortage is for industrial purposes in things like petrochemicals plants.”

Rabigh 2 is the first project to be affected. It has forced a consortium led by the local Acwa Power, which was awarded the contract to build Rabigh 2 in January, to change the configuration of the plant. As a result, the plant’s $2.2bn development cost is expected to drop significantly, to perhaps less than $1.5bn, according to some sources involved in the scheme. “The project is still a 2,000MW plant, but the fuel allocation has changed,” says Paddy Padmanathan, president and chief executive officer of Acwa. “We are still working on what the new budget will be.”

As Acwa had already secured funding for the project, each lender will be reduced pro rata to reflect the reduced budget, he adds. Financial close is targeted for the end of May. Sources close to the project say the rising demand for power means Saudi Electricity Company (SEC), the government body procuring the project, could not afford the time it would take to rebid the project with the changed fuel source.

It is not the first time Riyadh has changed fuel allocations for power production. The Qurayyah power plant, which was also eventually awarded to Acwa, was originally envisaged as an oil-fired scheme, before being changed to a gas project, and subsequently back to oil.

Acwa power is working towards a listing on the Saudi Stock Exchange in late 2014, says Padmanathan. “The reason for us to do an IPO [initial public offering] is not to raise money, as we have a lot of cash on our balance sheet, but we want the Saudi public to share in the growth story of Acwa,” he adds.

Acwa is also planning its first sukuk (Islamic bond) issue in Saudi Arabia later this year.