Saudi Arabia’s utilities clients are pressing ahead with major changes to the way they are procuring major projects as the kingdom continues to reform its economy and reduce capital expenditure in response to low oil prices.

Riyadh had moved away from the independent power project (IPP) and independent water and power project (IWPP) models in recent years as the oil price rose to above $100 a barrel, preferring to tender and execute schemes under standard engineering, procurement and construction (EPC) contracts. However, with the price of the country’s most precious commodity having more than halved since the middle of 2014, the government has realised that moving back to the private developer model is the right choice to make.

The rush to integrate the private sector back fully into the kingdom’s utilities market is being made for future projects and also schemes that had already been tendered as EPC contracts.

In mid-August, MEED reported that state utility Saudi Electricity Company (SEC) is considering switching the 3,780MW Taiba integrated solar combined-cycle (ISCC) project and the 1,300MW Jeddah South expansion to IPPs, despite both having been tendered as EPC contracts.

MEED also reported that state oil major Saudi Aramco is considering restructuring a major power project already under construction in Jizan to an IPP model.

Riyadh’s move to restructure these schemes follows on from the news that SEC is set to move ahead with its largest ever power scheme, the 5,400MW PP15 project, as an IPP later this year. The PP15 project had previously been slated to be procured under the utility’s 2014-24 EPC generation programme.

It is not just power generation schemes that utilities providers are turning to the private sector to help finance. The kingdom’s desalination provider, Saline Water Conversion Corporation (SWCC), is also planning to resuscitate the IWPP model for Jubail 3, its next major cogeneration project.

While the change in strategy has led to delays with the procurement of schemes and resulted in a state of uncertainty regarding current schemes, in the long run the decision to appeal to the private sector is a prudent one. It will certainly please developers and project financiers, who had started to become frustrated with the lack of opportunities in the region’s largest utilities market. For them, the short-term flux in Saudi Arabia’s utilities market will undoubtedly lead to long-term gains.