Appetite among developers and financiers for private power and desalination projects is showing signs of revival, but a full recovery is unlikely this year
Volume of deals reaching financial close rose from less than $4bn in 2008 to more than $6bn in 2009
The appetite among developers and financiers for new power and water projects continues to show signs of revival as 2010 draws to a close and 2011 approaches.
Only one independent power project (IPP) may have closed so far this year, but the fact that the financing for Saudi Arabia’s $2.1bn Riyadh PP11 facility was concluded with relative ease in June shows that the sector may now have passed through the worst of the downturn.
Financiers, developers and contractors hope that the PP11 scheme is the first of a string of developments across the region that will drag the industry out of the economic slowdown and back onto a trajectory of growth.
More projects are expected to secure funding follow by the end of the year as the demand for power and water continues to grow throughout the region.
Financing for two Omani projects, Barka 3 and Sohar 2, which are being financed separately but in parallel, is scheduled to conclude by the end of September. Abu Dhabi Water & Electricity Authority’s (Adwea) Shuweihat S3 IPP is set to reach financial close before year-end, and Tunisia’s Bizerte IPP could also be financed in 2010.
However, it will be 2011 that will see the private power and desalination sector fully recover
Should these projects go ahead as planned, the deal volume for projects in the Middle East and North Africa region in 2010 will total a similar value to that of 2009, when $6bn of deals were closed, which was up by about 50 per cent from the $4bn of deals that were signed in 2008.
Looking further ahead, it will be 2011 that will see the private power and desalination sector fully recover. Egypt, Oman, Iraq, Kuwait, Syria, Saudi Arabia, Morocco, the UAE and Tunisia could all see new IPP and independent water and power projects (IWPP) successfully financed.
As the market stabilises and looks forward to 2011, the power and water sector can finally put the dark days of 2008 and the global credit crisis behind it.
However, it will be 2011 that will see the private power and desalination sector fully recover
Egypt is currently keeping pace with its power demands – but by a small margin. Figures compiled by the Electricity & Energy Ministry suggest that demand will grow at a rate of 6 per cent annually between 2012 and 2017.
The trend will put significant strain on the electricity generation sector. In response, the government plans to develop a raft of new power projects.
These will be tendered as government-procured engineering procurement and construction (EPC) contracts as well as negotiated basis deals and IPPs.
In June, the ministry prequalified 10 companies to bid to build a 1,500MW IPP at Dairut in the Asyut governorate. According to sources close to the tender, the government plans to issue a request for proposals (RFP) after Ramadan.
Iraq is currently suffering from a severe electricity shortage. The government intends to tackle the situation by tendering a series of EPC projects and a 3,250MW IPP programme.
Bids have been invited to build the IPPs which are planned for sites at Samawa in Muthana, Diwaniya in Qadisiyah, Shat al-Basrah, Amara in Maysan and Basra in Najebia. All the schemes will use turbines previously sourced from GE in a deal, which was signed by the government in December 2009.
The scheme was launched to an ambitious schedule which was driven by the urgent need for power. Most projects should be awarded by the end of 2010 and for commercial contracts are expected to be signed in January 2011.
Kuwait launched its first IWPP in August 2009 under the Partnerships Technical Bureau (PTB). A site at Al-Zour North that was previously earmarked for a government-procured power project was chosen for the IWPP and the EPC project was cancelled.
The PTB approached developers to build the facility in May and issued a request for qualification in June, which was withdrawn. The PTB will re-issue the RFP once issues relating to the project’s compliance with the law for establishing project firms have been resolved.
Kuwait currently has more than 10GW of installed power capacity. However, much of this capacity was commissioned several years ago. In the 10 years to mid-2009, the country added only 2,500MW capacity. This trend has largely been attributed to issues associated with the government’s struggle to award contracts for new electricity generation projects.
Morocco’s Office National de l’Electricité (ONE) plans to develop two coal-fired power plants at Safi and Jorf Lasfar, both located on the kingdom’s coastline.
The larger project – at Safi – is at the most advanced stage. France’s EDF (Electricite de France) and the UK’s International Power with Nareva, a subsidiary of the local ONA Group, submitted bids to build the project in March.
Findings from recent marine studies which were carried out around the proposed site have since resulted in ONE requesting revised offers from the bidders by the end of 2010. If all goes according to plan, the project will be financed in 2011.
ONE appointed advisers to work on the 700MW Jorf Lasfar IPP earlier this year and has approached developers to build the project. Financing may follow in 2011 or push into 2012.
Oman Power & Water Procurement Company (OPWP) originally planned to continue its well-established private power generation programme with two projects – one at Al-Ghubrah and another at Duqm.
In February, the OPWP changed its plans and said it was reviewing its decision to fire the Duqm plant on coal and was re-assessing other aspects of the project. It later decided to shelve plans to develop the project.
The Al-Ghubrah plant faced delays at the tender stage due to environmental concerns. The project stalled in April and has since been revived as a water-only facility.
Meanwhile, OPWP decided to move forward with plans to develop a power project at Sur. The Sur facility will have a capacity of 1,500MW, which is intended to compensate for the cancellation of the 450-600MW Ghubrah project and 1,000MW Duqm project. Oman awarded the contract to build two new power units to add to existing facilities at Barka and Sohar in August. A consortium comprising GDF Suez, Japan’s Yonden, Japanese investment firm Sojitz, and Oman’s Bahwan Engineering will construct the projects.
Syria launched the tender for its first IPP in early 2009. The Public Establishment of Electricity for Generation & Transmission (PEEGT) invited developers to respond to a request for qualification (RFQ) by June 2009.
Of the five developers that responded to the RFQ, PEEGT selected Marafeq, a joint venture of Syria’s Cham Holding and the Kuwaiti conglomerate Al-Kharafi and Greece’s Terna Energy as shortlisted companies.
PEEGT launched a second round of prequalification in early August 2010 with a deadline of September 27 to attract new developers. While the project faced delays, if it follows its updated schedule, it should be awarded in 2011.
Saudi Electricity Company’s (SEC) latest project, Riyadh PP11, reached financial close with relative ease in June. The largest shareholder in the $2.1bn project is SEC with a 50 per cent stake. France’s GDF Suez is a 20 per cent stakeholder. Japan’s Sojitz Corporation and the local Al-Jomaih Group both have 15 per cent holdings.
SEC’s next IPP – its third so far – will be built at Qurayyah. The winning bidder will build, own and operate the power plant, which will have a capacity of around 1,800MW. The IPP will be built next to SEC’s existing facility at Qurayyah.
After Hassyan, Dewa will consider its power demand forecasts and may build an IPP at Lehbab
A total of 16 companies responded to an RFQ that was issued in June. SEC then announced in August that it intended to change the project’s fuel-type to natural gas and would therefore issue an updated RFQ in September. The fuel change is expected to set the project timetable back. SEC initially planned to evaluate RFQ submissions, compile a list of prequalified companies and issue a request for proposals in August.
Tunisia’s Industry, Energy & Small & Medium Enterprises Ministry is currently tendering two IPPs at Bizerte and Elmed.
The ministry received bids for the 350-500MW Bizerte IPP in May. Germany’s Siemens and Malaysia’s Powertek offered a price of 105.337 millimes ($0.07) per kilowatt hour (kWh) based on a power plant with a capacity of 405MW.
The UK’s International Power and Japan’s Marubeni offered a price of 124.754 millimes per kWh based on a power plant with a capacity of 423MW. Japan’s Mitsui and the UAE’s Taqa offered a price of 128.888 millimes per kWh based on a power plant with a capacity of 435.9MW.
A decision on the winning bidder to build the Bizerte project is expected by September.
The ministry issued an RFQ to developers for the 1,200MW Elmed project in April. According to the RFQ, the scheme will comprise a thermal power plant along with a renewable energy component of at least 100MW.
The project will have a total capacity of 1,200MW of which 400MW will supply the local utility Societe Tunisienne de l’Electricite et du Gaz (Steg). The remaining 800MW will be exported to Italy through an interconnection project, which is to be built by Steg in partnership with Italian company Terna. An RFP is set to be issued in October or November.
Shuweihat S3 in Abu Dhabi is expected to reach financial close by the end of 2010.Once funding is secured, it will trigger the tender process for the emirate’s next project, the Taweelah C IWPP. Taweelah C will have a capacity of 2,000MW of power and 55-60 million gallons a day of water.
Dubai Electricity & Water Authority (Dewa) is set to invite expressions of interest (EOI) from developers to build its first IWPP shortly. The Hassyan project was originally planned to be tendered on a government-procurement basis, but Dewa later opted to develop it as an IWPP.
After Hassyan, Dewa may build an IPP at Lehbab capable of producing 1,000MW.
Upcoming projects: 2012 and beyond
Bahrain already has 1,750MW of private power capacity and 90 million gallons a day (g/d) in water capacity from the Al-Ezzal and Hidd IWPPs.
A further 2,500MW power and 48 million g/d of water is set to be added next year with the commissioning of the Addur 1 IWPP.
The Electricity & Water Authority (EWA) plans to expand the Addur project significantly over the next eight years adding 3,600MW power and 48 million g/d water capacity at the site.
The first of these expansion projects – Addur 2 – will be a power-only facility and is scheduled to come online in 2014. While the project has been announced, EWA is yet to approach developers to build the scheme.
The third project at the Addur site will be a private power and water project and is set to be operational by 2016. The fourth project will be desalination-only and is to be completed by 2018.
Jordan’s National Electric Power Company (Nepco) is set to issue a RFQ to prospective bidders in September to build the country’s third IPP. The project was unveiled at the end of 2009 and is set to have a generation capacity of 600MW, larger than the 400-500MW plant that was originally proposed.
The site and fuel for the project are yet to be determined, but sources close to the project have indicated that Zarqa, located northeast from the capital, is the most likely location.
Meanwhile in Qatar, the government plans to develop a new IWPP known as Facility D. It will have a capacity of 2,000MW of power and 60 million gallons a day of water. However, the project has thus far only been announced and is yet to approach tendering.
Yemen plans to develop three heavy fuel oil power projects with a combined capacity of 375MW at Aden, Hodeidah and Al-Mukalla. The projects attracted interest from 40 companies in 2009. The tender has since stalled as the government decides on the guarantees that it is willing to offer to developers.