Last year will not go down as a particularly memorable one for international turbine manufacturers chasing new business in the key GCC electricity market. With the notable exception of Japan’s Mitsubishi Heavy Industries (MHI), which managed to clinch almost $1,800 million-worth of contract work at the existing Ghazlan station in Saudi Arabia and the grassroots Al-Awir plant in Dubai, leading turbine manufacturers reported a mixed 12 months. ‘If you look at 1996 from a five-year perspective, then it was not a mega-year,’ says Ulf Stromback, vice-president and Gulf area manager for the Dubai-based ABB Middle East & North Africa. ‘However, we did receive a letter of intent for a new power plant in Bahrain.’
The recent experience has left many cautious about the outlook for the coming 12 months. In the region’s largest market, Saudi Arabia, contractors have been consoled by the news that the highest oil prices since the 1990/91 Gulf crisis pushed government revenues some $12,500 million above budget in 1995. However, they are still waiting to see tangible signs that the kingdom’s new-found riches will assist in improving the payment situation and help in unblocking several projects, planned in the power generation sector. ‘We hear the figures, but there still doesn’t seem to be much money about,’ says one Saudi-based foreign turbine supplier. ‘Of course, it will take some time for the money to work through the system, but until it does, tenderers will remain very wary.’
Elsewhere, prospects vary. Kuwait is not expected to come to the market for new capacity until 1999, when it launches the 2,400-MW Al-Zour thermal power plant. In Dubai, the only new project on the horizon involves the re-powering and conversion of the Jebel Ali D station to combined-cycle. In Bahrain, an ABB-led consortium, including the US’ Black & Veatch International is expected soon to sign the $375 million contract to build the 260-MW, 30-million-gallon-a-day Hidd power and desalination plant.
The privatisation question also remains a big unknown. In Oman, which introduced the Gulf’s first independent power project (IPP) with the Manah plant, plans to develop the 388-MW Barqa and 200-MW Salalah stations on a build-operate (BO) basis have suffered extensive delays. In Qatar and Abu Dhabi, planned expansions of the respective Ras Abu Fontas and Taweelah complexes could be affected if the governments decide to follow the privatisation route.
Turbine manufacturers recognise that they can ill afford to ignore the privatisation issue, even though the complexity of such deals inevitably demands higher up-front costs and lengthier negotiations. Says ABB’s Stromback, ‘Of course, we are following it closely, but the privatisation process is still in a pioneering phase. You have to be selective and be prepared to work very hard. Having said that, we have to follow the customer and the market, so if something promising materialises, we will go for it.’
Whatever does finally emerge in the market in 1997, there is little doubt that it will be subject to intense competition. The annual price erosion on major projects in recent years has been estimated at about 10 per cent, leading some to advocate a fresh approach towards bidding. ‘In order to maintain and increase our market share, consideration is being given to offering alternative solutions and to concentrating on our core activities,’ explains Carsten Lenz, senior resident engineer at Siemens UAE’s office. ‘That means that on a typical scheme, we would supply the turbines, generators and instrumentation and control systems, with the balance of plant being done by others. For the engineering, we would look at entering into a joint venture with a major international company. A partnership arrangement would be set up with one of the major contractors for the civils, while the erection work would be performed locally.’
Companies also recognise the need to build up their local presence. Siemens is in the midst of increasing its manpower in the UAE office, which will act as its regional marketing and business development centre. At ABB, the past five years have seen managers being installed in Qatar, Bahrain, Oman and Yemen, joining ABB companies already active in Kuwait, Saudi Arabia and the UAE. The international engineering group has also been expanding its local value-added operations by increasing its service, engineering and manufacturing capabilities. The policy decision has borne fruit, with the total annual turnover from companies in Kuwait, Bahrain and the UAE rising more than eight-fold since 1991 to some $70 million.
The underlying prospects for the GCC turbine market remain bullish for the coming decade. Up to 30,000 MW of new capacity will have to be installed in the region by utilities seeking to meet growing power demand, brought about by population increases and rising living standards. Moreover, industrial demand is expected to grow, leading major players such as Abu Dhabi National Oil Company (ADNOC) to install their own captive power plants to serve new downstream petrochemical installations. Finally, additional funds will have to be set aside for upgrading older generating facilities.
The projections help to explain why, despite current uncertainties, turbine manufacturers are adopting a long-term commitment to the market. Says Siemens’ Lenz, ‘We do believe in the market’s potential and we are committed to increasing our market share in the GCC.’ The sentiments are echoed by ABB’s Stromback. ‘The GCC is an extremely important market for ABB and we have established deep roots in the region. Some others get a job and then move on, but ABB is here to stay.’