Demand for power and water in the Middle East is expected to soar in the coming years. This is due to several factors, namely rapid economic development, construction and of course tourism. Most experts agree that these issues alone mean that there will be a far increased burden placed on the region’s already strained infrastructure. It seems that without an effective strategy in place, many countries in the Middle East may face a shortfall in power and the possibility of blackouts, thus hampering development and tourism as well as pushing living standards down.
The need to put viable strategies in place now is vital, according to Ranald Spiers, chief executive of International Power for Middle East and Africa. “The power and water industries are key to ensuring the continued economic prosperity of our countries across the region,” he says. “However, the predicted levels of development in the Middle East will place an increased strain on power and water supplies in years to come, which makes it essential that the industry develops a viable strategy today.”
Call for action
It is forecasts such as this that have led many Middle Eastern countries to look at privatisation as one way to access the large investment that will be required for power and water projects.
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Most regional governments appear to agree with Spiers’ call for immediate action. “The challenge for everyone, at the government, industry, and organisational level, is to ensure that we have the plans and policies in place now to meet these future requirements,” he says.
One example of the progression of privatisation as a viable means of meeting these challenges is taking place in Jordan. ENARA Energy Arabia, a company established by JD Energy, the energy investment arm of JD Capital, recently announced the purchase of 51% of Central Electricity Generating Company (CEGCO). This transaction gives JD Energy, Malakoff (a big player in the Malaysian electricity market) and the Athens-based Consolidated Contractors Company (CCC), all under the umbrella of ENARA, a 51% stake. The Jordanian government will retain 40% and the remaining 9% shares will be transferred to the investment unit of the Social Security Corporation.
This kind of deal is expected to become increasingly common around the region. It is a fact that the success of this privatisation process, carried out through an internationally competitive bid, reflects the high credibility of the Jordanian privatisation programme on different local, regional and international levels. It is worth mentioning that it is not only the financial muscle but also the expertise and experience brought to the table by transactions such as this that will be beneficial to the region as a whole.
Ahmad Jauhari Yahya, managing director at Malakoff supports this view: “The technical and investment experience CCC and Malakoff enjoy in constructing and managing energy stations is quite significant. We hope that our technical expertise will be instrumental in taking the Middle East energy sector to a whole new level.”
Major player
If Jordan’s example of the privatisation of its power and water sectors is to be followed, then one company that looks set to be a major player in the region is Marubeni Corporation. In a cooperative with JGC Corporation, BTU Power Company and Powertek Berhad of Malaysia, it has successfully secured the rights to own, operate and expand the 20-year-old Taweelah B power project in Abu Dhabi in the United Arab Emirates.
An agreement was reached with the Abu Dhabi Water and Electricity Authority (ADWEA) and approved by the Executive Council of the Government of the Emirate. The signing of the power and water purchase agreement (PWPA) means that a new project company will be set up with a Marubeni-led consortium having a 40% stake and ADWEA retaining the remaining 60 %.
To put into context the finances involved in projects such as this, the total cost is expected to be in the region of US $3 billion. Included in that cost is not only the purchase of the existing plant, but one of the world’s largest independent water and power projects (IWPPs) both in terms of production capacity and finance. The plant has a current capacity of around 1 000 MW of electricity and 95 million gallons per day (MIGD) of water.
It is worth noting that as well as acquiring the original plant, the project also includes the building of new units to increase production capacity by an additional 1 000 MW and 65 MIGD. It is statistics such as this that mean that not only is privatisation helping to maintain existing Middle Eastern infrastructures, but is actively enhancing them through a combination of financial power, greater experience and technical superiority.
To further augment this point, the new construction at Taweelah will utilise the latest combined thermal power technology to maximise efficiency and meet the most stringent emissions regulations. This not only means that the plant’s improvements fall into line with environmental guidelines but means that by 2008 generation capacity will rise to 2 000 MW and water to 165 MIGD.
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Ideal location
The UAE is an ideal location for a company as ambitious as Marubeni and acts as a good litmus test for gauging the positives of privatisation. The UAE has been actively promoting private capital projects since the 1990s. Many of these foreign-backed projects have been power and water-based and are regarded as ground-breaking transactions in the Middle East.
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With this in mind it looks certain that not only the UAE and Jordan, but the region as a whole, can look forward to a large number of similar projects being launched in the future, with companies like Marubeni at the helm, looking to enhance their portfolio in this ever expanding market.
Another is Belgian firm Suez Energy International, now merging with French utility Gaz de France, which has a 45% stake in Bahrain’s Al Ezzel Power Company, the first independent power plant to be built as part of the country’s privatisation programme. Suez also holds 30% in the Hidd independent water and power project and expects to supply up to 50% of the demand on Bahrain’s electricity grid.
Also keen to exploit the growing trend for privatisation in the Middle East is the UK’s National Power. In 2001 its international business, International Power, announced it had been awarded the 250 MW Al-Kamil independent power project (IPP) by the government of Oman. The gas-fired power station is in the Sharqiva district, south of Muscat, and was one of two build, own and operate (BOO) opportunities in the region alone.
The obvious business opportunities that the privatisation of the power sectors all over the Middle East offers, and the expertise and experience the international community can bring to the table means that the mood over the region as a whole is positive.
Peter Giller, chief executive officer of International Power at the time of the Oman deal supported this view. “This is an exciting opportunity not only in Oman but all over the Middle East, where the power sector is a long way down the road in the process of privatisation,” Giller said.
“We bring to the project our impressive track record, international experience and the fact that we own and run plants of this nature all over the world.”
Clear benefits
This constructive view of proposed and current privatisation of power and water seems to be consistent not only with international businessmen but also company and government officials all over the Middle East.
The benefits to both potential investors and the individual countries involved are clear, according to Saudi minister of water and electricity Abdullah Al-Hussayen. “With our government’s commitment to the privatisation process and the incentives our kingdom can offer the private sector, the option of investment is a very attractive one for any potential partner,” he says.
The attractiveness of Saudi Arabia for potential investors means that the country’s government is well aware of the many extra domestic benefits it could glean from a growing international business presence.
“Our government hopes that by bringing in private sector knowledge and expertise, it can take advantage of more efficient work practices and benefit in many other key areas thanks to private operators,” Al-Hussayen explains.
It seems that the growing trend of privatisation of power and water sectors all over the Middle East is set to continue and that countries around the region can look forward to feeling the very obvious environmental, financial, domestic, economic and international benefits that power sector privatisation is likely to bring.
