Demand deficit

Chandra Dahr, head of power generation at Cummins Middle East, agrees that growth has been “exponential” for his firm since it set up in Jebel Ali Free Zone a few years ago.

“We are basically meeting the deficit for a lot of these projects where they are unable to get connection from DEWA (Dubai Electricity and Water Authority) and so on,” he says.

“The obvious field for generators is the construction projects,” says Georges Khoury, area sales manager for generator producers SAKR Power Systems. “Because of the exponential increase in demand, DEWA can’t keep up with the production capacity, so sometimes they will rely on such a thing as a stop-gap until they build their own production.”

Distribution channels

The issue relates more to distribution rather a generation capacity shortage, as Julian Ford, marketing and business development director at Aggreko, points out.

“There haven’t been power cuts, so the grid has sufficient power capacity, but the challenge is actually getting the power to all the new developments, hotels, offices and malls, which can take some time,” says Ford, whose company is supplying temporary power to Festival City, the three Palm projects and the Burj Dubai. “Once a building is completed, businesses are under pressure to open the doors as quickly as possible so that they can start to generate revenue and a return on the investment,” Ford continues. “However, it can take time to connect the building to the utility grid for a permanent power supply. So Aggreko’s rental solution is ideal to fill the short-term gap between the finishing of a building and getting a permanent power connection by providing temporary power plants.”

“DEWA is not able to supply power because much of the development and construction is happening outside of its distribution area,” adds Shameem. “For example, the area after the Dubai Marina. This kind of requirement pattern has been going on in the area for the past couple of years.”

Regional issue

Although Dubai is one example, the city’s distribution challenge is not unique to the region. Almost 20% of the world’s export of portable generators is consumed by countries in the Middle East. Saudi Arabia, Iraq and Kuwait are just a few of the many countries turning to distributed power, finding that the installation of a smaller and perhaps temporary plant next to the consumer is more cost-effective – and more manageable – than running transmission lines from a big plant further afield.

Again, this is proving a lucrative business for those in the generator market, who use their equipment to produce the energy, which is then sold to the utility company and finally passed on to the consumer.

“The project is operated and maintained by the rental company and we sell power to DEWA,” explains Khoury. “We charge them by the kW.”

There have also been well documented shortages in Lebanon, where Jad Jubaili, marketing coordinator at Lebanese firm Jubaili Bros LLC, says “every building needs a generator”.

But competition there is rife and a local presence of generator firms has been able to meet the shortage. In fact, Jubaili says the Lebanese are using their know-how in generators to sell to the power-short Iraqi market.

“At the moment for us, the market in Lebanon has grown possibly more than every other market just because they are selling to Iraq,” he says.

Availability dilemma

While filling in the gaps is proving to be a goldmine for generator manufacturers and rental companies across the region, with Swaidan, for instance, reporting 30% growth year on year since 2004, this in itself brings problems.

Manufacturers are finding that components, especially engines in this case, are running short of demand. In a culture where time is money, waiting for a generator is not an option.

“The business is based on availability,” says Shameem. “If you don’t have it in stock then they will go somewhere else. The projects work on deadlines, especially in Dubai. When you hear about a project in a newspaper there is somebody already at the site with a nail and a hammer. There is always going to be a backlog.”

Ford points out that this problem does not affect the Middle East alone. “The global generator industry is suffering from lead-times due to supply chain issues,” he says. “However, unlike most other companies we only rent so once we have built our equipment we keep it for life.

“Also, we have the flexibility to move equipment around the world, which enables us to rapidly respond to our customer’s demands.”

“Most engines being used here are Perkins, from about 250- 2000 kVA,” says Jubaili. “But there is a shortage. If someone is looking for a Perkins 1 000 kVA, or 250 kVA and above, they are just going to buy whatever is available.”

In the face of the shortage, expansion is a logical step. “Our stock is quite big,” says Jubaili. “We have a warehouse in Jebel Ali and we have just purchased a new one which is three times bigger than the one we have currently. We try to have availability at all times.”

Dhar, who is also planning to boost capacities, says the high demand for low-kVA models is what generator firms have to look out for. “What we have to respond to is the sub-550 kVA models, which typically the customer expects us to hold in stock. The strategy is simple – and that is to have stock available within the Jebel Ali Free Zone.”

Eastern promise

Where there is insufficient stock, less established companies, particularly from the Far East, have spotted the gap and are jumping on the spill-over in the hope of making a quick profit.

“Let’s face a fact, the generator business is not that tough to get into,” says Khoury. “To build a basic generator is not really that hard. To build a quality generator, that is another issue. Because of the availability of Chinese products, which are trading at about 25% less than ours, there is no shortage of buyers.”

“The cheaper products would be Chinese,” Jubaili agrees. “If you look at the market, there is European-made, those assembled locally within the GCC, and then you have Chinese.”

Jubaili, whose firm has the dealership in the UAE for UK-manufactured Marapco Generators, says Chinese manufacturers have managed to sell a lot of generators on the local market but warns: “Anyone who buys Chinese would then not buy it again.”

He says the same of locally assembled generators, claiming they are likely to break down and the support is bad. So whereas cheaper equipment would, on the surface, seem to be the solution to a contractor’s tight budget and schedule, it is often not as good a deal as first imagined. The equipment is often substandard, lacking the ability to stand up to the harsh environment of the region.

Furthermore, the machines often aren’t adapted to suit the fuel in the Middle East, which has a higher water content than the rest of the world. In short, they are “simply not up to the task”, according to Ford.

But are the buyers, the building contractors aware of this? Or do they only look at the initial expenditure? “Because it is such an expensive piece of equipment, people usually go for the better price because the price difference can vary quite a bit,” says Jubaili. “The contractors are likely to go for the cheaper products. Even contractors who have been in the market for a long time, who have traditionally been buying more expensive generators, will bring in new purchase managers who have to save money – so it goes in cycles.”

After-sales

Jubaili feels there is a need to be patient, since the market needs some education. He points out that buying cheaper equipment will lead to greater problems – and costs – in the long term.

“Usually they break down and you cannot afford a breakdown. In the long-run the company with best maintenance is going to be the winning company.”

“The business model for diesel generators is after-sales,” adds Dhar. “If you do not have after-sales presence, you will probably make one sale and that is it. Chinese manufacturers do not have that capability.”

“The main issue with buying from these companies is sustainability and good service,” agrees Khoury. “When it breaks down and you cannot fix it you just have to throw it in the bin. There’s nothing you can do about it.

“If we charge a bit more than other brands, it’s because we provide service. We ensure that the customer gets power at the end of the day, whether he rents or buys.”

Although these new, cheaper entrants are cashing in now, their time may be limited. If a generator fails, a site goes down. Without after-care the generator is likely to be consigned to the scrap heap, creating a situation contractors can’t afford to be in, and potentially losing more than it would have cost to shell out for the better quality product. “People are learning by experience,” says Shameem.

Niche market

But are the cheaper brands really that bad? It really depends on the customer’s expectations. Perhaps they even suit the current situation. If contractors are simply waiting to be hooked up to the grid and are confident their situation is temporary, many may believe there is no need to invest in the more expensive products with after-care, when a quick and cheap, if not long-lasting fix, is available.

Dhar believes the cheaper Chinese manufacturers have managed to find themselves a niche market. “They only cater up to 100 kVA or thereabouts,” he says. “They have their own set of customers who are willing to take the risk of using a Chinese product.

“The price difference is so huge that it probably makes sense for these kinds of operators to go for the Chinese products.

“For example, take a small construction company which needs a small generator. For them it makes better business sense to go for low-value products – so these are the kinds of markets they would take them to.”

Despite the increased competition, those in the industry are confident they will be able to continue to report booming trade in the future, as their component supply catches up with their needs and property owners tire of waiting to be hooked up to the grid.

Furthermore, a possible change in legislation may provide yet another surge.

“There is a trend that is hopefully going be translated into law that any high-rise building will require a generator,” says Khoury. “In Sharjah that’s already the case for buildings of eight floors or more. In Dubai it’s up to the individual developers to do this. You can expand easily in Dubai.”

Dhar sees a big future for gas generators in particular: “The thing that we think is going to be the future for the GCC market is gas generators. Because of the gas grid – the Dolphin gas pipeline which is coming in from Qatar to the UAE – they will have availability of gas and this will drive the demand for gas-engine generators.”

As long as the region continues to grow, generator firms should see no shortage of business.