GCC’s power and water industry is steering towards PPP arrangements

Over the next decade it is predicted that the GCC will see its population soar by 30% to more than 50 million people, a consequence of the region continuing its strong economic development and growth despite various financial and political crises that have affected its neighbours.

What this population boom means is that the GCC’s existing supplies of electricity and water will be put under tremendous strain, given that the bulk of them were created for a significantly smaller population and demand. Thus it becomes vital for the region’s governments to face up to these challenges or face significant impacts to the quality of life and prosperity of their people in the decades to come.

According to a report published by the Economist Intelligence Unit entitled “The GCC in 2020: Resources for the future”, the region’s governments have already begun taking the necessary steps to ensure their long-term, sustainable growth. Some of these measures include: the introduction of energy-efficiency measures; investing in clean fuel and renewable energy supplies; improving water efficiency and investing in new water desalination capacity.

Big Project ME spoke to a few of the leading experts in the region to find out how these measures could be addressed and what more needs to be done and, from a construction related point of view, how Private Public Partnerships could be beneficial to the completion of projects and their operation.

“If we talk about the GCC over the last ten years, we would see something like 2,000MW to 3,000MW installed every year. The trend has been quite the same and it is expected to increase significantly with Dubai Expo 2020 and with the Qatar World Cup in 2022. These are the two big areas of growth within the region and 3,000MW is almost the minimum that you’ll see every year, within the GCC,” says Francois Dao, Industry vice president for Gulf Countries at Schneider Electric.

However, Basseem El Halabi, the group business development director for Metito (Overseas) Ltd, points out that any expectations and predictions for the GCC’s power and water market are fraught with risk given the ever changing nature of the market.

“The problem with the GCC countries is that it’s difficult to tell. Every year you hear about forecasts and requirements and five year plans and ten year plans. But so far, I’ve not heard anyone stick to this. It’s always lagging or ahead of what has been publicised or known to the industry, specifically in countries like Saudi Arabia. The UAE is more or less stable, the market or the size of the water sector is known. What is coming up in the market, on the municipal side, is reasonably known,” he tells Big Project ME.

“(However) there’s a problem in Kuwait. Kuwait announces projects and cancels projects (abruptly), so you don’t know where you are in the market. They have their own reasons and that’s the way it is,” El Halabi muses, adding that the most active markets in the water sector are Saudi Arabia, UAE, Kuwait and Qatar, of which the latter is going through a major expansion in its water sector.

A report by Research and Markets, entitled: “Power and Water in the GCC: The Struggle to Keep Supplies Ahead of Demand” claims that the GCC is facing an ‘unprecedented capacity building programme’, with an estimated 60,000MW of new capacity, which represents 80% of current installed capacity, required by 2015.

The report continues to state that desalination capacity will have to double to more than 5,000 million gallons a day to meet projected demand. Furthermore, the actual capacity requirements will be even greater if the planned decommissioning of existing capacity takes place, it adds.

It is against this backdrop that the GCC governments have been discussing the need for a region wide power grid that will meet the demands of a growing population, while also alleviating the demands on national grids.

“The GCC grid is a project that started at least five years ago, lines are being built and connected and I know at least two have been connected,” says Dao. “One is between Saudi Arabia and Bahrain and the other is between Saudi Arabia and Qatar. I am not sure about Saudi Arabia and UAE, which is definitely one of the major connections where power would be exchanged. The UAE has definitely built large power complexes closer to the Saudi border, which is definitely something that was made for it (the power grid), as well as the coming nuclear plants,” he points out.

“I think there is a clear political will amongst the GCC countries to interconnect, for sure. Mains are being built and I think, I’m not sure about this, trading agreements in all the various countries are being developed,” he continues.

“But it definitely makes sense to connect these all together, to cope with this big demand, by sharing the spare capacity.”

On the water side of things, things are changing as well, with Bassem El Halabi saying that not only is the focus moving away from generating potable water through desalination, but GCC governments are looking seriously at pushing through wastewater treatment and recycling.

“We’re mostly in the wastewater phase, what is coming onto the market, apart from IWPPs and IPPs, is mostly waste water. In Qatar for example, there are several projects under prequalification for bidding. You have, for example, the Al Dhakhira plant, which is one of the major package plants. It’s being retendered on the basis of a major plant. This is for wastewater,” he explains.

“You then have the Industrial City and Al Shamal, this is again wastewater. And then you have the ‘Master Plan’, which is called Inner Doha Re-Sewerage Implementation Strategy (IDRIS), which is a master plan for the whole of the waste water treatment sector for Qatar. It involves huge pumping stations and they’re talking about tunnels for the future. So it’s clear that they’re quite active in waste water,” El Halabi asserts.

“It’s mostly about recycling water now,” he adds, pointing out that Qatar has the most stringent discharge requirements amongst the GCC countries, with even brine discharge into the sea not allowed.

“They’re now looking at how to treat brine rather than discharge it into the sea, even though it’s not a pollutant. So yes, it’s mostly wastewater and mostly about recycling. Thoughts are now going towards injection, where they treat the wastewater and then inject it into the aquifer for future use. Qatar is a bit far ahead of everyone in the Gulf in that regard.”

“Water sources in the Gulf are scarce, it’s a semi- arid zone. We can’t rely on these resources, and they have to look at renewable resources, there’s no other way. Building desalination plants may not be sustainable in the future. You cannot build plants that will eventually have an effect on the marine environment. Whether it’s salty water or if you’re building thermal plants, you maybe discharging high temperature brine, in which case it may affect the marine environment,” El Halabi says.

“The whole idea is to have a sustainable resource and this is why they’re promoting recycled wastewater. You must rely more and more on recycled water rather than building desalination plants because firstly it’s cheaper and secondly the resource is there, so rather than wasting it, make use of it.”

Someone who is in absolute support of building water treatment plants and recycling plants is Nick Carter, director general of the Regulation and Supervision Bureau in Abu Dhabi. He points out that Abu Dhabi’s desalination capacity stands at 950 Million Imperial Gallons a Day (MIGD).

Carter says that part of RSB’s plans are to cap the amount of water that is being produced by encouraging the use of recycled water and ensuring it’s used more efficiently. Using water twice has a strong impact on the amount of water produced at the beginning of the supply chain, he says.

Speaking during a panel discussion at the Power + Water Leaders Forum 2013 in Abu Dhabi, which was held in November, he and other experts – Carl Sheldon, CEO of Abu Dhabi National Energy Company (TAQA) and Ali Al Barrack, president and CEO of Saudi Electric Company (SEC) – agreed that the privatisation of the utilities sector had been instrumental in meeting current demand, but that the system bred by this success is proving to be unwieldy in terms of meeting future demand.

“The load for power is much more seasonal than the load for water,” explains Sheldon. “In Abu Dhabi, all the power plants are combined cycle gas turbines with desalination attached. This configuration forces us to run our plants part load during the winter because you need the water, but that’s also very inefficient.”

With Abu Dhabi planning to bring on line a couple of nuclear power plants, it is expected that 4,000MW would run as the base load, which Sheldon believes will assist with reducing the existing inefficiency.

“The idea then will be to build near to the water load, and powered with electricity generated by the nuclear plants so that the inefficiency associated with gas-fired plants producing all the water is eliminated,” he explains.

Bassem El Halabi tells Big Project ME that this approach could be quite feasible, with the King Abdullah Centre for Atomic Research leading the research into building a nuclear power and using it to desalinate water.

“Each country is starting to look at its own options, what is feasible or viable to their specific country. Saudi Arabia has the resources, but it’s a matter of demonstrating that they own the technology and that they can develop it. For example, they’ve built the first solar desalination plant. That’s now producing 30,000m³. Other countries are now considering that, Abu Dhabi is considering a solar desalination plant and I think Masdar is leading the way with technologies for renewable resources in that sector.”

However, what both Francios Dao and El Halabi agree on is that there needs to be greater involvement with the private sector. For El Halabi, the reasoning is simple. There’s an opportunity for money to be made here and private companies are hungry to take advantage of the gap in the market. By allowing them to do so, he believes that the governments of the GCC can free up resources to go to other, more necessary areas.

“What they need to do is involve the private sector more, the (government) money could be better spent on better needs for the people, like education and healthcare, rather than spending on water. They (the governments) could involve the private sector more because it’s hungry for this type of business in all the GCC countries,” he enthuses.

“You can see this interest in the Al Zur plant in Kuwait, which was recently signed, Saudi Arabia is also tendering a project now, an independent power plant – Rabigh II – and they’re tendering, or will be tendering Duba I and Duba II. That means that there is a private entity involved in that as well, so governments are becoming a bit more open towards the idea of private investments, but they need to do a bit more.”

Francois Dao adds that the model for developing all these power and water projects in the GCC were based on PPP schemes, typically with build and operate contracts running for up to 15 years.

“They started the GCC PPP scheme something like 15 years ago,” he tells Big Project ME. “Abu Dhabi is definitely the reference in the GCC for these things and till now financing has never been a big issue. Even when there was the crisis, during the Gulf Wars and during the financial crisis, a project would manage to get closed. Definitely it would be at high costs and would take a little bit more time, but they definitely managed to close it.”

El Halabi adds that the necessary framework for PPPs now exists, but it’s now a matter of governments expanding their scope towards the water sector as well.

“The legalities are there, so as I said earlier, private investors are hungry, they’re aware that this is a good business for them. So yes, the interest is there, we can see it every time a project is tendered. We see the number of companies and consortiums involved, from all over the world.”

“If there was an issue, you wouldn’t find these people interested in bidding. It means that they feel safe and that the legal framework is there and they will be getting the returns on their money. It’s just a matter of the governments being a bit more open towards the idea of investments in the water sector, not just power,” he concludes.

This feature first appeared in the March 2014 edition of Big Project ME.