POWER AND WATER Q2 2016

Transcription

1 POWER AND WATER Q2 2016

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3 Business Outlook Power & water Rapidly growing populations and industrial demand mean many GCC governments are pressing ahead with water and wastewater projects despite falling oil revenues Water sector remains vibrant photograph: arabian eye While concerns remain over many parts of the region s projects market in the loweroil-price era, the water sector is bucking the trend. One of the most interesting contract awards in the utility sector this year was the deal secured by France s Veolia to build an industrial wastewater facility at Ras Laffan in Qatar. While rapidly growing populations will ensure major residential power and water schemes move forward, there has been much speculation over the prospects for utility projects in the industrial sectors. The cancellation of a previous tender for a water scheme at Ras Laffan in 2015, following the shelving of two major chemicals projects, had stoked fears over the demand for industrial utility projects. The award of the Ras Laffan deal should placate those concerns. Meanwhile, Bahrain is moving ahead with the Tubli treatment plant. Groups are working on proposals for Kuwait s much-awaited Umm al-hayman wastewater treatment plant. Umm al-hayman will be one of many opportunities for developers and lenders, as more project owners are expected to lean towards public-private partnership (PPP) models in response to falling oil revenues. Rather than whether schemes will be required, the focus is now on how they will be paid for. If project owners are able to successfully implement PPP and other financing models, the Middle East and North Africa will remain a key target for the world s water companies. MEED Business Review / 83

4 Business Outlook reports on Bahrain s progress with the Tubli wastewater plant. Search for New deadline for Tubli on Land transfer signed for next Fujairah water and power project Abu Dhabi Water & Electricity Authority can now begin planning for the next plant in the northern emirate An agreement to transfer the land next to the existing F2 independent water and power project (IWPP) in Fujairah to Abu Dhabi Water & Electricity Authority (Adwea) has been completed, paving the way for the next utility scheme at the site. According to industry sources, Adwea has ownership of the land next to the IWPP to develop a further utility project, which will be known as F3 (Fujairah 3). Type of plant A decision has yet to be made on the type of plant that will be developed. The possibilities include an independent water project, an independent power project, a cogeneration plant, or an IWPP. The decision for the type of plant could be influenced by a decision on expanding the desalination capacity of the existing F2 facility. The F2 IWPP, which has a power generation capacity of 2,000MW and a desalination component of 130 million imperial gallons a day (MIGD), was commissioned in The $2.8bn facility took three years to build. Adwea selected a consortium led by the UK s International Power (now UK/French Engie) and Japan s Marubeni Corporation to build the scheme in In 2013, Singapore s Sembcorp Industries awarded a contract to Spain s Acciona to expand the desalination component of the existing 100MIGD Fujairah 1 (F1) IWPP by 30 MIGD. STATUS OF QATAR WATER PROJECTS % of $15bn Construction 60 Planned/design 40 Source: MEED Projects QATAR Veolia wins Ras Laffan wastewater deal France s Veolia has been appointed to build a wastewater treatment plant for Abu Dhabi-based Dolphin Energy s natural gas production and processing facilities in Ras Laffan, Qatar. Increasing efficiency Veolia s subsidiary Veolia Water Technologies was awarded the contract by Qatar Engineering & Construction Company. The facility will provide water for reuse, which will reduce the volume of wastewater being injected into the existing re-injection wells at the Ras Laffan gas plant and the volume of desalinated water purchased from external sources. The project is scheduled for completion in September The Qatar project is the latest of a number of water contracts Veolia has been awarded in the Middle East s oil sector in recent years. In October 2015, Iraq s State Company for Oil Projects (Scop) selected Veolia Water Technologies to engineer, procure and deliver a water recovery unit for the $6.04bn Karbala new refinery scheme in the Karbala province. 84 \ MEED Business Review

5 photograph: shutterstock Oman Prequalifiers invited for private water project The water project is scheduled to start operating on 1 January 2019 Oman Power & Water Procurement Company (OPWP) has invited prequalified bidders to submit proposals for the planned 22 millionimperial-gallon-a-day (MIGD) Salalah independent water project. The project owner has set a submission date of 22 August for proposals to construct the desalination facility. The seven groups invited to participate in the tender are: Acwa Power (Saudi Arabia)/Veolia (France)/ Dhofar International Development & Investment Holding Company (local); Degremont (France)/Itochu (Japan); GS Inima Environment (South Korea); Hyflux (Singapore); JGC Corporation (Japan); Marubeni Corporation (Japan); Tecnicas de Desalinizacion de Agua (Spain). OPWP has set a target date of 30 October for awarding the contract, with a deadline of 28 December for all of the required project documents to be signed. The scheduled start date for commercial operation of the plant is 1 January Other water schemes in Oman are also planned. If government approvals are received, Oman Power & Water Procurement Company will tender a 17.6MIGD desalination facility at Sharqiyah and a smaller 13.2MIGD facility at Duqm. Kuwait vetoes draft electricity price hike National Assembly committee has instead put forward its own proposals The financial and economic affairs committee of Kuwait s National Assembly has rejected the government s draft bill to increase electricity charges. The National Assembly s economic committee rejected the proposal on 6 April, and instead approved its own proposal for changes to the electricity tariff. The assembly s proposed electricity tariff increases are lower and not as wide-ranging as those put forward by the cabinet. Parliamentary proposals Under the proposal by parliament, users of less than 6,000kW a month, or about a third of Kuwaiti nationals, will pay the same rate of KD12 ($39.8) a month under the new rates. The government will subsidise KD1.8 of this. Users consuming between 6,000 and 12,000kW a month will pay 5 fils a kw, and 10 fils a kw for those consuming above this level. Reducing subsidies on power was part of the government s wide-ranging structural and fiscal reform programme that it announced in March. It is estimated that Kuwaitis currently over-consume electricity by about 30 per cent, and the reforms 12,810 Peak demand (MW) in ,500 Additional capacity (MW) required by ,830 Capacity (MW) tendered aim to reduce demand and lower the requirement for additional power plants to be built in the future. Consumption is growing at a rapid rate, with the government estimating that an additional 10,500MW will be required to meet the projected 2022 peak load. MEED Business Review / 85

6 Business Outlook MEED Projects The region s leading project tracking service. Gain access at: SAUDI ARABIA Value of Saudi construction awards falls by two-thirds First quarter contraction due to low government activity in the construction and transport sectors Q1 CONTRACT AWARDS IN SAUDI $m 5, , , ,401 Source: MEED Projects 3, Saudi Arabia s civil infrastructure sector has been in the news a great deal in recent months, and mostly for the wrong reasons. As oil prices have fallen, the sector has ground to a halt as the government has struggled to find the cash to go through with project plans. In the fourth quarter of last year, Riyadh announced a hiatus on awards while it evaluated its projects pipeline. In the same period, the industry was rocked by the mobile crane accident in Mecca, which resulted in a ban of the kingdom s largest contractor, Saudi Binladin Group, from being awarded new work. Bankruptcy rumours More recently, in the first three months of this year, headlines have focused on delays in payments to contractors and their inability to pay their workers, some of whom have been waiting months for their salaries. It is fair to say the local construction and transportation markets are in trouble. According to regional projects tracker MEED Projects, in the first quarter of 2016, the value of contracts let in the two sectors was just $3.1bn, compared with more than $9.3bn in the same period last year, a decline of more than two-thirds. At the current rate of inactivity, rumours of contractor bankruptcies could well come true. It is not hard to see where the problem lies. Of the handful of major deals signed this year, all but two were awarded by the private sector. Simply put, government activity in the sector is practically non-existent. The outlook for the sector is dependent on when Riyadh reopens the taps. The government said it will begin releasing some of the SR180bn ($48bn) payment backlog in April, but it is clear it will be some time before all accounts are cleared. Just as importantly, there are few signs of an increase in public sector tendering activity. The failure of talks among major oil exporters in Doha on 17 April has created a bearish mood and has placed greater pressure on crude prices. With no indication of a rise in oil prices, there is little optimism the kingdom s infrastructure market will recover anytime soon. However, there is an understanding in the government that the current situation is not viable for much longer. Transport and construction comprise just under 10 per cent of Saudi Arabia s GDP, and a sharp contraction in expenditure on them will have a widespread economic impact beyond the industries themselves. With tens of thousands of jobs at risk, Riyadh knows it needs to resume spending soon. Just as importantly, it has to maintain expenditure in priority sectors such as social housing, education and healthcare. The regional unrest in 2011 reminded governments of the importance of ensuring that there are adequate services for the local population if discontent is to be contained. In the absence of higher oil revenues, the obvious solutions to the spending crisis would be to borrow to finance 86 \ MEED Business Review

7 projects, or pass on the funding burden to the private sector through public-private-partnership (PPP) frameworks. Unfortunately for Riyadh, the bulk of borrowing will likely be destined to inviolable public spending commitments such as social welfare, salaries and defence, while the PPP model cannot be quickly or easily implemented on schemes where it has not been adopted at the conceptual stage or in the absence of a defined legal framework. Obviously, the government has other means of raising revenue, such as Saudi construction deals, Q Contract value ($m) Dar al-hijrah: Pilgrim City four-star hotels 850 (group 4A) Midad: Four Seasons Hotel in Jeddah 665 Saudi Electricity Company: Headquarters building in Riyadh Saudi Aramco: Ajyal residential development 2,400 villas (packages 3 and 4) Saudi Aramco: Ajyal residential development 2,400 villas (package 2) Ministry of Defence: Armed forces housing project in Eastern Province (phase 2) FAL residential compound: Durrat FAL housing compound Ministry of Transport: Al-Baha ring road (section 9) Osool International Saudi Arabia: Nasima hotel Riyadh Chamber of Commerce: Radisson Blu hotel Source: MEED Projects Gulf index recovers as market lifts The Gulf Projects Index experienced an uplift of 1 per cent in the week ending 15 April, thanks to a major boost in the projects market, which gained 3.5 per cent. New schemes worth an estimated total of $8.8bn were introduced into the portfolio. More than a quarter of this value is accounted for by the 2,200MW power plant project planned by the Federal Electricity & Water Authority (Fewa) in the northern emirates. Other major new schemes include Emirates National Oil Company s (Enoc s) refinery expansion and jet fuel pipeline in Jebel Ali, and two mixed-use projects, Yas Acres and Saadiyat Lagoons District, both in Abu Dhabi. All the other GCC states recorded gains too, except for Qatar, which remained flat. Saudi Arabia s projects market grew by 0.4 per cent on the back of $1bn-worth of new schemes, the two largest of which include an oil pipeline connecting Qassim and Hail and a 500-bed hospital in West Dammam. Iran s projects market shed 0.2 per cent, mainly due to the Sefid Baghoon field development being put on hold. Jennifer Aguinaldo Gulf projects index Value of projects planned or under way ($bn) 1,500 privatisations, the introduction of a sales tax, and a selling off of its landbank, and it is clear that some projects considered vital to the kingdom s infrastructure plans will have to go ahead regardless of the economic environment. These schemes, which are likely to be clarified following the release of the National Transformation Plan on 25 April, may first have to be value-engineered or reconfigured, but should proceed in the second half of the year. Ed James 1, Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 Iraq Saudi Arabia Iran Source: MEED Projects Read updates through the month on: Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Qatar Kuwait 15 Apr 2016 Oman Bahrain MEED Business Review / 87

8 Business Outlook Power & water The recordbreaking bids submitted for Dubai s next solar project are lower than those submitted for conventional power generation from fossil fuel resources Solar tariff is a game changer photograph: shutterstock The submission of a world record-low 3 cents a kilowatt hour ($c/kwh) tariff for the third phase of Dubai s Sheikh Mohammed bin Rashid al-maktoum solar park is a game changer for the region s energy sector. The first three bids were all below the 4$c/kWh threshold, which had been regarded as unobtainable for an unsubsidised renewable energy tariff. While the prices submitted have smashed previous global unsubsidised tariff records for photovoltaic (PV) solar schemes, even more significantly, the tariffs have fallen to below the cost of conventional power generation from fossil fuel resources. When Saudi Arabia s Acwa Power signed a power purchase agreement in 2015 with Dubai Electricity & Water Authority for a levelised cost tariff of 5.85$c/kWh for a 200MW PV scheme, many wondered if this could be matched, never mind beaten, in the latest round of bidding. The dramatic fall in price a little more than a year later has shocked many in the power sector. While the price of PV solar has continued to fall, there were concerns that financing costs would rise as a result of major disruptions to the global economy in It was presumed that changes such as the US Federal Reserve s decision to increase interest rates would affect the tariffs submitted for the region s largest planned solar project. The submission of three tariffs below the 4$c/kWh mark has batted away these concerns and positioned the Middle East as the world s most competitive renewable energy market. MEED Business Review / 83

9 Business Outlook reports on the deadline extension for a Saudi desalination plant. Search for Jeddah desalination on Dubai receives world-record tariff for 800MW solar scheme Five consortiums submitted bids for the third phase of the Mohammed bin Rashid al-maktoum solar park Aconsortium led by Saudi Arabia s Abdul Latif Jameel, Spain s Fotowatio Renewable Ventures and the s Masdar has submitted a world-record low tariff of 3 cents a kilowatt hour ($c/kwh) for the 800MW third phase of Dubai s Mohammed bin Rashid al-maktoum solar park. Low bid Dubai Electricity & Water Authority received bids from five teams on 1 May for the photovoltaic solar project. The low bid was 18 per cent lower than the 3.65$c/kWh price submitted by China s Jinko Solar Holding. A consortium of Saudi Arabia s Acwa Power and the US First Solar submitted the third-lowest tariff of 3.95$c/kWh. A UK/French and Japanese consortium of Engie and Marubeni submitted the fourth-ranked tariff of 4.382$c/kWh, with France s EDF Renovables and Qatar s Nebras submitting the final bid of 4.482$c/kWh. The scheme will be developed in three phases, with bidders having been invited to submit proposals for part or all of the 800MW capacity. The prices listed are for the mandatory 200MW base proposal only. It is understood that all of the bidders also submitted alternative proposals. Phase A (200MW) is planned to be commissioned by April Phase B (300MW) will be commissioned by April 2019, and phase C (300MW) by April Fewa water imports Million gallons 6, , Source: Adwec 8, , , Firms to prequalify for private water plant The Federal Electricity & Water Authority (Fewa), the utility provider for the s northern emirates, has invited companies to prequalify for the contract to develop a 45 million-imperialgallon-a-day desalination plant in Umm al-quwain. Fewa sent request for qualification (RFQ) documents to selected firms after expressions of interest were received in early April. Developers have until 11 June to submit RFQs. Fewa is planning to issue a request for proposals to prequalified firms by 3 August, with a probable submission date in late October. The reverse osmosis plant will be located in the northern part of Umm al-quwain, adjacent to the Ras al-khaimah border. Under the independent water project (IWP) model, Fewa will appoint a developer to form a special-purpose vehicle to enter into a long-term water purchase agreement and a power supply agreement. Fewa will be the offtaker for all water produced by the facility. MEED reported in January that Austria s ILF Consulting Engineers had been awarded the consultancy services deal for the IWP in Umm al-quwain. 84 \ MEED Business Review

10 photograph: shutterstock saudi arabia Riyadh restructures utility sector New energy and environment ministries will govern electricity and water sectors Riyadh has scrapped its Electricity & Water Ministry in the latest round of organisational reforms, and has created new energy and environment authorities that will play a prominent role in the power and water sectors. The electricity sector will now be overseen by the Energy, Industry & Natural Resources Ministry. MEED reported in May 2015 that Riyadh was planning to create a super ministry to oversee the sector. The Environment, Water & Agriculture Ministry has been established to oversee the water sector. Coordinated strategy The announcement of the restructuring of Saudi Arabia s utility sector came just two weeks after the electricity and water minister was replaced, reportedly due to problems in implementing new water tariffs. The restructuring appears to be taking place across all the major entities. MEED recently reported that National Water Company (NWC), the state entity in charge of the water transmission and wastewater sectors, had replaced its CEO with the governor of Saline Water Conversion Corporation, the company in charge of the water desalination sector. NWC was planning to take over water services in 22 Saudi cities by 2020, in addition to its portfolio of Jeddah, Mecca and Taif. This involves preparing masterplans for water and wastewater services, increasing levels of wastewater treatment and reuse, improving efficiency and restructuring the provision of services to prepare for privatisation. Abu Dhabi invites bids for solar project Scheme will boost emirate s position in region s renewables market Abu Dhabi Water & Electricity Authority (Adwea) has set a submission date of 19 September for prequalified companies to submit bids for its planned 350MW solar independent power project (IPP). MEED reported on 25 April that 34 companies had been prequalified to participate in the tender. Eight firms have been prequalified as standalone bidders, or as part of a consortium, with the remaining 26 companies having been conditionally prequalified to participate as a member of a consortium. Time frame The project owner specified that the conditionally prequalified bidders have 28 days from the issue of the request for proposals (25 April) to join or form a consortium. Adwea has specified that a maximum of 15 bids can be received for the project. MEED reported in March that Abu Dhabi Electricity & Water Company (Adwec) had appointed Germany s Fichtner as the technical adviser for the scheme. US-headquartered Akin Gump Strauss Hauer & Feld has been appointed as legal adviser and the UK s Alderbrook Finance will provide financial advisory services. For the financial advisory position, Alderbrook saw off competition from major international firms, including the UK s EY, PwC and Deloitte, and Netherlands-based KPMG. The planned 350MW IPP will use photovoltaic solar technology. The plant will be located near the town of Sweihan in the eastern region of Abu Dhabi. The scheme will reassert the emirate s position as a major regional player in the renewable energy market. It had started to trail others following the commissioning of Shams 1 in March 2013, the region s first utility-scale solar energy plant. MEED Business Review / 85

11 Business Outlook MEED Projects The region s leading projects tracking service. Gain access at: GCC Healthcare spending stays resilient despite low oil prices GCC governments continue to prioritise hospital schemes, driven by demographic growth and political pressures While the projects market is in the doldrums in most GCC countries, it is not true to say that all sectors and markets have been equally affected. There has been a lot of talk about ring-fenced sectors such as social housing, education, healthcare and defence, and indeed there is evidence to suggest spending in these areas has held up. The rationale for protecting expenditure in these critical sectors is primarily political. Particularly since the 2011 regional unrest, governments have been acutely aware of the need to maintain a minimal level of quality provision for key sectors if they are to avoid social discontent. While spending on iconic, or nice-to-have schemes can wait, expenditure on social infrastructure cannot. Healthcare especially has prospered, driven by strong demographic growth, GCC HEALTHCARE AWARDS $m 476 n Bahrain 7,564 t Kuwait 1,188 n Oman Source: MEED Projects 4,746 r Qatar 18,327 a Saudi Arabia 8,598 E enhancement in company insurance coverage underpinned by legislative reform, and a need to modernise existing facilities with the most up-to-date equipment and infrastructure. In the four years following 2011, total spending on new hospital schemes exceeded $25bn, at $6.4bn a year on average, according to regional projects tracker MEED Projects. This was almost triple the average annual spending of just $2.7bn in the prior four years. Saudi Arabia Saudi Arabia has been the biggest spender on healthcare schemes. With the largest population, it has the most pressing need to develop new clinic and hospital infrastructure. It also has the somewhat unique regional challenge of having to build new facilities in far-flung and more remote areas, given its geographic size. Other states have the more costeffective option of building large, specialised facilities in their main city. Over the past decade, the kingdom has invested more than $18bn in new hospitals, just under half the $40bn spent overall on the sector in the GCC. The invested $8.5bn, while Kuwait spent $7.6bn over the same period. Public hospitals dominate spending. That is not to say, however, that the private sector does not play a role. In some locations, such as Dubai, the private sector is thriving, providing the majority of beds in the market. Changes in legislation compelling companies to provide mandatory health insurance to their employees 86 \ MEED Business Review

12 have spurred the development of this important component of the market. There are some $27bn-worth of hospital and healthcare schemes in the pipeline spread across the six GCC states. Saudi Arabia again is the leading player, but is closely followed by Kuwait, Qatar and the. As populations continue to grow, governments understand well the need to make continued investments in healthcare. At the same time, the rising financial burden of sending their citizens overseas for specialist treatment gcc medical projects* $m 325 n Bahrain 6,511 it Kuwait 2,017 n Oman ar 5,559 Qatar *=Planned. Source: MEED Projects 7,875 a Saudi Arabia 5,000 E Kuwait and Iran only bright spots on index The Gulf Projects Index fell 0.1 per cent in the week ending 13 May, and is now 0.9 per cent down year-on-year. Kuwait was the only country to post a big rise in the value of its projects market, and is up by 1.6 per cent. Korea Land & Housing Corporation has agreed to cooperate with the Public Authority for Housing Welfare on its South Saad al-abdullah City, which could be worth $4bn. Iran saw a small uptick, growing by 0.3 per cent. The resumption of real estate, industrial and gas schemes was tempered by delays on oil projects. Iran is the fastest-growing market in the Gulf, with a 37.5 per cent year-onyear rise in value. Qatar recorded the biggest contraction of the week, declining by 0.5 per cent due to project completions. The value of the Saudi projects market fell by 0.4 per cent, also on project completions. The kingdom is down 12.7 per cent year-onyear, which is the largest fall in the GCC. The recorded a 0.2 per cent fall in value. New construction schemes worth more than $900m combined did not outweigh the value of projects put on hold or completed. Philippa Wilkinson is becoming increasingly untenable in the face of lower oil prices. The need for in-country specialised medical institutions is now more important than ever. And it is no surprise that many future hospitals will be focused on specific illnesses and conditions rather than being general purpose. No wonder, therefore, that specialist medical contractors, equipment providers and engineering consultants remain upbeat while general contractors suffer from falls in project spending. The prognosis may be cloudy for the region s projects market as a whole, but for the healthcare sector it has rarely been healthier. Ed James Gulf projects index Value of projects planned or under way ($bn) 1,500 1, Dec 2005 Dec 2006 Iraq Saudi Arabia Iran Source: MEED Projects Read updates through the month on: Dec 2007 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Qatar Kuwait 13 May 2016 Oman Bahrain MEED Business Review / 87