the meed view of the saudi utilities market 2010

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Page 1: The MEED view of the Saudi utilities market 2010

An overview of the Saudi Arabian utilities market

Angus Hindley, Research Director, MEED

AWCS Breakfast Briefing, 25 May 2010Abu Dhabi

Page 2: The MEED view of the Saudi utilities market 2010

MEED Insight is the research and analysis arm of the MEED group, providing off-the-shelf reports and bespoke services to customers. It offers tailored research on a broad range of countries and sectors in the Middle East on issues such as market sizing and outlook, project overviews and competitor analysis.

Introduction

Page 3: The MEED view of the Saudi utilities market 2010

Agenda

• The Saudi Arabian utilities market in the regional context

• The challenges facing the sector• Power• Desalination• Wastewater• Conclusions

Page 4: The MEED view of the Saudi utilities market 2010

Saudi Arabia is the region’s biggest utilities market

The kingdom’s power sector is more than twice as big as the UAE’s and four times larger than Kuwait’s

Bahrain Kuwait Oman Qatar Saudi Arabia UAE0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

GCC installed power capacity, 2009M

W

Page 5: The MEED view of the Saudi utilities market 2010

Its desalination sector is slightly smaller than the UAE’s but twice as big as Kuwait’s

Bahrain Kuwait Oman Qatar Saudi Arabia UAE0

200

400

600

800

1000

1200

1400

GCC desalination capacity, 2009m

illio

n g/

d

Page 6: The MEED view of the Saudi utilities market 2010

Its wastewater treatment capacity accounts for almost half of the GCC total

221,000

697,000

106,000

285,000

1,952,000

965,000

GCC wastewater capacity, 2009 (cmd)

BahrainKuwaitOmanQatarSaudi ArabiaUAE

Page 7: The MEED view of the Saudi utilities market 2010

The UAE was the largest spender on utility projects in 2009, although its total was distorted by the $20bn nuclear power contract in Abu Dhabi

Bahrain Kuwait Oman Qatar Saudi Arabia UAE0

5

10

15

20

25

GCC utility project spending, 2009$b

n

Page 8: The MEED view of the Saudi utilities market 2010

Each sector faces similar challenges

* They are all experiencing high growth in demand, brought about by a population increasing in size by 2-3 per cent a year and robust economic growth

* They each have to contend with some of the highest rates of per capita consumption and usage in the world, as a result of heavily subsidised services

* They are all struggling to meet the demand growth, in part due to a lack of investment in the late 1990s

* They are all entering a period where decommissioning of existing plants will become a major issue on account of age

* They all require unprecedented investment, which is set to come from both the private and public sectors

Page 9: The MEED view of the Saudi utilities market 2010

The power challenge

Riyadh has had to cope with power demand rising by 6-8 per cent in recent years, which has led to a reserve margin of about 9 per cent in 2009

2005 2006 2007 2008 20090

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Peak power demand , 2005-09M

W

Page 10: The MEED view of the Saudi utilities market 2010

The power challenge

Based on 6 per cent annual growth, the kingdom will require 40,000 MW of new capacity up to 2019 in a programme that will cost an estimated $48bn

Bahrain Kuwait Oman Qatar Saudi Arabia UAE0

5,00010,00015,00020,00025,00030,00035,00040,00045,00050,000

GCC installed and required capacity

Installed capacity, 2009 Additional capacity, 2019

MW

Page 11: The MEED view of the Saudi utilities market 2010

The power challenge

The new capacity requirement is likely to be much greater than 40,000 MW given the need to replace existing units on account of age

0-5 6-10 11-18 19-22 23-26 27-35 >350

50

100

150

200

250Distribution of SEC turbines by years

20082015

Years

Num

ber o

f uni

ts

Page 12: The MEED view of the Saudi utilities market 2010

The power challenge

The dominant power generator, Saudi Electricity Company (SEC), plans to award 10,800 MW of new capacity to private developers and a further 21,000 MW through the conventional EPC market

SEC's IPP programme

Plant Capacity (MW) Commissioning date

Rabigh 1,200 2013

PP11 2,000 2013

Qurayyah 2,000 2015

Dheba 1,600 2016

Ras al-Zour 2,400 2017

Shuqaiq 1,600 2019

Page 13: The MEED view of the Saudi utilities market 2010

The power challenge

Riyadh contracted almost 8,000 MW of power capacity from the developer market since 2004, allowing a number of private companies to build up significant portfolios

Acwa Power International;

1735

Gulf Investment Corporation; 720

International Power; 644

GDF Suez; 550

Kepco; 482

Top five power developers by equity capac-ity (MW)

Page 14: The MEED view of the Saudi utilities market 2010

The desalination challenge

* Water demand is growing by about 6 per cent a year, but demand for desalination is rising much faster given that the government wants to increase its share of total water supplies from 60 per cent at present

* Based on MEED Insight forecasts, desalination capacity will have to increase to at least 1,600 million g/d from 900 million g/d by 2019 at an estimated cost of $6bn just to meet demand

* SWCC, the main desalination provider, is facing an extensive decommissioning programme, having been advised that 12 plants with total capacity of 480 million g/d should be retired in 2012/13

* Investment in new capacity has increased significantly in recent years with 230 million g/d coming on stream in 2009, 280 million g/d planned to be commissioned in 2010/11 and some 250 million g/d in 2013/14

* Like SEC, SWCC is looking to award contracts to both EPC contractors and developers and is also planning its own privatisation

Page 15: The MEED view of the Saudi utilities market 2010

The wastewater challenge

By GCC standards, wastewater network coverage is low in Saudi Arabia covering just 45 per cent of the population

Riyadh Jeddah Medina Greater Dammam

Kharj0

10

20

30

40

50

60

70

80

90

100

Current network coverage by city

Water distribution (%) Wastewater collection (%)Wastewater treatment (%)

%

Page 16: The MEED view of the Saudi utilities market 2010

The wastewater challenge

The government aims to have 100 per cent network coverage by 2024 in a programme that will require an estimated $40bn of investment in infrastructure and a further $17bn in operations

Total capital expenditure requirement for 100 per cent network coverage

YearSewage treatment (%)

Sewage collection (%)

Water distribution (%) Total ($ bn)

2005 -09 6 63 31 13

2009 - 14 5 62 34 9

2014 - 19 5 50 45 8

2019 - 24 5 50 45 10

Total (%) 5 57 38 100

Total ($bn) 2 23 15 40

Page 17: The MEED view of the Saudi utilities market 2010

The wastewater challenge

* The government set up the National Water Company (NWC) in 2008 to achieve the targets and to oversee the introduction of the private sector into three areas:

- O&M contracts covering the main urban centres are to be awarded with the first two, Riyadh and Jeddah, already being undertaken by Veolia and GDF Suez

- New treatment capacity is planned to be developed on a build-own-operate (BOO) basis, although the first two projects at Al-Kharj and Al-Hayer in Riyadh are now set to be tendered as EPC contracts

- New private companies are to be set up to market sell and distribute treated sewage effluent (TSE) and sludge

* The scale of the challenge, particularly in Jeddah, has meant that progress so far on the restructuring has been limited, although NWC insists that private investors and international contractors will play a central role in future

Page 18: The MEED view of the Saudi utilities market 2010

Conclusions

* High demand growth, the age of existing capacity and a lack of investment in the late 1990s means that there is now a huge need for new utility infrastructure in Saudi Arabia

* An estimated $80bn is required over the next 10 years to meet demand

* Non-government investors, both at home and abroad, are being targeted to shoulder a major share of the investment costs

* Difficulties in the regional project finance market put a brake on private projects in 2009, but the government remains committed to the developer model

* The Saudi utilities sector is becoming much more international with foreign developers and consultants increasing in number

* Government clients, and in particular NWC, are looking to attract more international contractors into the market

Page 19: The MEED view of the Saudi utilities market 2010

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