Kuwait: Partnership potential

With the recent addition of a new 1400-MW power plant, Kuwait appears ready to meet the increase in electricity demand that occurs every summer. Government authorities are also planning to bring additional capacity on-line over the next few years, with the private sector expected to play a major role in this expansion.

According to estimates from the Ministry of Electricity and Water (MEW), peak demand for power is expected to increase at a rate of 6-8% per annum over the next few years, reaching 14,256 MW by 2014. Peak demand usually occurs in the summer, when heavy use of cooling systems can strain the power grid. According to some estimates, air conditioners account for around 70% of Kuwait’s peak power demand.

However, no electricity shortages are expected this summer. In March the assistant undersecretary of planning and training at the MEW, Mishan Al Otaibi, told the audience at the second Kuwait Electricity Conference and Exhibition, “Although we expect the increase of power consumption to be about 9% compared to last year, there will not be a shortage. Last year electricity consumption reached 11,000 MW and it is expected to reach 12,000 MW this summer. By the beginning of June the new power station will be operating according to our work plan.”

Indeed, in late June the first phase of the new power plant at Sabiya, around 100 km north of Kuwait City, came on-line. Six gas-powered turbines have been activated, which will be able to generate 1400 MW of electricity, equivalent to roughly 10% of Kuwait’s current total capacity.

The plant is expected to enter its full combined-cycle commercial operations in 2012, at which point its total capacity will be around 2000 MW. A combined-cycle plant is more efficient because waste heat is recovered and converted into steam, which is then used to drive a steam turbine to produce additional power. Owned by the state, the facility will be operated and maintained by General Electric for a period of seven years from the commencement of full commercial operations.

Beyond Sabiya, a number of other plants are in the works. Al Otaibi told local press in March 2011 that some KD2bn ($7.3bn) would be spent on power production projects that will be completed within the next three years, including new plants at Al Zour and Khairan. According to MEW projections, the country’s installed capacity will increase from 14,593 MW in 2011 to nearly 17,000 MW in 2014. Moreover, the government is eager to involve the private sector in this expansion. As Al Otaibi said during his opening remarks at the event in March, “The MEW is keen on joining the private sector in building and developing these new power stations, as the private sector is very important in Kuwait.”

Indeed, the public-private partnership (PPP) model appears to be the route the government will use to develop these plants. In March 2011 Adel Al Roumi, the head of the Partnerships Technical Bureau – the organisation responsible for issuing and overseeing PPP projects – told the state news agency that all preparations had been completed for the establishment of the Northern Al Zour Power Generating Company, the shareholding firm that will be responsible for building and operating the country’s first independent water and power project (IWPP). Although the IWPP model is used extensively elsewhere in the Gulf, it is new in Kuwait, where all water and power generation capacity is currently owned by the state.

The private sector strategic partner for the plant has not yet been determined, but the government tendered for the project on March 24. In an interview with Bloomberg in late March, Eyad Ali Al Falah, the assistant undersecretary for technical services at the MEW, said that 11 companies had prequalified to bid. He added that the government would hold no more than 24% of the shareholding company, while the strategic investor would own no less than 26%. The balance of shares would be sold to the public in an initial public offering. The plant will have a capacity of 1500 MW, and is expected to become operational in 2014. Authorities eventually plan to locate four power plants in the Al Zour area, with a combined capacity of 4800 MW.

As the country’s first PPP power plant, the project will no doubt be followed closely by foreign investors. If successful it could generate substantial interest from the international investment community, and with the government planning significant capacity expansion in the future, there will almost certainly be additional opportunities for private sector involvement in the sector.