Water projects are on the rise and legal changes permit further growth

In the wake of growing water consumption driven by rapid population growth, the sultanate of Oman is working to substantially increase its seawater desalination capacity. The government’s successful record of working in collaboration with the private sector to deliver new utilities projects has painted a bright forecast for future partnerships, while amendments to the industry’s Sector Law are expected to encourage future independent water plants (IWPs). Unlike in an independent water and power project (IWPP), these plants will not be required to provide desalination in addition to power generation, thereby opening the doors to timely capacity upgrades.

With a spate of new desalination projects, including IWPs that are currently in the planning and tendering stages, private contractors are expected to benefit from the contracting, operation and supply agreements well into the future.

Desalination 

Although Oman holds significantly higher groundwater reserves than its GCC neighbours, desalination still supplies some 44% of the total water needed, according to a 2014 report by consulting and accounting firm PwC. Five independent water and power producers currently meet the demand for desalinated water: Al Ghubrah Power and Desalination Company, ACWA Power Barka Company, Sohar Power Company, SMN Power Company, and SembCorp Salalah Power and Water Company. All the operators together offer a total combined capacity of 144m imperial gallons per day (MIGD), although these are expected to rise to six producers and 186 MIGD in 2015 with the opening of a new IWP in Al Ghubrah.

Oman’s first forays into desalination began in 1976, when the Al Ghubrah Power and Seawater Desalination Plant in Muscat was commissioned. Owned and operated by the government under the auspices of the Electricity Holding Company, the Al Ghubrah plant holds seven multistage flash (MSF) desalination units that were installed between 1976 and 1999, each with a capacity of 22,750 to 27,000 cu metres per day.

Suppliers 

Muscat’s desalinated water is largely supplied by the Al Ghubrah and Barka IWPPs, the latter of which was the first to be built, operated and owned by a private company, ACWA Power Barka, in 2003. The $415m Barka I plant has three MSF desalination units installed, each with a capacity of 30,000 mcm per day, while the Barka II plant, owned by SMN Power Holding, added a desalination plant with capacity of 26.4 MIGD in 2009.

Water is produced at Barka II via energy-efficient reverse osmosis (RO), which has become the government’s preferred desalination method when tendering new projects. In the RO process, water from a pressurised saline solution is separated from dissolved salts by flowing the mix through a water-permeable membrane. During the process, no heating or phase-change takes place, and major energy requirements involve initial pressurisation of the feed water, making RO the most attractive option for energy-conscious developers.

Recent Development 

Outside of Muscat in 2007, the Sohar Power and Desalination Plant became the second IWPP to be built, operated and owned by the private sector, after the Sohar Power Company’s winning bid for the tender in 2004. GDF Suez owns a 35% stake in the company, MENA Infrastructure Fund owns a 20% stake, and the Ministry of Defence Pension Fund and Sogex Oman each hold 5%, while 35% of the company is floated on the Muscat Securities Market. The plant contains four MSK desalination units, offering a capacity of 33 MIGD.

Following Sohar’s initial success, a new RO seawater desalination plant was constructed at Sur in 2009, the first privately owned IWP (which does not include electricity production or proximity) to be built in the sultanate and the entire Middle East. In 2006 two of six pre-qualified bidders submitted proposals for the project, with France’s Veolia-led consortium winning to form the Shariqyah Desalination Company, partnered with the National Power and Water Company.

On completion, the Sur IWP brought an additional 80,000 cu metres per day of desalination capacity to the north-eastern Sharqiyah region, and in July 2014 the company announced plans to expand the facility by an additional 50,000 cu metres per day. More recently, SembCorp Salalah’s IWPP began commercial operations in 2012, adding 15 MIGD of capacity, plus 445 MW of power.

Consumption 

Despite this rapid expansion, water consumption has also been rising steadily, following expansion of the population from 654,000 in 1970 to just over 4m people in April 2014. This demand is expected to increase well into the medium term, as a host of planned infrastructure, energy and tourism development projects move forward.

The Oman Power and Water Procurement Company (OPWP) is the exclusive, state-owned buyer of both power and desalinated water from independent producers. The OPWP reported purchasing 193.6m cu metres of water in 2013, a 15% increase from 167.7m cu metres in 2012, due to significantly higher demand. Water consumption has shown annual average growth of 12.8% between 2008 and 2013, and the total cost of water purchases rose 9% from OR85.44m ($221.24m) in 2012 to OR92.9m ($240.55m) in 2013. At the same time, the average cost per cubic metre dropped by 6% to reach OR0.48 ($1.24) as capacity utilisation improved. Utilisation rates within the desalination industry remain high, ranging from between 81.9% at Al Ghubrah and 99.4% at Barka II.

New Projects

New IWPs have been the focus of government plans in recent years. In February 2012 the PAEW announced plans to invest $2.9bn in water infrastructure over the next two decades, including a new IWP at Al Ghubrah. The OPWP announced in March 2014 that it plans to increase its water desalination capacity by 66%, or some 123.6 MIGD, over the next six years. The goal is to reach 310 MIGD by 2020, from a projected 186 MIGD in late 2014. The OPWP plans to build six new desalination projects in that time.

A number of new projects are expected to come online within the next three years, the most notable of which is the Al Ghubrah IWP, which is slated to commence operations during the first quarter of 2015. In November 2012 OPWP awarded a contract for the $378m project to the Muscat City Desalination Company, a private firm in which 45% of shares are owned by Malaysian power firm Malakoff, 45% by Japan’s Sumitomo, and 10% by Spain’s Cadagua SA.

The Al Ghubrah IWP is unique in the sultanate; the plant, which will have a total capacity of 42 MIGD, will operate as Oman’s first-ever desalination facility “of a special nature,” in line with an amendment to the Law for the Regulation and Privatisation of the Electricity and Related Water Sector (78/04), also known as the Sector Law.

Amendment 

The 2013 amendment to the Sector Law brings certain desalination projects, which are neither combined with, nor co-located with, power generation capacity, under the current Sector Law. This means that IWPs with the “special nature” moniker can enter into supply contracts with the OPWP.

The amendment also mandates that the Al Ghubrah IWP become a fully regulated and licensed entity under the purview of the Authority for Electricity Regulation (AER), as well as any other existing or planned IWPs in the sultanate. While adding a regulatory burden to existing and future IWPs, this amendment has also opened the door to future expansion targeted at water projects that, rather than needing to be combined with power generation facilities, can now operate just to produce desalinated water.

Competition

Outside of the Al Ghubrah IWP, another major project in the pipeline is the Quriyat IWP, which will offer 44 MIGD of capacity when it opens in 2017. Twelve companies and consortiums bid on an initial tender in September 2013, and the OPWP issued a request for proposals to seven shortlisted bidders in April 2014. Companies including Brazil’s GS Inima, Spain’s Tedagua, and consortiums led by Sumitomo, Singapore’s Hyflux, Japan’s Itochu, and Spain’s Abegnoa and Valoriza, are all vying for a contract that includes design, construction, ownership, financing, operation and maintenance of the facility. The winner is expected to sign a 20-year contract with the OPWP, marking the third IWP established in conjunction with the private sector.

Several other major desalination projects are also in the works. The proposed 50 MIGD Suwaiq IWP, located in the Al Batinah governorate, is expected to become operational during the second quarter of 2018. The OPWP announced in March 2024 that it plans to announce a tender for pre-qualification later in the year, although no further updates have been announced since then.

The OPWP also has plans to upgrade and expand existing facilities. Apart from the Sur expansion, projects include ACWA’s planned Barka I expansion phase II, which will add 10 MIGD, the 6 MIGD Duqm IWP and the 3 MIGD Khasab IWP, as well as the relocation of a 2 MIGD temporary plant from Al Ghubrah to Duqm.