Powering Ahead

A 3D Model of the Fujairah II power and desalination plant .

In countries whose coffers are not swelled by oil and gas revenues, PPP are much more critical in terms of financing. Here, PPPs are often used by development banks to get involved in infrastructure building.

In Jordan, several PPPs are being supported by the World Bank, while Egypt is receiving support from the World Bank, the European Investment Bank, and the German development bank KfW.

“In countries which need infrastructure but can’t afford it there is a strong development angle,” concludes Fèvre.

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Powering ahead?
So far, governments have had few difficulities in attracting bidders for their projects, but there are a few misgivings.

While government participation drives down risk levels, a large ADWEA stake translates into a fairly small portion of ownership by the private companies.

“From a foreign bidder’s perspective, you are negotiating and implementing a very large contract, but you only might hold 20 percent of the equity in the project. So it is less material in terms of profit and net MW,” says Spiers.

Oman has been causing some consternation amongst private companies in the past when the government delayed tenders and stalled projects.

With no legal framework in place to boost investor confidence, countries rely on their track record, making Abu Dhabi a popular place to do business for developers. Some believe that implementing a PPP or concession laws could help countries without such a track record to boost their appeal to the private sector.

Practical improvements would also be welcomed. A report by Freshfields Bruckhaus Deringer points to the fact that most countries in the region lack a central government unit coordinating PPP activities, and advises governments to follow Egypt’s example in setting up such a unit.

Investors would profit from added certainty on the terms of transactions and a more transparent procurement process, the firm says. “If you have such a department, you usually end up with an official with key responsibilities,” adds Christian von Tschirschky, principal and head of Utilities for the MENA region at consultancy ATK Kearney.

“Having a key coordinator helps, especially as government institutions in the region are quite complex.”

Governments in Kuwait, Iraq and Dubai, which have not yet adopted the IWPP model to address their power and water needs, will have to consider all those issues.

Most observers see Kuwait some way off an IWPP. One problem for investors is the political system, says Fèvre. “In Kuwait, the big problem is political risk as there is the constant struggle between the executive and parliament and there is no certainty about what’s going to happen to any particular projects.”

Security concerns mean that Iraq will also have to wait some time before IWPPs become a possibility.

In Dubai, plans are underway to built the emirate’s first IWPP. The proposed 1.500MW plant at Hassyan is expected to come online in 2013 or 2014. The project is at the advisory stage, observers believe that the procurement period may take longer due to Dubai’s inexperience in handling IWPPs.

In light of the global financial meltdown and the impact is has had on the GCC, developers are cautious about committing. “Participating companies may have certain prerequisites they want to see, for example that power projects are backstopped by the government, and potentially further backstopped by national funds,” says one contractor.

These concerns about financing utility projects in the region highlights one thing: public private partnerships in the Middle East are only as strong as the government that support them.

The Fujairah II IWPP
With a net generating capacity of 2000 MW and approximately 600 000 cubic meters of potable water a day the Fujairah II project will be the largest IWPP in the UAE.

A consortium comprising ADEWA (60%), Marubeni (20%) and International Power (20%) own holding company Fujairah Asia Power Company (Fapco). Alstom and Sidem, a subsidiary of Veolia Water, have been awarded the engineering, procurement and construction (EPC) contract for Fujairah II.

Marubeni and International Power are charged with operating and maintaining the IWPP in a 50:50 joint venture, under a 20 year PWPA.

Power production rests on five Alstom GT26 gas turbines. These will be capable of dual fuel operation, burning natural gas, with the capability of operating on liquid fuel if the gas supply is interrupted. The GT26 has a rated output in open cycle application of 288.3 MW and an efficiency of 38.3 per cent.

The desalination plant is made up of two sections, one based on Multiple Effect Distillation (MED) and the other on Reverse Osmosis (RO). The largest of these, the MED section, takes steam from the combined-cycle power plant to generate potable water.

The smaller section based on RO is driven not by steam but by power. This combination allows for the optimisation of steam and power output from the combined-cycle power plant in order to provide constant water production as power demand varies with the seasons.

The total project costs of Fujairah II amount to US$2.7 billion. Of this, US$ 2.1 billion has been financed by long term debt, of which approximately half has been lent by JBIC.

The equity amount worth US$565 million was financed by an equity bridge facility, according to International Power, which will have to be repaid by ADWEA, Marubeni and International Power in proportion to their equity stake in July.

The plant is in the process of commissioning its gas turbines, and testing its desalination units. According to International Power managing director Ranald Spiers, Fujairah II will start becoming operational within Q2.

The project has been built adjacent to the existing Fujairah I plant.