Sharing the burden

An assessment of the utilities sector in Bahrain

Power consumption in Bahrain is expected to increase by 4-7% annually in the next decade.
Power consumption in Bahrain is expected to increase by 4-7% annually in the next decade.
Al Dur IWPP: The success of this landmark project is a boost to the GCC project finance sector.
Al Dur IWPP: The success of this landmark project is a boost to the GCC project finance sector.

Bahrain’s reliance on the public private partnership model has so far served its utilities sector well. But will financing difficulties put a stop to its expansion?

Unlike most of the other nations in the GCC, the Kingdom of Bahrain is not blessed with significant oil reserves. As a result, the state has been effective in winning foreign direct investment (FDI), particularly due to a recent free trade agreement with the US. However, the Economist Intelligence Unit (EIU) predicts that FDI will be more subdued in the next five years; a fact that has so far not offered any restraints for the country’s utilities sector.

The turning point for Bahrain’s power sector came five years ago, when the country’s installed base was not enough to cope with demand over the peak summer period. Since then, Bahrain, along with its fellow GCC member states, has moved strongly to address the deficit, with public private partnerships helping to make up the shortfall.

In particular, the growing number of independent water and power projects (IWPPs) in the GCC has offered many opportunities for international companies to invest in the utilities sector. In many respects, Bahrain has proved to be something of a leader in this field, a fact that was underlined by the successful financing of the US $2 billion Al Dur IWPP, which will have a capacity of 1234 MW and 218,200m³ of desalinated water per day when it comes online in 2011.

But Al Dur was not the first IWPP in Bahrain’s power sector. In January 2007, three companies – International Power, Belgium’s Suez Energy and Japan’s Sumitomo – bought the Al Hidd power and water plant for $738 million. Their investment in the project will increase the total amount of funds ploughed into Al Hidd to around $1.25 billion.

In terms of current capacity, Al Hidd is the largest plant, offering 37% of power distribution in Bahrain, according to the Ministry of Electricity and Water (MEW). Four other state-owned power stations – Al Ezzel, Rifa, Manama and Sitra – cover the rest (see chart).

“Power consumption is expected to increase 4–7% in the next decade. It is estimated that Bahrain would require an installed power generation capacity of 3,342–3,960 MW by 2012 to meet the anticipated growth in demand,” says Layla Al-Ammar, investment analyst at the Kuwait Financial Centre “Markaz”. “Based on a weighted average of installed capacity required to be added based on scenarios, Bahrain will need to invest US $1.3 billion in power generation and transmission infrastructure by 2012.”

On the water side, a little more than half of Bahrain’s water supply is provided by the Al Hidd IWPP, with desalination now accounting for more than 80% of the country’s water provision, according to UK consultancy Business Monitor International (BMI). The importance of desalination grew markedly when the Al Hidd IWPP came online, and this will increase even further when the Al Dur project reaches fruition.

“EWA has also made improvements in increasing the coverage of sanitation and sewage connection to 88% of the island’s population, and is on target to reach full coverage by 2015,” forecasts BMI’s third-quarter Bahrain Water Report.

Proving Bahrain’s push towards private public partnerships has extended to all areas of the utilities sector, another massive project currently out for tender is the Muharraq sewage treatment plant. The tender for the 25-year build own operate (BOO) contract is set to close on October 28, and MEW says it will process 90,000-100,000m³ of water a day, a figure that is set to increase to 160,000m³ in five years time.

By clever application of the IWPP model, Bahrain has so far managed to share the burden of upgrading its power and water services. But the success in financing Al Dur – an experience that was matched in August by the conclusion of Abu Dhabi’s long-running saga over the Shuweihat plant – indicates that this model will still stand the sector in good stead for the long-term future too.


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