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UME talks exclusively to ACWA Power CEO Paddy Padmanathan

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Paddy Padmanathan, ACWA Power CEO and President.
Paddy Padmanathan, ACWA Power CEO and President.

Saudi Arabia’s ACWA Power has set itself some mightily impressive targets. Adam Lane meets CEO and President Paddy Padmanathan and finds him in an ambitiously acquisitive mood

“It’s an interesting time in the world – with recession concerns, banking crisis, monetary crisis, all the rest of it. But if you consider that in Saudi Arabia, for example, there is 11% annual growth in demand for electricity – and that throughout the region it’s something like 7% - in our sector, in this part of the world, we are very much in the right place at the right time. It is pretty much a boom period.”

If there is a constraint for growth, he says, it is certainly not a lack of demand in the market. Customers are there, together with a real and growing need for power and water, and the projects keep coming across the region.

“Funding is more challenging, but it’s not as difficult or as complicated as people make it out to be. Well-structured projects in basic infrastructure services in this region really don’t have a problem. Right now we are involved in a coal-fired power project in Mozambique.

That project should have been very difficult to get funding. I’m not going to say it’s very easy, but at the same time we’re well on track to getting it done.

“The key is being well structured, in a domain where there is a legislative platform that supports private sector ownership, respect for the rule of law, and economic and political stability. Where you have that, you can get these things done.”

If there is a current challenge, Padmanathan says that it has much more to do with ensuring that you have the right people in place on a project.

“In this sector, in this region, our constraint is much more to do with making sure that we can attract the best and the most experienced people. We are delivering an essential service, but within a very commercial environment and that requires a very specific multi-sectoral capability.

“This business – of developing assets, getting the technical solution right, putting in the contractual framework, getting funding, building the asset – it’s very multi-disciplinary. It needs a very interesting set of skills that nobody is born with but that you need to develop. So getting the right people into the right positions is certainly our challenge,” he says.

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Current business

Challenges aside, the company has not been lax in striving for those targets, and its expansion outside of Saudi Arabia has already taken it in more directions that it had planned.

“In terms of where we are, we have signed up to 14,000 MW of power generation, 2.5 million m3 of desalination capacity, and we are already operating in three other countries and one other region.

“We’re operating in Oman and in Jordan – so nice neighbouring markets to our own – but we’re also in Bulgaria. This is a 61 MW PV plant that is quite significant and means we already have our first renewables project under our belt. We are also in a very advanced stage of project development of new assets in Turkey, in Morocco, Mozambique and in South Africa. So in terms of growing beyond the Kingdom of Saudi Arabia we are way past our target already.”

ACWA’s 1,500MW renewables target was also distinctly ambitious, but Padmanathan believes that the firm’s current movement suggests they are well on course.

“As well as the Bulgaria project, we have a 165 MW concentrated solar plant (CSP) in Morocco in project development that will be by far the largest concentrated plant in the world. And we also have a 50 MW project – another CSP plant – in financing right now in South Africa.”

The company has also spread its wings in terms of fuel diversification, and now boasts a portfolio that ranges from oil and gas, to wind projects (in Jordan) and solar.

“At the end of the day we are a utility company that is fuel neutral. We are here to serve the world. We can try to save it along the way - and we certainly want to be as environmentally compliant as possible – but we don’t dictate fuel.”

The sum total of this progress to date sees the firm providing 11% of Saudi Arabia’s total electricity, and 40% of its desalinated water. In Jordan, the firm provides 59% of the country’s power, whilst in Oman it currently produces 14% of its desalinated water and 17% of its electricity.

It is clear – as Padmanathan says – that ACWA becomes quickly significant in the markets it operates within.

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Distinction

With such apparent success in such a short space of time, the obvious question to ask is how exactly have ACWA Power distinguished themselves from rivals during the tendering process?

“From day one, we said we wanted to deliver electricity and water in a reliable way, at the lowest possible tariff, regardless of the market. And now eight years on, if you ask anyone out there ‘what is Acwa Power known for?’ they will say the same thing, though they will say it differently. They will say that ‘these guys are the crazy Rambos delivering some crazy prices’, or they will give a more polite assessment of ‘amazingly competitive’.

“Either way, with every transaction we have tendered and won, we have tendered - and delivered - on average a 20% difference between our price and the next bidder.

And that’s been against a wide array of competitors; we’ve always ended up delivering this significant tariff difference.”

Over the course of a twenty-year contract, this 20% difference in a typical contract of 1,000 MW power capacity will potentially save the buyer billions. It is perhaps not immediately clear why a company would forego these returns.

“We want to go for the lowest price because we want it to be sustainable over twenty years. We look beyond the sanctity of the contract – yes, we believe the customer is honorable; yes, we believe the customer is credit-worthy – but we don’t want to put that to the test if we can help it.

“If over the twenty years there ever comes a time that the customer is struggling to pay the bills and starts to look to where it can conserve expense by switching off power plants, we want to be one of the last they switch off because we are the cheapest. It’s very simple.”

The logic behind this position does make a simple, straightforward sense, and Padamanathan says that it is only possible with a constant focus on every cost component and on persuading all ACWA’s partners to work on the same basis.

“We’re the ones holding the contract for twenty years. We’ve got to survive for a very long time. And as we have learnt over the last few years, everything changes. Twenty years is a hell of a long time, and that’s the reason we have a relentless focus on cost.”

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Renewables

With the company’s move into Bulgaria – a development Padmanathan says was driven partly by the firm’s impatience to get started with solar PV – together with its current involvement in the tender for Morocco’s Masen solar project, the firm has clearly arrived on the renewables scene.

At the same time, the constantly developing technology in the sector might slow the pace of renewables adoption.

“In oil and gas-fired plants the tariffs don’t change a great deal. They are very mature technologies, and whilst inflation, deflation, oil prices, might have some impact, there won’t be massive fluctuations.

“However with solar tariffs, the cost has dramatically come down and will continue to come down. As such, we don’t want to get caught with a lot of capacity that has been acquired at a higher price today that needs to be recovered over the next twenty years.”

At the same time, he doesn’t believe that this should stop it going down the renewables road. He suggests that there is a definite need to diversify the fuel base and to recognise that different fuels have complementary places in a daily load curve. places in a daily load curve.

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Future

Looking ahead, Padmanathan says that until 2014-15, the company will continue to focus on the core markets it selected back in 2010 – the GCC, Jordan, Egypt, Morocco, Turkey and southern Africa. however, he foresees plenty of potential elsewhere.

“Beyond 2014, we are building a long-term utility company so we will progressively grow. We don’t need to be everywhere, and we have no ambition to be all things to all mankind, but our intention is to spread a little further afield and, very likely, the most logical places for us to move will be in Asia – countries like Indonesia, Vietnam, in time possibly Myanmar. So there’s lots of space and lots of opportunities to grow.”

To date, much of ACWA’s work has been Greenfield development, with a recent spate of acquisitions. Does this represent a future strategy for the company?

“In Saudi, it was all Greenfield because that’s what the opportunity was. As we go forward, we will do both – acquisitions and Greenfield – to take on assets where we can add value or where we can create more synergy with assets we already have.

“We’re not looking for acquisitions for the sake of looking. We’re looking for the right sort of assets and we’re also looking for good people. So assets that come with good operating people; assets that require repowering or expansion of capacity – those are the kind of things that make a lot of logical sense for us to look at.”

CV

Paddy Padmanathan
An engineering graduate of the UK’s University of Manchester, Paddy Padmanathan is a civil engineer by profession. The President and CEO of ACWA Power, a market leader in electricity generation and desalinated water production, he has previously worked with Black & Veatch where he served as VP and corporate officer prior to his departure in 2005.

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