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Country Focus – Jordan: Sector for sale

Jordan has a well-run electricity sector yet the government has so far failed in its privatization programme and knows it has to expand its generation fleet if demand growth is to be met.

Power generation production mix in Jordan 2005
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The Hashemite Kingdom of Jordan is currently experiencing a high population growth rate, boosted by the flight of many Iraqi business and intellectual classes to the country. The country covers an area of about 89 200 km2, sharing borders with Iraq, Syria, Israel and Saudi Arabia. Its population of 5.7 million live predominantly in the northwest of the country in areas constituting about ten per cent of the country’s total land area.

Unlike some of its Arab neighbours, Jordan is not blessed with abundant natural resources. But despite the lack of significant commercial energy assets or water supplies, the country has managed to achieve growth and a gradual improvement in living standards.

Jordan is therefore heavily reliant on energy imports, placing a large annual burden on the national economy. Energy consumption is growing at about three per cent per year and electricity demand growth is closer to six per cent. The long-term electricity demand forecast shows high growth rates with a steady annual increase of five per cent, on average for the coming ten years.

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Since the establishment of the Jordan Electricity Authority (JEA) in 1967, the government has been firmly committed to providing the population with a secure source of reliable and affordable energy. By the early 1990s nearly 100 per cent of Jordan’s population was supplied with electricity. In September 1996, the JEA was converted to a public shareholding company wholly-owned by the government called the National Electric Power Company (NEPCO).

Private path

The Ministry of Energy and Mineral Resources is responsible for implementing the country’s energy policy. Government policy towards the power sector has for some time been directed towards liberalization and privatization, in line with its broad economic strategy. The World Bank Group has been assisting Jordanian privatization since 1995 in collaboration with USAID and other development partners. Amman has appointed the UK’s Rothschild and Germany’s Fitchner as advisors on power sector restructuring.

The first step in this process was taken in 1999 when NEPCO was split into three legally and financially independent operating companies: the Central Electricity Generation Company (CEGCO), the National Electric Power Company (NEPCO), and the Electricity Distribution Company (EDCO). In 2001 the independent Electricity Sector Regulatory Commission was established, responsible for tariff setting, licensing and safeguarding public interests.

In 2005 it looked probable that a deal to sell a 51 per cent interest in CEGCO would be secured. This would have had the likely effect of kick-starting a wider privatization within the sector involving the sale of EDCO and a majority stake in the Irbid District Electricity Company (IDECO). In the event the negotiations with India’s Reliance Energy came to nothing with the government failing to agree with Reliance’s valuation of CEGCO. Despite the quality of the electricity sector, Jordan’s dependence on fuel imports brings with it fuel risk and increased uncertainty for any prospective purchaser.

The failure to attract a strategic investor has reportedly prompted NEPCO to look at alternative options for the CEGCO sale including opening it up to local investors. Without outside investment there is growing concern about the sector’s ability to respond to the growth in power demand with additional capacity.

Power plans

Three power plants are responsible or the lion’s share of Jordan’s power generation: the 650 MW Aqaba power plant in the south, the 400 MW Hussain station in the north and units totalling 360 MW at Rihab. A 132 kV transmission system runs north to south in the country with distribution lines served from this. Distribution is handled by EDCO along with as some private firms including the Jordan Electric Power Company (JEPCO) in Amman and IDECO covering the Irbid district.

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NEPCO is planning a new 370 MW CCGT near Almanakher, east of Amman, due to be in operation in 2008 or 2009. This will be Jordan’s first independent power project (IPP) and preferred bidder status has been granted to a consortium comprising Dubai-based AES Oasis and Japan’s Mitsui & Company. The AES/Mitsui team offered a levelized price per kWh some 6-7 per cent lower than the next lowest bidder, Saudi Arabia’s Xenel Industries with Turkey’s Gama. The $280 million project is being offered on a build-own-operate (BOO) basis with the Energy and Mineral Resources Ministry prepared to sign a 25-year power purchase agreement with the successful bidder. Mitsui is the nominated EPC contractor.

An expansion of the Samra 200 MW power station is also planned with a loan agreement for JD25 million ($35.3 million) for this project having just been signed with the Cairo Amman Bank and Arab Investment Bank. A steam unit is to be added to the two existing 100 MW gas turbines resulting in a 300 MW combined cycle plant by 2008. The Samra Electric Power Generating Company is also currently considering bids from turnkey contractors for the design, build and supply of an additional gas fired 95-140 MW simple cycle plant. The plan is to convert this plant to combined cycle with the addition of 200 MW around 2012 and a contract award is expected around the middle of the year.

The introduction of natural gas piped in from Egypt, the initial phase of which came on-line in 2003, has facilitated an expansion of Jordan’s gas fired power fleet. A second phase of the $230 million gas pipeline project between the city of Arish in Egypt and Aqaba as the first station in a long line planned to reach Syria, Lebanon, Cyprus, Turkey and South Europe entails the construction of installing a 370 km gas line extending from Aqaba northbound to Rihab electricity generation plant in the north, and the Khirbet Samra and Al Hussein Thermal Station in the Zarqa area.

NEPCO has implemented a state-of-the art synchronized, countrywide enterprise management system to put the country’s electricity sector on a competitive and sound financial footing. The internet-based ION system was supplied by Canada’s Power Measurement and uses intelligent energy meters linked to four software servers to track and verify energy transactions between Jordan’s generation and transmission companies.

Renewable options

As part of its drive to reduce dependence on gas imports, Jordan has developed programmes to promote renewable energy. The country is well served for both wind and solar energy resources and the government has set a target of procuring five per cent of total energy needs from renewables by 2015. Plans for an ambitious build hybrid solar and gas/HFO BOO project with a capacity of 100-150 MW failed to materialize. US consultant Delanova Energy has been tasked with carrying out a feasibility study into wind energy in the Kingdom looking at different options to realise the lowest production rates possible. CEGO is producing electricity from five wind turbines at the Hofa station and four turbines at Al-Ibrahimiyyah and a $30 million expansion of these sites was studied by Delanova in 2003. Projects are very much reliant on adequate power purchase arrangements being offered by NEPCO.

The use of solar energy is currently limited to some remote village lighting schemes although the National Energy Centre has implemented a pilot desalination project using photovoltaic cells in co-operation with the US Energy Centre.

CEGCO and the Greater Amman Municipality own a 1 MW waste-to-energy plant, which it hopes to expand to 5 MW. Jordan has also studied how it might exploit the geothermal resources but concluded that thermal properties were only suited for heating purposes.

Connecting power

In November 1994 the Jordan Electricity Authority (JEA) and the Egyptian Electricity Authority (EEA) approved the construction of a 300 MW, 400 kV AC link to interconnect their electrical networks, at a total cost of $200 million the two countries. At the heart of the project lies a 13.6 km, 400 kV submarine cable routed at a depth of 850 m across the Gulf of Aqaba between Aqaba in Jordan and Taba in Sinai. The link is an important stage in the planned interconnection between Egypt, Jordan, Syria, Iraq and Turkey called “The Seven Countries Electric Interconnection Project (EIJLLST)”. The submarine link will be the first electrical connection between Asia and Africa and will eventually lead to a grid loop extending all the way round the Mediterranean. Civil construction started in November 1995 and commissioning is planned for mid-1997.

Future finance

Jordan knows that it can no longer rely on international and regional development institutions to help finance its power infrastructure through bilateral concessional lending or aid. In future it must look to the private sector in order to tap into sources of finance that are unavailable to state-owned utilities. Jordan will be looking to follow-up the limited success of bringing in foreign capital on a project-by-project basis. For now, the ‘For Sale’ notice remains posted but the price may need to be more negotiable.

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