From relatively humble beginnings International Power has transformed itself into the leading independent water and power developer in the Middle East. MEE talks with Ranald Spiers, Executive Director – Middle East & Asia, about the company’s success in the region and how it aims to maintain it.
International Power (IPR) is a major independent power generator. However, the company had humble beginnings as part of UK generator National Power.
In the early to mid-1990s, however, international investment became a top priority for National Power and the company embarked upon an aggressive international development programme. The success of this programme ultimately led to National Power’s demerger in October 2000 and the creation of IPR.
Since then the company has not looked back, with operations in 20 countries (five regional headquarters: US, Middle East, Asia, Australia and Europe), 33 000 MW (gross) capacity and now a major water and power developer in the Middle East region.
Q. When did IPR first move into the Middle East power & water sector, and how did its business there evolve?
Ranald Spiers, Executive Director – Middle East & Asia
A: We set up an office in 1997 and we got our first project in June 2000, which was in Al Kamil in Oman.
What is particularly interesting about the Gulf countries is that they have grown dramatically in the last 40 years.
When IPR moved here, we decided to base ourselves in Abu Dhabi because we felt that this was the place that was most likely to have independent private power first.
As it turned out Abu Dhabi and Oman opened up first, followed by Saudi Arabia, Bahrain and Qatar. Now, IPR has at least one project in each of these countries.
To start with, however, it was very much on a project-by-project basis, and in the early days there were not many projects available for bidding. There was Taweelah A2 in 1998 and Taweelah A1 in 1999 – both in Abu Dhabi. We were unsuccessful in winning either of those, but in 2000 we won Al Kamil, as mentioned above, and subsequently Shuweihat S1, again in Abu Dhabi, in 2001.
We had to do a lot of groundwork before we were successful. I think part of that involved learning. But the other part is due to the importance of relationships in Arab culture. You need to build up trust by doing what you’ve said you’ll do.
Q: As I understand it, IPR originally started as an independent power producer, but it has built up its desalination business. Was this primarily because of the potential it saw in the Middle East region?
A: Yes, because historically the only way you can get drinking water in the Gulf is via desalination.
It was really the Abu Dhabi Water & Electricity Authority (ADWEA) that decided that the first projects would be combined water and power projects.
Our first IWPP was Shuweihat S1, which we did in partnership with the US developer, CMS. The reason why we chose CMS was that they had won the first IWPP, Taweelah A2, so this enabled IPR to learn the desalination business from them.
Like many of the American developers, CMS left after September 11th happened, so we found ourselves with the largest desalination plant in the world with Shuweihat S1.
Most of the projects from then onwards have been water and power projects.
IPR has also stretched the envelope every time. For example, at Hidd in Bahrain we decided to put on a Multi Effect Desalination (MED) extension, which added to the Multistage Flash (MSF) technology know-how we’d achieved at Shuweihat S1 and at Ras Laffan B in Qatar.
For our newest project, which is Fujairah F2 there is a mixture of MED and Reverse Osmosis (RO). So we are adding to our skills all the time.
Due to the number of water and power projects we have won we are probably the largest private supplier of water in the world. We currently have 520 million gallons /day (gross) of desalination plants either in operation or under construction.
Q. According to IPR’s recently published half-year results, profits from operations in the Middle East rose ten per cent compared to the same period last year. What is responsible for this growth?
A: What happens is, you bid for projects, you finance them and then build them, and as they come online you begin to see your first profits.
In 2006, for example, we had the first units of the UAE’s Umm Al Nar and first units of Ras Laffan B coming on stream, and in 2007 we had more units coming online at Umm Al Nar and Ras Laffan B, and at the extension of Hidd. In 2008, that process will continue.
So the growth in revenues we see in the region is very much about projects we’ve won coming online and into operation.
Q. With ever more gloomy reports of an global economic downturn, is IPR concerned how this may affect its business in the Middle East, or will continued high oil/gas prices keep this region relatively protected?
A: First of all, IPR is living testimony that business can go on after the credit crunch because Fujairah F2 was financed in the teeth of the credit crunch as it was signed in August last year.
Project finance is very transparent because it involves simple assets, simple projects, predicted cash flows, and so the banks like this kind of business, compared to more opaque financing, such as mortgages. Thus, project finance hasn’t suffered globally, although banks have obviously increased their margins to an extent and taken advantage of the current economic climate.
The high oil prices and the flux of activity – there are a lot of ambitious plans to double the size of Abu Dhabi and Dubai – indicates there is no shortage of capital here.
We are seeing some of the Export Credit Agencies, such as the Japan Bank of International Cooperation (JBIC) also lending as normal, so I don’t see the Middle East being significantly affected.
Q. There is a great deal of interest in the Middle East’s power & water sector, what makes IPR stand out from other independent power and water developers?
A: I think the single biggest factor to be honest is our track record – that we do what we say we will do and then deliver. When people use us they know we will meet our deadline and produce a plant that will work for 30-40 years.
Interestingly, a project, which we failed to win because we insisted on sticking to dates that we felt we could deliver on, subsequently ended up being delivered by one of our competitors but over a year late.
Q. Focusing on IPR’s current operating portfolio in the Middle East, what has been the most important project the company has been involved in and why?
A: It would be easy to say Shuweihat S1 because it was our first big project and it was financed at a difficult time, i.e. after September 11th.
But for us the biggest and most important project is Tihama because it is in the biggest and most important market in the region, and that is Saudi Arabia. We won what was essentially a dream project with a dream client, namely Saudi Aramco, the largest oil company in the world.
Oman’s Al Kamil OCGT power plant was the first project IPR won in the Middle East
It is our biggest earner in the Gulf region and comprises four cogeneration plants supplying power and steam inside Saudi Aramco’s facilities.
The fact we delivered these plants on-schedule – two plants were actually delivered early – has meant that IPR has a very good relationship with Saudi Aramco, which should stand the company in good stead for future work.
Q. How important was it to win the Fujairah F2 IWPP for IPR’s continued success in this region?
A: Without doubt it was very important. We had previously won two big projects in Abu Dhabi, so it was nice to be back in the [UAE] again with a third one.
The reason we won it was because we brought in the new Alstom GT26 gas turbines that we were familiar with from our US operations. We spent a lot of time getting those US plants up and running, but no one had used them here in the Middle East.
We always thought that at some point someone would bid with these turbines because they are very fuel-efficient. Finally we decided why shouldn’t it be us?
We spent a lot of time lobbying ADWEA prior to the tendering process to let us bid with these machines and eventually they agreed.
Once Fujairah F2 is operational it will be by far the most efficient power and water plant in the Gulf, making it an important project for us to win.
Q: In June, IPR announced it had put its Mmamabula coal power project in Botswana on hold, citing tightness in the EPC market as one for the factors contributing to this decision. Could this EPC tightness have a similar effect in the Middle East market?
A: If you look at the fundamentals of what is going on in the world right now there is a huge demand for electricity and there is huge price inflation everywhere.
In terms of the major steam turbine manufacturers, their factories are full and they are finding it hard to find engineers and resources, so they able to pick and choose projects.
However, there is a difference between a coal and gas project. If you want to build a project in the Middle East you are going to get at least four gas turbine suppliers interested. However, if you are doing a coal project anywhere you will have a challenge finding people with available steam turbines to meet the schedule.
One of the reasons why we have had to go back to the drawing board on Mmamabula was the fact that with the rise in commodity prices and the rise in the EPC prices generally, it became too large and too complex a project with three units. We are now looking at a smaller option.
In the Middle East, in contrast, there has been no abatement in the size of projects. You are still seeing projects like Qatar’s $4 billion Ras Laffan C IWPP, which is 2800 MW.
Q: Currently, all of IPR’s portfolio in the Middle East is gas-fuelled but is the now company looking at diversifying its fuel mix?
A:To be honest I think the more efficient and ‘carbon friendly’ your portfolio is the better in the current climate. If you have a choice between an old oil plant and a new gas plant you would prefer to go with the new gas plant. But if our strategy is to expand in a market where coal is the only option then we will do coal.
In Saudi Arabia, it may be that some of the projects coming up will be oil-based, which means they will be expensive and they will have to have a plethora of extra bits and pieces to make them environmentally ‘friendly’. But if that is the way they are going, we will have to go that way too.
In some ways we react to how projects are bid in the Middle East. The driving force is not the developers, themselves, but the clients and off-takers as they determine the rules of the game as they go.
We wouldn’t want to diversify just for diversification’s sake, but it is useful to have a full range of technologies. The fact that we now have all available desalination technologies in our portfolio means that should one technology begin to dominate we can adjust.
Q: Following on from the previous question, do you believe we will see renewable energy sources such as solar and wind playing a bigger role in this region?
A:I think so. In IPR’s wider Middle East market there is now a greater emphasis on renewable energy. We are hoping to bid for a 100 MW solar plant in Abu Dhabi in the near future, and also on a 300 MW wind project in Morocco.
Interestingly, if we look at other non-carbon emitting power generation sources, there is also a lot of talk about nuclear power in the Middle East, which is sort of ironic in a region rich in oil and gas.
Having said that, oil and gas will continue to drive power generation, purely because of the abundance of these resources in this region.
Q: Looking to the future, how do you see IPR’s business developing in the Middle East region?
A: Well I hope it will be as it is now, with us winning one or two projects a year and growing as we have done.
There is a lot of competition in the market, but it is still possible to win by doing things a little differently or through leveraging the relationships we already have. We are a long-term investor, so the people in the countries that we operate in are absolutely essential to maintaining our assets and building new businesses.
So my message would be ‘steady as she goes’ and ‘don’t change direction’.
Winning the Tihama cogeneration plant in Saudi Arabia, was a major coup for IPR