Saudi Arabia is the largest power market in the Middle East with the greatest potential for new projects and sector activity. Developers have been appointed for the country’s first independent power and water project and many similar projects are planned.

The Kingdom of Saudi Arabia is the world’s largest oil producer and is heavily dependent on oil revenues. The country experienced strong economic growth in 2003 but has a high level of domestic debt and a significant unemployment problem. The expansion of Saudi Arabia’s economy, drive for diversification and its rapidly growing population are all contributing to an increase in demand for electricity – currently 4.5 per cent annually. This required expansion of Saudi Arabia’s power sector has created the opportunity for foreign investment participation.

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The Saudi Arabian Government forecasts demand for electricity in the Kingdom rising from its present level of 23.6 GW to 66 GW in 2020. Most of the cost of this expansion is expected to fall on the private sector. Saudi Aramco, the state-owned oil company with power generation interests, estimates that a total investment of $130 billion will be needed – $60 billion on generation, $55 billion on power transmission and $15 billion on distribution. Most of the new generation plants will be gas fired or combined cycle, as the government intends to significantly expand gas utilization in the power sector. Saudi Arabia has 18 gas fired power generation plants each connected to a 380 kV power transmission grid and 19 diesel/gas plants connected to a 110 kV grid. The proportion of cogeneration facilities in the Kingdom is expected to rise significantly from its present level of 28 per cent.

Saudi Arabia’s ten regional power companies have been consolidated into a single joint-stock company, the Saudi Electricity Company (SEC), in order to expedite the streamlining of the sector’s operations. Capitalised at SR 33.75 billion (approximately $9 billion), the new electricity company is to be self-supported and independent from the government, although 74.15 per cent of its shares are government-owned.

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The creation of the SEC is a major step toward increasing the power sector’s efficiency. The SEC is currently inviting private investor participation in planned power generation projects worth $53.3 billion. Investors are being offered a seven-year pay-back period under these projects.

Currently, the power network is being run by the four Saudi Consolidated Electricity Corporations (SCECOs), which together control around 85 per cent of the Kingdom’s power supply, and by six other regional companies. These companies service around 3.3 million customers in 7000 Saudi cities, towns, and villages. To ensure that SEC is able to finance the network expansion, new tariff rates were put in place shortly after SEC was officially established.

In 2002, the SEC passed a resolution setting out a framework for private sector involvement in developing independent water and power projects (IWPPs). Following the model successfully pioneered in the UAE and Oman, Saudi Arabia hopes to attract private sector investment for up to 60 per cent equity in IWPP projects, and is considering a guarantee that local Saudi companies would purchase electricity and water produced.

IWPP projects identified for development would serve the capital of Riyadh; plus the cities of Jeddah, Mecca, Medina, and Shouaiba on the west coast; and Jubail on the east coast.

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Private investment in the power sector is also a key component of the development plan of the two major industrial cities of Jubail and Yanbu. The Saudi government approved the creation of the joint-stock Utility Company (UCO) – known as Marafiq. This company has reportedly commenced construction of several water and electricity projects in the cities, at a cost of around $2 billion.

In July 2003, a landmark agreement was reached in establishing financial closure for the Kingdom’s first independent power plant (IPP) at Jubail for Saudi Petrochemical Company (Sadaf). The $170m-$200m project is a 75:25 joint venture between the local National Power Company and US developer CMS Energy Corporation. Siemens, the EPC contractor, will build a 250 MW cogeneration plant, which will also produce 510 t of steam for Sadef’s petrochemical facilities in Jubail. Other IPPs are planned by Saudi Aramco which, in December, signed Build Own Operate Transfer (BOOT) agreements with UK power developer International Power and local construction firm Saudi Oger, to build four cogeneration facilities, designed to produce 1000 MW of electricity and 1814 t of steam.

SEC is also proceeding with a general capacity enhancement programme. In 2003 it signed a $239m contract with the National Contracting Company (NCC) to expand the Jeddah PP3 power plant by 640 MW. Under the expansion plan NCC will install eight GE Frame-7, 80 MW gas turbines at an auxiliary plant. In May 2003 Arabian Bemco Contracting won a bid to carry out the 120 MW expansion of the Tabuk power plant.

Another large project which is out to tender is the Shouaiba phase two, which includes the construction of three new 350 MW turbines. This was originally planned as part of Saudi Arabia’s now abandoned gas initiative. Tenders for expansion projects at power stations in Arar, Rafah, Abha, Jizan and at Riyadh’s PP7 and PP9 power plants are also expected to be announced.

In October 2003, as part of its privatisation drive, Saudi electricity and water authorities announced plans to build 21 water and electricity projects in the Kingdom with an estimated total value of $13 billion. These include seven electricity generation plants worth $7.2 billion which will provide 14 000 MW additional capacity.

The country requires additional investment in power transmission. Currently only two of the country’s four power regions are connected and creating a unified grid could require 20 000 miles of additional transmission lines. The SEC is undertaking ten transmission projects in order to upgrade and expand the domestic power grid. A number of substation projects were awarded in the last year, with several more being tendered at present.

In July, SEC awarded ABB a $90m turnkey contract for the installation of a flexible AC transmission system to improve links between the Eastern and Central Provinces of its grid. ABB will design, manufacture, install and commission four series compensation units in the 380 kV corridor, enabling SEC to increase capacity while maintaining or improving grid stability.

The establishment of the independent Electricity Regulatory Authority (ERA) in 2001 and the restructuring of the SCECO system may lead to a more general streamlining/privatization of the Saudi power sector, such as a further splitting of SEC into units dealing with generation, transmission, and distribution companies. The recent announcements of privately funded IWPPs point the way towards the greater involvement of the private sector and a willingness of foreign investors to participate in the sector’s growth.

Energy Overview

Saudi Arabia has a quarter of the world’s proven oil reserves producing more than eight million barrels per day. Oil accounts for 90-95 per cent of total Saudi export earnings, typically over 80 per cent of state revenues, and around 40 per cent of the country’s GDP. State-owned Saudi Aramco (the world’s largest single oil producing company) has more than 90 years of production.

Export revenues from crude oil sales are expected to jump from $55 billion in 2002 to $70 billion in 2003 on the back of firmer prices. Its major markets are the United States, Europe and Japan. Over the next five years, Saudi Aramco expects to be spending over $1 billion annually on its programme of refinery upgrades and expansions. Saudi Arabia’s natural gas reserves are estimated at 6.36 trillion m3, ranking fourth in the world (after Russia, Iran, and Qatar). Around 60 per cent of the country’s proven natural gas reserves consist of associated gas, mainly from the onshore Ghawar field and the offshore Safaniya and Zuluf fields.

Saudi Arabia’s energy consumption has nearly tripled over the past two decades from 1794 million GJ in 1980 to 4853 GJ. Overall, Saudi Arabia accounts for 1.1 per cent of global energy consumption. Between 1980 and 2000, Saudi Arabia’s carbon emissions rose from 48.8 million metric t to 74.8 million metric t. Although, in terms of per capita carbon emissions, Saudi Arabia is still a regional leader at 3.7 metric t of carbon per person, its level remains well below that of the US (5.6 metric t of carbon per person).