Nigel Blackaby
Features Editor

Saudi Arabia is facing strong economic growth and rapidly rising electricity demand. Many power infrastructure projects are being developed, and the private sector will play a large role in this expansion.

Ever since the rule of the Saud dynasty began in the 1930s, the Kingdom of Saudi Arabia has been looking to develop its economy and infrastructure to become a major player on the world stage. Fuelled by the wealth from the Kingdom’s vast oil resources, which amount to one quarter of the world’s proven reserves, a modern and thriving country has been established which is demanding more and more electricity and drinking water. A largely centralized government has had to look to outside resources in order to keep pace.

Saudi Arabia’s hot and arid climate makes air conditioning a necessity rather than a luxury. The summer peak loads present a challenge to the power generation industry, as do the high temperatures and humidity and frequent sand storms. In 2002, peak load reached 23 938 MW, according to Saudi’s Ministry of Electricity & Water (MEW). That year saw the number of consumers rise by 6.3 per cent to just over 4 million and electricity sales up 4.6 per cent to 128 TWh. Current capacity in the Kingdom is some 29 GW and around 6000 million l/day of water.

Saudi Arabia’s rapidly expanding economy is underpinned by a growing power sector
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Electricity is one of the main supporting pillars of economic development in Saudi Arabia. The Kingdom has put much effort into developing the sector and estimates that over SR65bn ($17.3 billion) has been spent on building an electricity infrastructure that has now become the largest in the Arab world.

Sector reform

In 1998, the Council of Ministers promulgated a Royal Decree under which the electricity sector was to be reorganized to pave the way for privatization. This included the merger of the Consolidated Electrical Companies and the projects of the Electricity Corporation under one incorporated company, named Saudi Electricity Company (SEC). SEC is owned 74 per cent by the government, 7 per cent by Saudi Aramco and 19 per cent by other shareholders. Interim results for 2003 showed operating revenue of SR17.5 billion and net income of SR1.4 billion. SEC is traded on the Saudi Arabian Stock Exchange and its market capitalization as of mid-April 2004 was $23 billion. SEC is now producing around 84 per cent of the electricity needed by the Kingdom.

An independent Saudi Electricity Regulatory Authority (SERA) was established in 2001. SERA was mandated to ensure that government policy objectives were met. It is responsible for recommending tariffs for the sector and monitoring industry standards. SERA and the MEW jointly work on the sector restructuring. In addition, the government introduced new tariff structures (for the industrial sector in particular) thereby removing the majority of the subsidies and allowing the companies involved to recover their costs of production and become commercially viable.

Saudi Arabia has 18 gas power generation plants, each connected to a 380 kV power transmission grid and 19 diesel/gas power generation plants connected to a 110 kV power transmission grid. Being the world’s largest producer of desalinated water has added to the country’s overall power generation. About one third of the country’s 29 desalination plants are dual system plants, generating nearly one-fifth of the country’s total capacity. Significant excess production of the power generated by the desalination plants is transmitted to SEC – in 2001 this amounted to 3096 MW.

Introducing IWPPs

The government is taking steps to unbundled power generation, transmission and distribution. In 2002 a framework was established for private sector involvement in developing independent power and water projects (IWPPs). Saudi Arabia is hoping to attract private sector investment for up to 60 per cent in IWPPs, and is considering a guarantee that local Saudi Arabian companies would purchase electricity and water produced.

IWPPs identified for development would serve the capital of Riyadh; plus the cities of Jedda, Mecca, Medina, and Shoaiba on the west coast; and Jubail on the east coast. 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 industrial cities, at a cost of around $2 billion.

In July 2003, a landmark agreement was reached to establish the Kingdom’s first independent power plant (IPP) at Jubail for Saudi Petrochemical Company (Sadaf). The $170-$200 million 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 Sadaf’s petrochemical facilities in Jubail. Other IPPs are planned by Saudi Aramco which, last 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.

In March 2004, as part of its privatization drive, MEW announced plans to build ten new IWPPs by 2016 at an estimated cost of SR60 billion, providing investment opportunities for international investors. Of these, four greenfield IWPPs will be built by 2009. The first IWPP, the Shoaiba project, is due to come on stream in the third quarter of 2006, at a cost of SR5 billion. The project will have an installed capacity of 750-950 MW and a water desalination capacity of 882 million l/day. Eleven companies have been pre-qualified to bid for the project.

The other three projects are the SR1.5 billion Shuqaiy IWPP which will have a capacity of 700 MW and 109 million l/day, the SR9 billion Raz Azzour IWPP which will generate 2500 MW and 800 million l/day of water, while the SR4 billion Jubail project will have a capacity of 1100 MW and 341 million l/day of water.

New installed capacity

SEC is also proceeding with a general capacity enhancement programme. In 2003 it signed a $239 million contract with the National Contracting Company (NCC) to expand the Jeddah PP3 power plant by 480 MW, bringing the total site capacity to 1700 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 extension project is SEC’s Shoaiba phase two, which includes the construction of three new 350 MW turbines. An Alstom-led consortium has been selected as EPC contractor for the expansion. The project carries a price tag of $1 billion and financing has been raised through one of the Kingdom’s biggest-ever corporate borrowings. The first unit is due to come on stream in mid-2006. If an option is exercised to build a further three units the power plant would be the largest in the Middle East at over 4000 MW. The expansion at Shoaiba was originally planned as part of Saudi Arabia’s now abandoned gas initiative.

Request for Proposals for the Shoaiba IWPP are due, following which a developer or consortium will be selected to own 60 per cent of a special purpose company that will build, own and operate the crude oil fired plant.

Tenders for expansion projects at power stations in Arar, Rafah, Abha, Jizan and at Riyadh’s PP7 and are also expected to be announced. An announcement of the successful bidder to take on a further expansion of the PP9 CCGT power plant in Riyadh is due. Four groups are expected to bid, Saudi companies Arabian Bemco and National Contracting Company, along with Alstom and Siemens. The contract calls for the addition of 1200 MW to the existing 1296 MW.

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SEC has mapped out a plan to bring all the geographic regions in the Kingdom under one power grid. The power grid linking Hail region and the Eastern region with Riyadh has already been completed. An interconnection between Saudi Arabia and other GCC states is now under implementation. SEC holds a 40 per cent stake in the GCC Power Grid Corporation, which aims to build a regional grid network with a view to facilitating power trading.


Population growth and industrialization, linked to a desire to diversify away from an oil-dominated economy, are creating a rapidly growing demand for electricity. The Saudi government is moving towards restructuring the country’s power sector to address this need. The establishment of ESRA in 2001 and the restructuring of the SCECO system is now being accompanied by a more general streamlining/ privatization of the power sector.

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. A stable regulatory and political climate will be required for this trend to continue and develop.