A Case of demand still exceeding supply


In its new research on the GCC Power sector, Kuwait Financial Center “Markaz” notes that economic growth and demographic changes have obviated the need for increased spending on infrastructure, in general, and power, in particular, in order to provide modern, reliable and efficient power services to citizens. The report lays out the foundation of the GCC Power sector, in terms of structure, current project status, contribution of member states to consumption trends, etc. The report also takes stock of delays in existing projects on account of current global financial turmoil and how this will alter project models (e.g. from IPP to EPC).

A regional boom took hold in the GCC at the beginning of the decade, fueled by high oil prices, increased effort at attracting private/foreign investments to the GCC and ever-expansionary fiscal policies among GCC governments. Concurrently, population growth and increased immigration led to increasing demand for modern and efficient infrastructure. Many GCC countries used the oil revenue windfalls to support debt reduction programs, but unlike previous oil booms, the GCC governments have also been actively seeking ways to invest these revenues in their domestic infrastructure to provide reliable basic services for their citizens.

The global economic crisis has brought some of this into question, with issues of large-scale project funding and difficulty in refinancing existing projects coming to light. Liquidity remains tight with banks remaining cautious of lending, foreign investment has fled the region for safer havens (whereever these can be found), and GCC governments face much smaller surpluses, and as a result, will be tightening their purse strings going forward; all of which could have adverse ramifications for power infrastructure spending over the next five years.

According to Meed Projects, as of June 2009, there are 234 power projects spanning the GCC economies with a total value of USD 162 bn. The majority of these projects are in Saudi Arabia and the UAE, a combined contribution of 73% of the total. Saudi Arabia takes the lead in terms of number of projects, with 110 currently in various phases of execution, followed by the UAE with 58 projects. It is interesting to note that Qatar takes third place in terms of project value, with 12% of the total (or nearly USD 20 bn) while it only has 14 projects, or 6% in terms of number of projects.

Geographical Distribution of GCC Power Projects

Power Consumption & Installed Capacity
Source: Energy Information Administration (EIA), Zawya, MEED, Ministry of Electricity and Water, Kuwait

Growing demand for power in the GCC region, driven by increasing populations, has necessitated capacity expansion, bringing the sector into focus. The region’s installed capacity increased from 46,579 MW in 2002 to 73,339 MW in 2007, implying capacity expansion at an annual rate of 10%[1] (Table 5). Saudi Arabia and the UAE accounted for 51% and 21%, respecitively, of the region’s installed power generation base in 2007.

The expansion in installed capacity has been spurred by the growth in electricity consumption. While the region’s electricity consumption grew at a CAGR of 8% between 2002 and 2007, the trend varies between countries. Power consumption in Qatar grew 11% on a compounded basis between 2002 and 2007. During the same period, Kuwait’s power consumption increased 6%.

Saudi Arabia and Kuwait are the largest power consumers in the region. Saudi Arabia accounted for 56% of total electricity consumed in the GCC and registered a CAGR of 7% between 2002 and 2007. Utilization by Kuwait, which accounts for 13% of regional electricity consumption, increased 6% during the same period.

Kuwait Financial Centre S.A.K. 'Markaz', with total assets under management of over KD781 million as of March 31, 2009, was established in 1974 has become one of the leading asset management and investment banking institutions in the Arabian Gulf Region. Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997; and was recently awarded a BBB+ corporate rating by Capital Intelligence Ltd.