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Kingdom plans Power Sector Overhaul
Agencies
Published in The Saudi Gazette on 19 - 03 - 2008

A plan to overhaul and privatize Saudi Arabia's power sector could be approved by the country's highest economic body within a few weeks, a Saudi official said on Monday as the Kingdom's electricity consumption could rise to the equivalent of 140,000MW in 2032 compared with 35,000 MW in 2007, according to the Ministry of Water & Electricity.
The figures come from the ministry's first long-term power forecast, which was unveiled at MEED's Middle East Power & Water conference in Abu Dhabi on Monday.
Power demand is rising rapidly in the world's top oil exporter of more than 24 million people, as record oil revenues fuel economic expansion.
The plan would split the power generation assets of the Gulf's largest utility by market value, Saudi Electricity Co., 5110.SE (SEC) into four separate units before eventual privatization, said Abdullah Shehri, deputy governor at Saudi Arabia's electricity regulator (ECRA).
SEC, which is government owned but partly traded publicly, will be transformed into a holding company for the four units, he told reporters on the sidelines of a conference.
SEC would likely still own at least one of the companies and transmission assets after privatization, he added.
Saudi's Supreme Economic Council was considering the plan, which has already received ECRA's approval, Shehri said.
Privatization would help bring the massive investment the power sector needs, Shehri said. SEC has been struggling to find cash to meet the growing power demand.
“We want additional investment to curtail future financial challenges,” he said. “This will also cut down on expenses and enhance competition.”
Ibrahim El-Amin, a researcher at the King Fahd University of Petroleum & Minerals in Dhahran who has led the long-term demand forecast project, said total Saudi Arabian power demand is projected to grow to more than 572,000GWh in 2032 compared with 163,000GWh in 2006.
The long-term demand study is based on the assumption that the population of Saudi Arabia will grow to 33 million-39 million in 25 years, compared with 22 million now. El-Amin said the 2032 demand forecast is based on the assumption that the five economic cities being developed in the kingdom will need 10,662MW in 2030. It estimates that at its lowest, demand would be about 108,000MW in 2032.
El-Amin said the forecast will be affected by the growing number of people arriving for the annual Haj and Ramadan, which takes place during the summer over much of the next decade.
“The Haj during the summer could add 1-3 percent to the forecast demand for the western region starting in 2016,” he said. “There will also be a shift of demand from morning to the evening during Ramadan.”
El-Amin said the long-term electricity demand forecast was based on historic trends in the Saudi economy and in power consumption in the Kingdom. No change was assumed in the Kingdom's electricity tariff structure. He said that attention will now switch to the structure of supply side issues.
The restructuring would unbundle generation and transmission assets, and a new company would be formed to run Saudi Arabia's power transmission grid, Shehri said.
Unbundling would be followed by the introduction of competition in the wholesale sector, and later with competition in the retail sector, he said.
Power generation capacity in the Kingdom needs to grow threefold over the next 25 years to meet future demand, said El-Amin. Capacity needs to rise to 115,000 megawatts in 2032, from current capacity or around 35,000 megawatts, he said.
Saudi Arabia's Supreme Economic Council is studying a three-phase restructuring plan for the Kingdom's electricity system that could lead to the division of the Saudi Electricity Company (SEC) into four or more power generation companies by 2010.
The energy industry restructuring program (ERIP) also calls for the introduction of private capital into the kingdom's transmission system and competition in the electricity distribution and customer service provision.
Once approved by the Supreme Economic Council, the ERIP could go immediately into effect without needing further approval from the cabinet or the consultative council, according to deputy governor of Saudi Arabia's Electricity & Cogeneration Regulation Authority Abdullah Shehri.
The first phase of ERIP, to be completed in 2008-10, will involve unbundling SEC and introducing competition in power generation. The second phase, to be completed in 2010-13, calls for wholesale competition and phase three will introduce retail competition.
“In phase I of ERIP, we would like to see the establishment of at least four generating companies out of the SEC,” Shehri told MEED's Middle East Power & Water conference in Abu Dhabi. “We would like to see all of the (generation) assets moved to these companies so that they may go private by selling all or part of their assets.”
ERIP's first phase also calls for the creation of a Saudi Power Procurement Company to take over from the Water & Electricity Company, a joint venture between the Saline Water Conversion Corporation (SWCC) and the SEC which was set up to buy electricity from the kingdom's initial independent water and power plants (IWPPs).
Phase I also calls for the establishment of the Saudi Grid Company to own, operate and manage the kingdom's electricity transmission system.
“We want to see the Saudi Grid Company owned by a strategic partner or using build and lease financing methods,” said Shehri said. “It will increase innovation, transfer of knowledge and know-how.”
“The second phase will involve increasing the size of the parallel market and establishing a spot market where all the prices will be announced on a daily basis,” said Shehri. “We would also like to see the creation of distribution companies owned by SEC or sold to the private sector.” “The last stage of the plan is for a full wholesale electricity market in 2013-16,” said Shehri. “We are still looking at the way it will work, but the role of the principal buyer will diminish. The electricity market will then be based on competitive buying and selling.” __


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