FICHTNER

Opportunities and Challenges in the Kingdom’s

Power Generation and Water Production Sectors

Panos KonstantinSenior Consultant

Fichtner, Stuttgart - Germany

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Consultancy

Comprehensive technological know-how as foundation

• conventional technologies

• innovative technologies / renewable energies

Extensive planning experience in all project phases

Classical planning services are rounded off by

our over-arching expertise in consultancy

Planning Technologies

Power Supply

Energy Technology

Environmental Technology

Water and Infrastructure

IT, Economics and Finances

Complete solutions on a sound technical and economic footing

Broad-based range of services from one source

Fichtner’s profile

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Contents

• Key indicators – current and projected power and water demand

• First IPPs and IWPPs in Saudi Arabia

• Partnering for production, of power, power/water

• Investment opportunities in integrated power and water and in stand

alone power projects

IWPPs (SWCC, WEC)

Power sector

Industrial sector cogeneration projects

• Investment size, investment options

• Conclusions

• Glossary

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Population: growth 1993 - 2002: 3.5% / a expected 2.5 % /a population 2003: 22.7 m 2025: 40 m

Power: peak load

• growth 2002 - 2004: 7.9 % /a expected 3.8 % /a

• 2003: 29 GW 2025: 59 GW installed capacity:

• 2004: 30,5 GW 2025: 70 GW• reserve margin: 15 %

Water: demand 2004 : 6 m m3/d 2025: 8.0 m m3/d (10.0 m m3/d) production 2004: 5 m m3/d 2025: 8.5 m m3/d

• desal water: 3 m m3/d 5.5 m m3/d

Key indicators - power and water demand

Sources: MoWE Annual report 2003; WEC 2005

High growth of population triggers substantial increase of power and water demand

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First Saudi IPPs / IWPPs Projects

*) decision with regard to technology pending CCGT: Combined Cycle Gas Turbine; NG: Natural Gas; ST: Steam Turbine (xxxx) estimated project budget

Capacity Project

IPP / IWPP Projects Power Steam Water Budget Technology IPP /IWPP

MW t / h m3 / d m $

SADAF cogen 250 510 - 169 Saudi-US-Consortium

Saude Aramco cogen 1,074 2,000 - 510 CCGT - NG British-Saudi Consortium

Rabigh 475 2,070 228,000 1,100 CCGT - NG International consortium

Shuaibah III (WEC) 900 - 880,000 2,400 ST - crude Saudi-Malaysian Consortium

Shuqaiq Ph II (WEC) 850 - 212,000 (1,900) ST - crude 3 bids submitted / evaluation

Marafiq 2,500 - 800,000 - CCGT-NG final negociations

3,000 - 1,000,000 (3,000) CCGT-NG

1,100 - 1,000,000 (2,900) ST - crude

Request for proposals 1st. Qt 2007

Ras Az Zawr (WEC) *)

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Partnering for production of power and water

MoWEMinistry of Water and Electricity

MoWEMinistry of Water and Electricity

SECSaudi Electricity Company

SECSaudi Electricity Company

SWCCSaline Water Conversion Corp.

SWCCSaline Water Conversion Corp.

WECWater and Electricity Company

(off taker of power & water)

WECWater and Electricity Company

(off taker of power & water)IWPP´s Generation

WaterTransmission

7 regional WaterDistribution Companies

IPP´sBU Generation

BU Power Transmission

BU Power Distribution

Large Industry

residential commercial Industry

residential Industry Agriculture

A

A

Responsibility

Power/water flow

buy & sell(SA, Sabic, Ma´aden)

A

ECRAElectricity & Cogeneration

Regulatory Authority

ECRAElectricity & Cogeneration

Regulatory Authority

50% 50%

BU : Business Unit

Private Investoropportunities

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Projected water demand and supply 2005 - 2025

Source: SWCC, Marafiq, MoWE, Booz Allen Analysis, Fichtner

SWCC Existing &Planned Production

Capacity Planned & Private Desalination

Production Capacity

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Water demand and supply balance and project budget for IWPP

Item m m3 / d

required production capacity, total 8.5

./. ground & surface water -3.0

required desal production capacity 5.5

./. existing SWCC old capacity after 2010 *) -1.0

required new desal production capacity 4.5

planned IWPP & private capacity 2006**) -2.9

required additional capacity 1.6

project budget for planned capacity 9.0 billion US$

of which already contracted 5.8 billion US$

estimated budget for additional capacity ***) 5 - 7 billion US$

*) existing capacity 2005 = 3 m m3/d to be retired until 2010 = 2 m m3/d remaining 1 m m3/d**) Shuaiba, Shuqaiq Ph II, Raz Az Zawr, Marafiq***) roughly estimated by Fichtner

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Resolution 5/23 of the Supreme Economic Council

• Establishes framework for the participation of private sector in

power/water production projects

• Establishes WEC as LLC in which SEC and SWCC hold a 50%

stake

• IWPPs will be developed on BOO basis adopting ECA model

• Project companies’ stakeholders: 60% project developer, 32%

PIF, 8% SEC

• A joint team from SWCC and SEC will prepare and supervise

the tender process for the projects

• Tenders will be assessed according to five principal criteria• price, capacity, Saudi employment, technical performance, use of local goods

and services

• State credit support will be made available

• Some fiscal and financial incentives for project companies

Key provisions of the resolution to attracting private investors

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GovernmentMOF

SEC

SWCC AramcoProject

Company WECFuel (ECA)

EPCContractor

O&MContractor

SWCC

WPA

PPA

FSAPWPA

Contract Contract

LLA

Agreement

Credit Support

EPCO&M

Shareholders’

Developers

60%PIF

32%SEC

8%

PWPA : Power & Water Purchase Agreement

ECA : Energy Conversion Agreement

FSA : Fuel Supply AgreementLLA : Land Lease AgreementOSA : On Sale AgreementPIF : Public Investment Fund

Contractual structure for IWPPs

Source: WEC, HSBC Contractual structure results

to a very low risk for private investors

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Shuaibah

Raz Azzour

Tender 2006

900 MW880,000 m³/d

Shuqaiq850 MW

212,000 m³/d

Closed Jan06

In Tender

3,000 MW1,000,000 m³/d

The three WECs IWPPs

In May 2003 a Consortium of Consultants consisting of:

•HSBC bank, financial•Clifford Chance/Al-Jadaan, legal•Fichtner, technical

were appointed as advisers to WEC for the three IWPP projects

Note (WEC): Raz Az Zawr to be decided between 1,100 MW ST-crude oil or 3,000 MW CCGT-NG

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The Shuaiba IWPP - first IWPP project in Saudi Arabia

Technical Constraints

• Location: West Coast

• 900 MWe - 880 m3/d, base-load plant

• crude oil fired steam power plant, with FGD

• fully meets WB’s and PME environmental standards

• MSF desalination plant

Financial constraints

• First IWPP in Saudi Arabia

• World’s largest, crude oil fired new-build IWPP

• Project budget 2,4 billion USD

• 20 year PWPA, availability based tariff including indexation

• fuel supply by WEC based on ECA

• Payment obligations of WEC guaranteed by MOF

• Financial closing in Jan. 06 with a Malay-Saudi consortium

Successful closing of the Shuaiba project establishes a model for the involvement of private sector for IWPPs in the Kingdom

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• Following successful closing of the Shuaiba IWPP contractual constraints has largely been accepted by Bidders. On the same basis the other two WEC IWPPs are being developed

• For the Shuqaiq IWPP - 850 MW / 212,000 m3/d, estimated project budget $1,9 billion - three bids from credible international and Saudi developers have been received and are being evaluated

• This is an evidence that crude -oil fired IWPPs are bankable

• For the Raz-Az Zawr IWPP on the East Coast - 3,000 / 1100 MW *)

1,000,000 m3/d, estimated project budget $3,0 billion - tender doc’s are

under preparation. Pre-qualification and RFP to be issued 1st Qt 2007

Advancing the WEC programme

WEC’s strong project development pipeline offers significant investment, financing and contracting opportunities for private investors IWPP

*) 3,000 MW if CCGT / 1,100 MW if ST- crude oil

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The power system of SA consists of four main grids. The grids of the Eastern and Central Region are interconnected, those of the Western and Southern Region are isolated networks.

Length of the lines in 2004:• Transmission: 33,685 km• HV-distribution: 141,054 km• LV-distribution: 148,688 km• Total 323,427 km

Peak load by SEC Region in 2003:Eastern Region: 11.0 GWWestern Region: 8.0 GWCentral Region: 8,6 GWSouthern Region: 1.9 GWTotal: 26,3 GW

Magnitude of investment rqrd until 2020total: 92 - 117 billion US$of which: generation 51%

transmission 28%distribution 21%

Power system of Saudi Arabia

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• Generation capacity about 30.5 GW (of which SEC 27.7 GW) in 2004

• Small, insufficient reserve capacity margin

• outdated PPs in the West, Central and Southern region need

replacement

• New capacities of 30 GW to 40 GW required to cover growing demand

• Four grids, only Eastern and Central grid interconnected:•Transmission 33.7 th. km, HV-distribution 141 th. km, LV-distribution 148,7 th. km

• Construction 1st-Phase GCC-Interconnection project started •SA, Bahrain, Kuwait, Oman, Quatar (48 MW)

•400 kV line from Kuwait to SA and SA - Bahrain , HVDC-interconnector to SA 60Hz/380 kV

grid

• Interconnection of the four SA-grids planned in the medium term

• Investment in the range of $92 to $117 billion acc. MoEW´s 25-year

electrification plan•in billion $ minimum: generation 46.9, transmission 26 distribution 18.9

Sources: www ://eia.doe.gov/emeu/cabs/saudi.html, US commercial service, bfai

Significant investment opportunities for private investors and suppliers of hard ware

Participation of IPPs in power generation is the prerequisite for the future competitive market in the power sector of SA

Power sector investment opportunities

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List of SEC-Projects for the period 2006 - 2010

Required capacity addition until 2024 about 30,5 GW

Size and time requirements for investment call for participation of the private sector - IPP - in the implementation of the programme

Plant MW

Tabuk power plant expansion 200

Shuqaiq-III power plant 600

Muzahimiyah power plant 1,725

Rabigh-II power plant 2,400

Quarayyat-II expansion 3,600

Salboukh power plant 1,725

Power plant # 10 1,725

Yanbu-II power plant 2,400

Riyadh power plant-7 expansion 500

Quasim power plant expansion 360

Al-Khafgi power plant 200

Total 15,435

estimated CAPEX range billion $ 12 - 15Source: US-commercial service, June 2006

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Industrial sector investment opportunities

• Industrial cogen - IPPs already implemented:• SADAF cogen 250 MW• Saudi Aramco 4 cogen plants, total capacity 1,074 MW• Rabigh cogeneration plant, 475 MW

• Huge cogeneration potential in the oil/gas, petrochemical and basic industries

• BOO schemes most suitable with the industrial facility on-site as off taker of cogen power and steam

• Possible excess power production can be sold to the Single Buyer (Transmission Company) in future

• Preferred option, however, is the transmission of excess power to other facilities of the same enterprise against reasonable transmission fee. This approach may accelerate process

• Favorable conditions for IPPs with regard to financing and payments even without state guarantees.

Cogeneration of power and industrial steam is a highly energy efficient technology achieving fuel savings of about 35%.

Possibilities to utilize process waste heat for power generation

Small attention given to this opportunity in SA until now.

Provide attractive investment conditions for IPP without subsities and state guarantees

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Conclusions

• Size of the projects and the magnitude of investment in the power and

power/water sector SA call for participation of private sector

investment

• Legislation in SA provides favorable conditions for IPPs and IWPPs

• Successful closing of the Shuaiba project has established a model for

IWPPs in Saudi Arabia

• Stand alone power generation projects could be developed in a similar

model

• Participation of IPPs is the precondition for competition in the power

sector of SA

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BOO Build, Own & Operate

BU Business Unit

ECA Energy Conversion Agreement

ECRA Electricity & Cogeneration Regulatory Authority

EPC Engineering Procurement Construction Contract

FSA Fuel Supply Agreement

GCC Gulf Co-operation Council

GW Giga Watt

IPP independent Power Producer

IWPP Independent Water & Power Producer

LLC Limited Liability Company

MoF Ministry of Water and Electricity

MW Mega Watt

PIF Public Investment Fund

RFP Request for Proposals

PPA Power Purchase Agreement

PWPA Power & Water Purchase Agreement

SABIC Saudi Basic Industries Corporation

SEC Saudi Electricity Company

SWCC Saline Water Conversion Corporation

WEC Water & Electricity Company LLC

Glossary

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Thank You for Your Attention

FICHTNER Your contact person:Panos KonstantinPhone +49 711 / 8995-266KonstantinP@fichtner.de