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Saudi Arabian Power & Desalinated Water SectorsThe Role of IWPPs and IPPs

Prepared by:

6th Turkish Arab Economic ForumIstanbul, 26/27 April 2011

Presented by: Dr H.E. Dr. Madani AlakiChairman of Shuqaiq Water & Electricity Company

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1. Sector Size and Growth both power & Desalinated water

2. Challenges & Opportunities3. Sector Participants till 20044. The role of Privatization5. The clear Success f the Programme6. Benefits of transparent Competitive

Procurement7. Much Opportunity in the Future

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-

20,000

40,000

60,000

80,000

100,000

120,000

2000 2005 2010 2015 2020 2025 2030

21,673

30,67543,968

57,418

73,48485,966

104,591

InS

ta

lle

d C

ap

acit

y (

in M

W)

KSA Power Landscape

ProjectedActual

CAGR : 7.3%

CAGR : 4.3%

1.1 Sector Size & Growth - Power

Power Generation Capacity today – 43,000MW

It is forecasted that Power demand in KSA would grow at 8% for the next 10 years requiring an installed capacity of 75,0001 MW in 2020

Growing to over 100 000 MW by 2030

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1.2 Sector size & Growth – Desalinated WaterDesalinated Water Capacity today – 6 million cu m per day

It is forecasted that the need for Desalinated Water will grow to 10 million cum/day by 2030 (with the expectation that demand management + Conservation will signifanctly contain the need for new water)

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

11,000,000

12,000,000

13,000,000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

m3/ day

Years

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2. Challenges & Opportunities

High annual growth in demand for both power and water;

Growth in population and the ever growing younger population segment reaching the stage of needing their own houses and services (schools, universities, hospitals).

Rapid growth in the commercial and industrial sectors.

In the case of electricity, extremely sharp daily and yearly load curve due to the significant air-conditioning needs

Replacement of inefficient old generating units in the case of power plants and several desal units towards the end their economic life in the case of water.

All needing to require very high levels of capital investment for both capacity expansion and refurbishment , upgrading or replacing existing units.

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3. Sector Participants – Till year 2004, only 4.

• Saudi Electricity Company - Responsible for generation, transmission & distribution of electricity.

• SWCC - Responsible for the production of desalinated water but it also generates electricity as it is economical to co-generate power when oil is used as fuel; SWCC then sells the power to SEC at factory gate.

• Marafiq – A utility company that is responsible to provide utility services to the two industrial cities of Jubail and Yanbu and thus buys from SEC and SWCC to internally distribute but also self generates and produces some dsal water itself.

• ARAMCO – The oil and gas produces Self generates for its own needs.

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4.1. Role of Privatization

In 2004 His Majesty the King and the Custodian of the two Holy Mosques passed Resolution 523 which established Water and Electricity Co. (WEC) signaling the Kingdom’s intention to progressively open up the electricity and water sector to the private sector to own and operate.

The first step was to start filling the capacity deficiency by instructing WEC to launch four Independently Financed Water and Power Projects, where the private sector is given the reasonability of:

• developing, constructing, owning and operating power and desal plants

• at sites provided under a land lease by WEC .

• Using fuel supplied by WEC

• And sell the power and dsal water on 20 year off take contracts

The other three participants in the sector, SEC, ARAMCO and Marafiq accepted the logic of outsourcing the services of owning and operating power and desal plants and have now launched their own programmes.

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SWCC ProjectCompany

SWCC

SEC

EPC Contractor

O&M Contractor

Aramco

ShareholdersAgreement

PWPA

WPA

FSA

PPA

Fuel (ECA)

O&MContract

ContractEPC

LLA

GovernmentMOF

WEC

Credit Support

PIF 32%

SEC8%

Developers

60%

4.2. Typical IWPP /IPP framework

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5. 1. Success of the Private Public Partnership Programme

•10 IWPP/IPP projects in Saudi Arabia already contracted, 8 of which are in operation and are performing according to plan. 2 plants are under construction.

•Note Worthy - Financial Close of Rabigh IPP, the 9th project Was achieved in July 2009, becoming the first Project Finance transaction with long tenor debt to achieve financial close post Lehman Brothers collapse (during the height of the financial crisis). First 8 IWPP/IPP already fully operational

Under Construction

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5.2 - 21% of power + 42% of Desal Water + USD 15 BillionRaising the efficiency of the national economy – A new industry has been created. Ten companies founded in Saudi Arabia are now delivering: •9,350 MW of electricity - 21% of the power generation capacity of the Kingdom

•2.3 million cum/day. Representing 42% of the Kingdom's desalinated water production capacity of 5.5 million cubic meters per day.

•One company, ACWA Power, which is involved in 7 out of the 10 privately owned and operated plants has emerged as a national champion now spreading its wings outside KSA.

Encourage the investment of private (local and foreign) capital in a productive sector of the economy

•SAR 56 billion (USD15 billion) of private investments has flowed into this sector.

• Of this SAR 22.5 billion (USD 6 billion) is foreign direct investment.

Most important of all - 21% additional power generation capacity and 42% desalinated water production capacity has been added at a price competitive basis all with out the customary delays.

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6. Much Opportunity in the Future

• 30 – 40 % of Future generation is expected to be IPP(BOO) with Long term power purchase agreements (20years)

• SEC plans to add an additional 12,400 MW in the next 6 years through the IPP framework (SEC keeps moving more projects into the IPP programme)

NAME OF IPP PROJECT

CAPACITY (GW)

Estimated Bid Year

PROJECT COMPLETION

QURAYYAH 2 2011 2014

DHEBA 1.6 2012 2015

SHUQAIQ 1.6 2012 2015

ALOGAIR 2.4 2013 2016

JEDDAH SOUTH

2.4 2014 2017

RAS ALZOUR 2.4 2016 2019

Total 12.4

IPP Project – Pipeline1

1. Source : SEC Presentation

In addition, IWPP’s are planning to add additional capacity of 6,000MW over the next 6-7 years

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/day Desalinated Water Export

Thank You for Your Attention

212,000 m3

Saudi Arabian Power & Desalinated Water SectorsThe Role of IWPPs and IPPs

6th Turkish Arab Economic ForumIstanbul, 26/27 April 2011

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Appendix A1 The Value of Competitive Procurement

In net present value terms the saving between lowest and next

Shuqaiq IWPP Marafiq IWPPDeveloper Power

(Halals/KwH)

Water(Halals/

m3)

Developer Power(Halals/KwH)

Water(Halals/

m3)

ACWA/GIC/MC 10.27 385.59 Suez/ACWA/GIC 5.71 311.25

Marubeni/NBC 12.00 499.00 IP/Sumitomo/Oger 6.99 307.50

Powertek/Jumai 16.32 532.66 Mitsui/KEPCO/NPC 7.50 273.75

Shuqaiq IWPP SR. 2.3 Billion

Marafiq IWPP SR. 1.8 Billion

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Appendix A2 Value of Competitive Procurement

Rabig IPP Qurayyah IPPDeveloper Power

(Halals/KwH)Developer Power

(Halals/KwH)

ACWA/KEPCO 12.59 ACWA Power/ Samsung/MENA Fund

7.41

GDF Suez/IP 16.56 Marubeni 8.56

Sumitomo/KEPCO 8.62

IP GDF Suez/Al Jomaih 8.75

Powertek/JGC/SaudiOger 9.25

Tenaga/Saudi Bin Laden 9.30

In net present value terms the saving between lowest and next

Rabig IPP SR. 3.3 Billion

Qurayyah IPP SR. 1.2 Billion