Power to the people
As the global energy crisis reaches tipping point, the GCC needs investment to prevent disaster.
As the global energy crisis heads towards crisis point, the GCC is in need of significant investment if it is to stave off disaster. Angela Giuffrida takes a look.
The GCC needs to spend an estimated US $50 billion on the construction of power projects and a further $20 billion on desalination projects between now and 2015 to meet the demand surge expected from the plethora of real estate projects that will come on stream, according to the latest figures from Meed.
The expenditure will serve an anticipated demand of 60,000MW of power and 2.5 billion gallons a day of extra water capacity.
In the UAE alone, Dewa last week signed six contracts with a mix of international and local firms for the construction of power and desalination plants in Dubai.
Several other major deals are expected to be signed within the UAE, Saudi Arabia and Qatar over the next few months.
In the past, power and water authorities have struggled to attract bidders for their projects, mainly because of spiralling costs and short timeframes.
For its latest projects, Dewa has extended its construction schedule from 16 months to more than 20 months, and for the bigger projects, 36 months.
If the timeframe is insufficient, developers will have the flexibility to extend it.
But while timeframe extensions are welcomed, developers and contractors have a myriad of other challenges to overcome to ensure there'll be enough power and water serving the emirates by 2015.
These mainly revolve around the same issues affecting real estate construction, such as a shortage of skilled labour and materials, long delivery times for essential components and equipment and fractious relationships between all those involved in a project.
"As we continue to escalate in the rate of infrastructure development, which is unfortunately following, not leading the development of residential and commercial areas, it becomes even more problematic because the same resources that we would use are already employed," said Edward Wollyyung, director Middle East Operations, GE Energy.
"Scarce resources from people to commodities, and how we address those with respect to the time and cost of projects are big issues. And the timeframes can be quite demanding, so to attract the right people and get the right commodities together in time is the main challenge."
Wollyyung added that constructing more standardised plants and manufacturing key components locally could help to overcome these issues.
"Firstly, I think the authorities need to think about building more standard plants, something that will be built the same way every time. That would help in terms of timeframes," he said.
"Secondly, we need to start manufacturing more key components such as step-up transformers and electrical gear, and then look into standardising some approaches, which would simplify the whole effort.
"There are a few local manufacturers. But again, like the turbine manufacturing business, there's only so many of them around right now. There used to be more transformer manufacturers. But environmental concerns have driven them into a small population."
The availability of fuel is also posing problems.
"Globally, we're facing huge demands for additional power," Johannes Edel, sales director projects Middle East, Siemens said at a recent Meed conference.
"And one of the major problems that has to be considered, especially in the Middle East, is the availability of fuel."
"If you want a gas turbine, you have to wait. In some cases, delivery times reach 2012."
Finding the developers to take on power and desalination projects is an additional challenge for power and water authorities.
While most of the major players are operating in the region, numbers still only reach around 23.
"There are enough developers in the world, but they're mainly bidding for work in Europe, Asia and the USA," said Dr David Barlow, head of business development Middle East & Africa, International Power.
"But there are a number of companies like us around, who want to balance worldwide presence with the long-term contracts available in the Middle East."
"A developer looks for long-term stability, both in demand and pricing. It comes down to the long-term story of economic growth in the region - there will be opportunities. And we want to invest time and resources in countries that we know will bring opportunities. We also look for a model that we can adapt to and learn from in the future - with the long-term opportunities we can learn from initial mistakes and still have opportunities."
Privatisation could be one way of overcoming power and water shortages.
Saudi Arabia is one GCC state steering ahead with the privatisation of its water utilities.
Earlier this year, it established the National Water Company to oversee the process, starting with four major cities.
"Historically, water utilities in most countries were created by their government with the common problems observed: low performance, inefficiency and government bureaucracy. The low tariffs led to significant use by the consumer, which then led to unsustainable utilities," said HE Loay Al-Musallam, head of privatisation team and deputy minister of planning and development, Ministry of Water & Electricity, Saudi Arabia.
"The privatisation process in Saudi Arabia was a significant challenge. Privatisation by itself is not an ultimate objective - it should enable us to add up best practise, boost sector performance and create a strong organisation which will support privatisation activities and meet future challenges."
On privatisation plans in the UAE, Wollyyung added: "Each emirate seems to have a separate focus. I think they're trying to encourage it, but it's still lagging a little."
"It really takes a step by the government to say: ÃƒÂ¢Ã¢â€šÂ¬Ã‹Å“we're going to grant these independent power projects certain rights and abilities to operate and we'll just look at their output."