Saudi Arabia to Split State Power Company into Four Independent Entities

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Researched by Industrial Info resources (Sugar Land, Texas)--Saudi Arabia's government is planning to split the Saudi Electricity Company (SAU:5110) (SEC) (Riyadh, Saudi Arabia) into four independent power generation companies in a bid to increase competition in the sector. The government owns 80% of SEC, and 20% of the stock is traded in the Saudi stock market. SEC owns and operates 45 power generation plants that have a combined capacity of about 37,000 megawatts (MW).

Abdullah Al-Shehri, Vice Governor for Regulatory Affairs of Saudi Arabia's Electricity and Cogeneration Authority (Riyadh, Saudi Arabia), said the government would like to see SEC's power generation, transmission and distribution sections unbundled. Two new companies to manage transmission and distribution are also likely to be set up. According to the plans, SEC would become a holding company and would own the four power generation companies and the two new transmission and distribution firms. Each generation company would have a capacity of 9,000 MW and would have the authority to form partnerships and sell assets as necessary. The whole process is likely to be completed by mid-2010. Shehri said that with this move, the government hopes to increase privatization and competition and subsequently meet the country's power requirements, which is growing at about 6%-7% annually.

Abdullah Al-Hussayen, Saudi Arabia's Water and Electricity Minister, said the country would need to invest more than $200 billion over the next 15 years to meet the retail and industrial power demands by 2024. The government is actively encouraging private investment, unifying the national grid, and changing the power generation facilities from heavy-oil-based to natural gas-based facilities.

ACWA Power International (Riyadh, Saudi Arabia), a developer of privately funded desalination water plants and power generation plants, has recently secured $2 billion in funding for its 1,200-MW oil-fired power plant project in Rabigh in the western Makkah province. Alinma Bank (SAU:1150) (Riyadh, Saudi Arabia), Al Rajhi Bank (SAU:1120) (Riyadh, Saudi Arabia) and the Samba Financial Group (SAU:1090) (Riyadh, Saudi Arabia) will extend $1.4 billion of the total amount, while the rest will be secured from sources overseas. Korea Electric Power Corporation (NYSE:KEP) (KEPCO) (Seoul, South Korea) has been selected as the second preferred bidder for the Rabigh independent power plant. While KEPCO and ACWA will each have a 40% stake in the project, SEC will own the remaining 20%.

ACWA plans to expand its business interests overseas this year and is considering projects in Abu Dhabi, Africa, Bahrain and Oman.

In November 2008, SEC invited expressions of interest to develop a 2,000-MW combined-cycle independent power project about 100 kilometers west of Riyadh. SEC will select a developer or consortium partner to build, own and operate the plant and will purchase the generated power under a power-purchase agreement. It will also supply the selected developer with natural gas and allocate land for the project. SEC has expressed interest in a third independent power project that is to be developed in Al Qurayyah.

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