Saudi Arabia's Al-Toukhi Signs EPC Agreement with Switzerland's Poyry for Power Projects

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Al-Toukhi Company for Industry, Trading and Contracting Limited (Riyadh, Saudi Arabia) has signed a memorandum of understanding with Poyry Energy AG (Zurich, Switzerland) for cooperation in providing engineering, procurement and construction (EPC) services for power projects in Saudi Arabia.

Al-Toukhi is one of Saudi Arabia's principal EPC contractors in the civil and electro-mechanical sectors. Established in 1972, the company has executed several projects in the power industry. Poyry Energy is a wholly owned subsidiary of Poyry Oyj (HEL:POY1V) (Vantaa, Finland). The commitment comes at a time when Saudi Arabia is revamping its power sector as a result of a surge in energy demand. The increase in demand is attributed to growth in population and economic development.

Presently, the power sector in Saudi Arabia is primarily state-controlled, with very limited scope for privatization. The industry has not attracted private investment because of the unattractive regulatory framework. Now, the government is set to overhaul the power sector and is inviting private sector companies to revamp and augment power generation capacity, transmission and distribution infrastructure. One of the first steps taken to make the industry economically viable for private investments is the unbundling of the functions of Saudi Electric Company (SAU:5110) (Riyadh). The company, the country's main energy utility, which is 80% state-owned and 20% publicly traded, will be split into separate entities for power generation, distribution and transmission. The decentralization process is expected to be complete by 2010. The company generates about 37,000 megawatts (MW) of power annually from 45 operating plants.

Saudi Arabia is looking to expand power generation capacity from the present 37,000 MW to 115 gigawatts by 2030. According to the website of Middle East Electricity (Dubai, United Arab Emirates), Saudi Arabia will require annual investments of $4.5 billion-$6 billion in order to augment its power generation capacity over the next 15 years to meet the growing energy demand. The country has the highest per-capita consumption of power in the Middle East. The country's population, which is in excess of 24 million, is growing at an average annual rate of 7%. Saudi Arabia is estimated to require 20,000 MW of additional power generation capacity by 2019 to meet industrial and residential demand.

The Power Report, published by Business Monitor International (London), forecasts that by 2013, Saudi Arabia's power generation capability will account for 6.3% of the energy generation capacity in Middle East and Africa. In the long term, oil is expected to continue as the primary fuel for power generation. In 2007, about 59.2% of the power generated was dependent on oil, while gas-fired power generated accounted for the remaining 40.8%. The report estimates that the country will witness an increase of 38% in power generation during 2007-13 and of 19% during 2013-18.

Poyry Energy's contract seems rightly timed to take advantage of the rapid power sector expansion in Saudi Arabia. Poyry Oyj is a leading global consulting and engineering services provider, with business interests in the paper and pulp, transportation, oil and gas, renewable energy, chemicals and power sectors. The group, which employs about 8,000 people in 49 countries, has executed several large-scale projects across industries. OMV AG (OTC:OMVKY) (Vienna, Austria) recently awarded a $8.18 million EPC services contract to Poyry Energy to construct an 800-MW combined-cycle power plant in Haiming, Germany. Under the agreement, Poyry will also be responsible for permitting processes and documentation along with tender evaluation, design, site supervision, erection and the commissioning of two gas-fired shafts and allied infrastructure.

Poyry Oyj has also signed a long-term agreement with Larox Oyj (HEL:LARBS) (Lappeenranta, Finland), a world leader in filtration facilities and industrial filters, to undertake EPC and project management activities for the entire life cycle of all the phases of Larox's projects. The contract will involve Poyry's offices in Australia, South Africa, Russia, Asia, North America, South America and Europe. Paroc Oy AB (Vantaa, Finland) has awarded a permitting process and documentation contract to Poyry for its mineral wool plant in Chudovo, Russia.

Poyry Oyj will also undertake the renovation of a 220-kilovolt substation in Ybbsfeld for the Austrian transmission network operator Verbund AG (WBAG:VER) (Vienna). The $3.68 million contract will include design and installation of high-voltage equipment and cables, disassembly of the existing substation, and complete installation and commissioning of the facility.

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