Saudi Electric Company Signs $2.1 Billion Contract with GDF Suez Consortium to Build Riyadh-IPP Power Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--State-controlled Saudi Electric Company (SAU:5110) (SEC) (Riyadh, Saudi Arabia) has signed a $2.1 billion contract with a consortium led by GDF Suez S.A. (EPA:GSZ) (Paris, France) to build the Riyadh-IPP power project. The 1,730-megawatt (MW), combined-cycle, gas-fired power project will be 125 kilometers from Riyadh. In addition to GDF Suez, the consortium includes Sojitz Corporation (TYO:2768) (Tokyo, Japan) and the Al-Jomaih Group (Riyadh). The companies also have established a joint venture company, Dhuruma Power Company, to supervise the project. SEC will hold a 50% stake in the joint venture, while the consortium will hold the remainder.

The Middle East is an important market for GDF Suez. Having successfully executed several large-scale power projects in the last 15 years, the company is a leading power developer in the region. Presently, GDF Suez has water desalination projects with a combined capacity of 2.8 million cubic meters per day, and 17,000 MW of power projects in various stages of construction in the region. This includes the Shuweihat-2 power plant in Abu Dhabi; the Marafiq IWPP in Saudi Arabia; four independent power projects in Bahrain; and the Ras Laffan-C project in Qatar. Recently, the company secured a $1.7 billion contract to construct the Sohar-2 and Barka-3 power stations in Oman. The power stations will have a combined power capacity of 1,500 MW.

According to Ali Saleh Al-Barrak, the chief executive officer of SEC, the first phase of the Riyadh-IPP project will begin operations in May 2012, followed by the second phase in 2013. As part of the agreement, SEC also signed a 20-year power purchase agreement (PPA) to buy electricity generated from this project. The primary and critical equipment for the power plant will be procured from General Electric (NYSE:GE) (Fairfield, Connecticut). Saudi Aramco (Dhahran, Saudi Arabia) will provide the natural gas feed for the power plant.

Al-Barrak said that nearly 70% of the funding for the Riyadh-IPP project will be secured from international and domestic banks and financial institutions, including Alinma Bank (Riyadh), Samba Financial Group (SAU:1090) (Riyadh) and Banque Saudi Fransi (SAU:1050) (Riyadh).

Hyundai Heavy Industries Company Limited (SEO:009540) (Ulsan, South Korea) has secured the $1.6 billion design, engineering, construction, installation, testing and commissioning contract for the Riyadh-IPP project. In a related development, Hyundai Heavy Industries signed a partnership agreement with HBK Contracting Company (Doha, Qatar) for the first-phase development of the $5.5 billion Musheireb residential project in Doha. Earlier, GE and Hyundai Heavy Industries secured a $2.5 billion contract to build and operate the 2,000-MW Subbiya power project in Kuwait. The project, which is expected to be commissioned in 2011, will account for nearly 20% of Kuwait's current electricity production. The contract will include delivery and commissioning of six steam turbines and six gas turbines.

Riyadh-IPP is one of the six major independent water and power projects under construction, which will add 11,000 MW to the national electricity grid. The Riyadh-IPP project has been planned at a time when Saudi Arabia is witnessing an annual growth of 8% in electricity demand. SEC is also investing $122 million to augment the power station at Halil by 126 MW.

The Gulf Cooperation Council (GCC) countries, which include Saudi Arabia, Kuwait, Oman, Bahrain, the United Arab Emirates and Qatar, are making large investments to boost electricity generation and water supply networks. There are several large projects in various stages of construction, of which three power and water projects are in Saudi Arabia. These projects are:

• The $2.5 billion, 2,745-MW Jubail independent water and power project, which also will provide 800,000 cubic meters per day of desalinated water. GDF Suez Energy International (Brussels, Belgium) is the main contractor for this plant.
• The $3 billion, 1,200-MW Shuaiba-III power project, which is 100 kilometers from Jeddah. Alstom S.A. (EPA:ALO) (Levallois-Perret, France) is the contractor for this power plant, which will be completed in 2013.
• The $3.4 billion, 2,400-MW power plant, which is part of the Jizan Economic City development. Construction is likely to begin this year, and the project will be commissioned in 2013.

Experts say that industrial development, population increase, and economic growth are the primary drivers for the surge in power demand. In the next few years, Saudi Arabia's power demand, which is about 40,000 MW, is expected to rise to 121,000 MW. The country is likely to invest $80 billion over 10 years to augment its power generating capacity, and its transmission and distribution network.

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