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29 March 2024

GCC power investments put at over $58bn

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By Staff

Gulf oil producers are expected to pump more than $58 billion into projects over the next five years to expand their power generation capacity to meet growing domestic demand, according to an official Arab report.

The investments account for nearly 46 per cent of the total capital required for electricity development projects in the Middle East and North Africa (MENA), said the report by the Arab Petroleum Investment Corporation (Apicorp).

The six Gulf Cooperation Council (GCC), which control over 40 per cent of the world’s proven oil resources, will also add nearly half the expected additional power general capacity in the region, said the report, sent to Emirates 24/7.

The Dammam-based Apicorp, an affiliate of the 10-nation Organization of Arab Petroleum Exporting Countries, estimated the total capital in power generation in Mena at $125.8bn during 2012-2016 to add about 106.4 GW of electricity.

“This increment, which represents 48 per cent of the 2010 estimated capacity of 220GW, justifies the huge capital investment found in the present review,” it said. “A regional breakdown shows that about 46 per cent of that expansion is expected in the GCC, which remains the fastest growing area. 

This should come as no surprise, taking into account its record rates of urbanisation and the massive requirements for water desalination and air conditioning.

”The study put investments in such projects at around $58.2bn in the GCC, $27bn in Mashreq (east) Arab nations, $25.8bn in Iran, $13bn in Maghreb (west) Arab countries and nearly $1.8 billion in other Arab states.“In the current socio-political context, power/water has emerged as a critical sector featuring prominently on top of Mena policy agendas,” it said.It said that as a result of high population growth, record levels of urbanization, sustained economic growth and pressing needs for air conditioning and sea water desalination, many countries in the region have been struggling to meet demand.

“They now face an even steeper uphill struggle as phasing out price subsidies to rein in excess demand growth has become extremely tricky….accordingly, power generation capacity is projected to continue growing at an unrelenting rate of 7.7 per cent per year during the period 2012-2016.”Apicorp said raising such large amounts of capital would be most challenging in the current economic and political conditions in the region and the world.“With domestic and foreign private investment somewhat retreating, governments must pursue two tracks simultaneously and with determination,” it said.

“On the one hand, and as long as the allocation of public resources reflects their policy priorities, they should step in to fill some of the financing gap. On the other hand they have to step up their efforts to provide the assurances critical to regaining the lost momentum of private investment.”

The report showed the GCC is projected to record the highest demand growth of around 8.5 per cent in the medium term.

Growth was put at 7.6 per cent in Mashreq (Egypt, Iraq, Jordan, Lebanon and Syria), 7.2 per cent in other Arab states, seven per cent in Iran and 6.5 per cent in Maghreb (Algeria, Libya, Mauritania, Morocco and Tunisia).Additional capacity was estimated at 52.7 GW in the GCC, 21.7 GW in Mashreq, 19.8 GW in Iran, 10.8 GW in Maghreb and 1.4 GW in other Arab nations.

“The cost of an average energy project, which has risen almost three times between 2003 and 2008, is expected to increase again, after having slightly dropped in the last review. The 25 per cent upward trend underpinning the current review may be explained by two factors,” Apicorp said.

“The first is that project sponsors will be focusing on important projects, which mostly entail higher costs. The second factor is related to anticipated cost inflation, which is still tentative.…furthermore, as the global credit crisis has forced an up-pricing of risk, we should expect project risk premiums to remain relatively high. Hence it is hard to infer how up and for how long the overall cost trend is likely to be again, when combining all cost components.”