Power generation projects in the Middle East and North Africa (Mena) are facing obstacles because of poor funding resources given the huge costs of such ventures, according to an Arab government group.
Total investments in power generation, distribution and transmission projects in the Arab world and other Mena countries, including Iran, are estimated at $283 billion during 2014-2018, far higher than the 2013-2017 estimate of $250 billion, the Saudi-based Arab Petroleum Investment Corporation (Apicorp) said in a study.
It said fast‐growing electricity demand and lagging supply have already led to chronic power shortages across many Mena countries.
In the current context, bridging the widening demand‐supply gap through increased supplies is perceived as politically and socially more desirable, the study said.
It said that without active demand side management and serious cuts in subsidies to the power sector, this will entail a capacity growth of 8.4% per year, which translates into a five‐year increment of 140 GW above the 2013 level.
Taking account of the associated investment in transmission and distribution, the capital required for the whole sector will be in the order of $283bn during the period 2014‐2018, 59% of which in new generation capacity, the report showed.
“This huge sectorial investment offers great opportunities but also raises major challenges. We have identified three issues in particular that should feature prominently on policy agendas,” said the study, authored by Apicorp’s chief economist Ali Aissaoui.
He said the first results from the perception, in the wake of the so‐called‘Arab Spring,’ of a deteriorating investment climate in most parts of the region.
The second stems from the scarcity of natural gas in apparently well‐endowed countries while the third follows from the inadequacy of internal and external financing.
“These issues cannot be resolved without supportive policies in the corresponding areas: first, by improving the investment climate and providing assurances critical to regaining private investment momentum; second, by providing the power generation sector with affordable fuel options; and third, fiscal space permitting, by increasing state budget funding of public utilities, which have become the investors of last resort. Otherwise, utilities will seldom catch up no matter how pressured they are.”