Empower, the Dubai-owned district-cooling firm, said 30 per cent of its projects have been cancelled due to the real estate downturn.
The firm, which in 2008 had projects to service 1.7 million refrigeration tonnes of capacity, has slashed its forecast output and is now looking at servicing only 800,000-900,000 tonnes over the next ten years.
The six-year old joint venture of Dewa and Tecom Investments is servicing four projects out of the 22 it projected it would; and is currently producing 250,000 tonnes of refrigeration capacity. It plans to increase its output to 250,000 tonnes this year and continually increase capacity by a conservative estimate of 50,000 tonnes year-on-year.
"I think close to 20-30 per cent of the projects that we're supposed to be doing have been cancelled," Ahmad bin Shafar, CEO of Emirates Central Cooling Systems Corporation (Empower) told Emirates Business. "Most of our contracts are suspended… until we get a green light from the developers to come back again."
He said demand for district cooling did not fall but due to real estate's developers project cancellations, they also had to delay or suspend their developments. "Frankly speaking people are in the correction mood. Dubai is in a situation where the lack of financing is really impacting the whole picture," he said.
"But I am very optimistic about 2010. We have around 120,000 tonnes upcoming and I think this is enough to set up a new company so I will bring the capacity from 250,000 to 350,000 tonnes."
Shafar said the company would also increase its workforce by 50 per cent next year. "We currently have around 230 and next year we will be closing that number to around 350."
Despite the double-digit project cancellation, Empower said it remains to be in the positive territory, and will have no difficulty in paying its $225m (Dh825m) loan maturing on December 5.
Empower in May 2008 secured the credit facility from a consortium of international and local banks and financial institutions, led by the Royal Bank of Scotland to fund its "extraordinary growth and execute a significant pipeline of projects".
"We are profitable since 2008, where we were close to $12m profits," Bin Shafar said. "Year 2009 is the second year that we are in profit. We also had a very good year but I cannot disclose to you the profit figures."
"We will be okay. I don't see any problem in it ($225 loan) because it's been financed by the bank and capital contribution was added into it. We are very sure that according to our business plan, the factory will pay the loan and its production will cover the debts," he added.
The factory called Elips or Empower-Logstor Insulated Pipes Systems, will start its operations in March. The plant will be manufacturing 500km pre-insulated pipes at its peak and will be supplying the Mena region.
Industry estimates show expansion programmes across the region are expected to increase the GCC's district cooling capacity threefold to 5.5 million tonnes of refrigeration by 2011-2012, while an additional 6.5 TR is expected to be ready by 2015. Studies show that up to 11 billion cubic metres of gas supplies can be saved annually if half of the region's air conditioning needs are addressed through district cooling solutions.
District cooling means the centralised production and distribution of cooling energy. Chilled water is delivered via an underground insulated pipeline to office, industrial and residential buildings to cool the indoor air of the buildings within a district. Specially designed units in each building then use this water to lower the temperature of air passing through the building's air conditioning system. The output of one cooling plant is enough to meet the cooling-energy demand of dozens of buildings. District cooling can be run on electricity or natural gas, and can use either regular water or seawater.
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