International Power and CMS to operate UAE Shuweihat power plant

Sep 03, 2001 02:00 AM

The government of the emirate of Abu Dhabi, capital of the UAE, came to an agreement on August 15th with International Power of the UK and CMS Energy of the US for the operation of the $ 1.6 bn Shuweihat 1 power and desalination plant. Each of the two companies will own 20 % of the scheme and will maintain and operate the plant for a period of 20 years.
On August 23rd, a group of seven UAE and international banks announced that they would finance the project with up to $ 1.2 bn in loans, and the following week the Italian firm Impreglio said it had won the contract for the construction.
The project's announcement came on the heels of a number of other infrastructure deals. UAE Offsets Group (UOG) signed a deal on August 8th with a local firm and the German unit of the French firm Technip for the construction of a $ 453 mm water pipeline in the northern region of the country. On August 4th, the UOG also announced that it had drawn up a short-list of five international energy concerns to replace the US group Enron for a stake in Dolphin Energy to construct a gas pipeline from Qatar to the UAE and beyond.

The Shuweihat 1 power and desalination plant is the third independent utility project in Abu Dhabi as part of the government's push to promote private sector involvement in power generation especially. This will be larger than the two previous projects of Taweelah 1 and 2, with a gas-fired 1500-MW power plant and a desalination plant capable of producing 100 mm imperial gallons of water per day. CMS Energy is already involved in the private generation of power in the UAE through its 40 % ownership of the Taweelah 2 power and desalination plant, which is due to be fully operational in September.
The ownership structure of Shuweihat 1 will differ from that of Taweelah 2 only in that the accepted bid was made jointly by IP and CMS. Each will receive a 20 % stake in the project, in return for a equity investment of around $ 80 mm each and will jointly operate the facility under a 20-year operations and maintenance agreement due to be formally signed in September. The IP and CSM consortium will pay fuel costs as well to gas supplier the Abu Dhabi National Oil Company (ADNOC). The remaining 60 % will be held by a holding company to be created by the Abu Dhabi Water and Electricity Authority (ADWEA).

Construction is expected to begin towards the end of the first quarter of 2002 and the plant is to be fully operational by mid-2004. The desalination plant, said to be the world's largest, will be constructed by Imreglio of Italy in a contract worth around $ 500 mm Impreglio is already involved in the construction of other desalination plants in the region, and a mosque in Abu Dhabi.
Seven banks swiftly got involved in financing the project with a loan of $ 1.2 bn to be repaid over the course of 15 to 18 years. The loan is being led by Barclays Capital and Citibank in conjunction with three other international banks. The Abu Dhabi Investment Company and the National Bank of Abu Dhabi are alsoinvolved in the group of seven. Some of the bankers involved say final closure is to be achieved by November. Even as this deal progresses into implementation, the Abu Dhabi government is looking towards its next private power project.

The existing Umm Al Nar facilities are to be extended by a developer taking a minority stake on a build-own-operate basis. The developer is to expand the facility to generate 1750 MW of power and 150 mm gallons of water per day.
In the northern emirates the German unit of the French construction firm Technip is to build a $ 453 mm water pipeline for the UOG together with the local firm Al Jaber Energy Services, according to a statement from the UOG on August 9th. The pipeline will carry 180 mm gallons per day of water from a power and desalination plant currently under construction to outlying regions in the northern emirates.
Doosan Heavy Industries of Korea is building the $ 802 mm power and water plant, which will produce 620 MW and 100 mm gallons of water. Although the Abu Dhabi government is to fund the entire project, it is planned that a foreign investor will be found at a later date to take a 49 % stake and to operate the facilities.

The UOG had announced on August 4th that it had shortlisted five international companies to take over Enron's 24.5 % stake in Dolphin Energy that was relinquished in May. The stake was sold back to the UOG- increasing its stake to 75.5 %- for an undisclosed amount.
TotalFinaElf of France holds the remainder. The short listed firms are BP, Royal Dutch/Shell, ExxonMobil, Occidental Petroleum and Conoco, with the new partner to be announced during the last quarter of this year. It is likely that the new firm will be expected to play a similar role to Enron, which was to be heavily involved in the upstream gas transport and supply side. Enron quit on the grounds that it "is not an upstream company".

Unfortunately, the project has hit another snag, as Dolphin and the Dubai government have yet to agree on the cost of the gas to be supplied to the emirate through the $ 10 bn pipeline. The governments of Abu Dhabi and Qatar seem to have agreed on a price of $ 1.3 per mm Btu, to which transport costs to end users in Dubai have to be added as much of the gas will be passed on to Dubai. It already receives Abu Dhabi gas through a recently completed pipeline at a cost of $ 1.0 per mm Btu. Most analysts expect that the difference will be settled through the intervention of the Abu Dhabi and Dubai governments.

Source: Oxford Business Group
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