Power Sector in Kuwait

An Expert's View about Electricity Generation and Distribution in Kuwait

Posted on: 22 Sep 2010

The construction of the GCC power grid will provide opportunities for investment in the Kuwait power sector. The report provides an overview of power sector with potential opportunities.

Power Sector Summary - Kuwait Sector Report Power Sector Kuwait Produced by: Elvis Noronha, Trade & Investment Officer, British Embassy, Kuwait Last Revised January 2010 Whereas every effort has been made to ensure that the information given in this document is accurate, neither UK Trade & Investment nor its parent Departments (the Department for Business, Enterprise & Regulatory Reform, and the Foreign & Commonwealth Office), accept liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned. Published Janaury 2010 by UK Trade & Investment. Crown Copyright © www.uktradeinvest.gov.uk Power ? Kuwait Table of Contents OVERVIEW 3 OPPORTUNITIES CHARACTERISTICS OF MARKET 5 KEY METHODS OF DOING BUSINESS 6 MORE DETAILED SECTOR REPORTS 7 PUBLICATIONS 8 EVENTS 8 CONTACT LISTS 9 www.uktradeinvest.gov.uk Page 2 of 9 Power ? Kuwait OVERVIEW Kuwait?s economy is heavily dependent on oil revenues which account for almost 50% of GDP, more than 80% of government revenues and over 90% of export earnings. Kuwait?s GDP stood at US$148 billion in 2008 with its econmony expanding at 5.9%. The high oil prices are producing a surge in oil revenue; this has fuelled strong growth to other sectors of the economy. Having planned for $17b deficit for FY 2009/10 budge, with expectation for oil prices to be around $35 per barrel, the economy instead registered a surplus of $17.5b for the first six months of the FY 2009/10 due to price of oil being around $75 per barrel. OPPORTUNITIES The construction of the GCC power grid will provide opportunities for investment in the Kuwait power sector, as more power generating facilities need to be built in order to enable Kuwait to participate and provide additional power required to support the grid. There will also be opportunities for the sale of equipment and services related to the construction of the grid. At the same time there is the possibility of more grid linkage equipment and power generation facilities requirements should Kuwait?s recent broader linkages and co-operation with other non-GCC Arab countries and Iran materialise. With the ministry of electricity and water estimating the demand for power to climb to 20,000MW by 2015 and 26,000MW in 2020, Kuwait plans to invest billions in doubling its installed capacity through a number of projects by 2017, from currentl 10,200MW to 27,040MW. Kuwait has several large-scale projects on the table for which their power requirements would need to be catered for. The plants slated to be built under this program are: Az-Zour North: The proposed power station will have a total generating capacity of 4800MW, and 280 MIGPD of desalinated seawater. The plant will be built in two phases. Phase 1 will consist of 1,500 MW and phase 2 will consist of another 1,500 MW. The Zour North power station will also have a third and fourth phase which will add 800 MW and 900 MW to the plant respectively. Status ? The first phase of this project 1500MW power and 100 million g/d of desalinated water is currently being tendered as independent water and power project (IWPP). The feedstock fueling the plant will consist of natural gas and/or Light Fuel Oil (LFO). The Partnerships Technical Bureau shortlisted two consortia out of the four previously shortlisted bidders for the advisory work Al Zour South Conversion: The project will entail converting the existing 1,000MW gas fired Al Zour South power plant to combined cycle. The scope of work includes supply and installation of heat recovery boilers and 2 steam turbines with a capacity of 250MW each. Status ? MEW has awarded contract to Siemens and Alghanim International to convert the Al Zour south power plant to combined cycle. www.uktradeinvest.gov.uk Page 3 of 9 Power ? Kuwait Shuaiba North: The proposed plant will be gas fired with a generating capacity of 500MW and 60 MIGPD seawater (MSF) desalination plant. Status : The EPC contract was awarded to the consortium of Mitsui & Co. (will manage the contract), GE Energy (will supply and install the 9FA turbines), Fisia Italimpianti (will build the desalination plant), and Hyundai Engineering & Construction (will carry out the civil engineering and construction of the power plant. Subiya: The project will consist of two phases. The first phase will add a capacity of 1,300 MW to the electricity grid in 2011. The second phase will increase the capacity by 700 MW in 2012. The primary fuel will be natural gas, with distillate as a the second fuel. Mina Al Ahmadi refinery will supply the fuel feedstock by a pipeline. Status - MEW has awarded the contract to build the power plant to the consortium of General Electric / Hyundai Heavy Industries. GE will supply and install its gas and steam turbines and Hyundai Heavy Industries will carry out civil construction works. In October 2009, the site preparation works started Failaka: The proposed plant will consist of four gas turbines and one steam turbine of a total minimum net output capacity of 180MW. Status - On hold The above projects will without doubt provide ample opportunities for UK companies to supply their products and services relating to the power sector mainly as sub contractors. In addition, maintenance of Kuwait?s current power network provides plenty of opportunities for the supply of spare parts, specialised maintenance contracts and consultancy services. There is also a need for innovative and clean technology to improve efficiency of turbines at the new plants. Kuwait power shortage With the temperature in Kuwait during the summer reaching as high as +50ºC, a large portion of the population choose to flee the country seeking cooler destinations, leaving the remaining population with little choice but to rely on high power consuming air-conditioning to escape the brutal heat. However, the reason for the country's power crisis is blamed on the government's poor management and indecisiveness in executing power projects. Over the summer of 2006, Kuwait witnessed power cuts which has led the government to take a number of steps in averting a repeat of last summer's situation. Through various emergency projects, the MEW currently has total installed capacity of 10.200MW. In a move to evade a repition of the power crisis faced, the MEW has signed contracts totalling over $2billion for the fast track installation of almost 1,750MW of emergency power generating capacity. The power situation was critical enough for the MEW to have been in direct negotiation with companies for the contracts bypassing the Central Tenders Committee (CTC). Under Tender Law No 37 of 1964, which regulates public sector contracts, the CTC oversees the tenders of all government contracts valued over KD 5,000. The power and water shortage in the country has been a relative hot topic of discussion in the National Assembly and the local press. The social and political consequences of the situation Kuwait finds itself is considered by many Kuwaitis to www.uktradeinvest.gov.uk Page 4 of 9 Power ? Kuwait be quite worrying. With Kuwait considered to be one of the richest nations on the planet (taking into consideration its Per Capita Income), and with its huge money reserves and oil capacity, many Kuwaitis and experts find it inexcuseable for the country to find itself in its current situation. Experts have warned that unless new substantial capacity is brought into stream, will the problem of power shortage continue. For which the MEW need to take more rapid and timely decisions in the execution of projects. There is also call for the revision of outdated contracting regulations to attract foreign companies to participate in upcoming infrastructure projects. Experts have also suggested that price for power and water be increased to rationalise its usage. UKTI publishes international business opportunities gathered by our network of British Embassies, High Commissions and Consulates worldwide. These opportunities appear in the Opportunities portlet on the relevant sector and country pages on the UKTI website. By setting up a profile you can be alerted by email when relevant new opportunities are published. New or updated alert profiles can be set in My Account on the website. CHARACTERISTICS OF MARKET Kuwait?s first power plant was established in 1934 by the National Electricity Company. However, in 1951 with the government having bought stakes in the National Power Company, the Ministry for Electricity and Water was instituted. Today Kuwait has five power stations (Doha East, Doha West, Al Subiya, Shuaiba South and Al Zour South) with a total electrical generation capacity of about 10.2 gigawatts (GW). The country?s per capita electricity consumption is amongst the highest in the world with reliance on desalination for its water supply, heavy dependence on air-conditioning during summer and the high-subsidised rates to the consumer, which offer little incentive for the rational use of power have contributed to high consumption levels. Kuwaitis pay among the lowest prices for power in the world. The government charges a highly subsidised rate of 2 fils per kWh while the cost of production is between 20 - 25 fils per kWh. Given current per capita consumption, this amounts to a subsidy of somewhere in the region of $2 billion a year. Social factors such as fast rising population (3.3 per cent a year) and state funded welfare system which writes off power bills owed by citizens are also some of the reasons that are putting upward pressure on the power demand. Kuwait?s power demand has been growing rapidly and is expected to increase at 7- 9 percent, which is well above the world average of 3 - 4 percent. This trend has become a threat to the 20 percent spinning reserve capacity the ministry maintains at its power plants. Despite the above, Kuwait has remained one of the few GCC states that has stubbornly resisted privatisation. However, there has been change in this stance with the government launching its first ever independent water and power project (IWPP) at Al Zour. The IWPP will not be overseen by the Ministry of Electricity and Water. Instead, the Partnerships Technical Bureau will lead the country?s (PPP) programmes. www.uktradeinvest.gov.uk Page 5 of 9 Power ? Kuwait In the absence of private collaboration in power projects, the Kuwaiti government is faced with the need to spend ever more heavily on meeting the widening gap between demand and supply. In its route of combating the widening gap between supply and demand the Ministry of Electricity and Water (MEW) will be introducing prepaid service for electricity consumption for the general public which is also expected to include citizens. This move is seen as a means to curtail the non- payment of electricity bill. However, the general consensus is that it is unlikely to be implemented for kuwaiti citizens. If true this would defeat the object as they account for majority of the unpaid electricity bills. With domestic demand steadily growing at 7 - 9 percent, the government is still pressing ahead with arrangements to import gas. Iraq and Iran remain the main import options, as Kuwait is both unable to attain permission from Saudi Arabia for the construction of the undersea pipeline from Qatar, and Qatar is not prepared to make available more gas for export beyond its present commitments. Currently Kuwait?s power plants are fired by heavy fuel oil. The planned refining complex was primarily envisaged to service the country?s future power needs. However, both for environmental reasons and the ability to increase oil exports, the government is keen to see gas play a bigger role in fuelling power generation and water desalination plants in the country. GCC power grid project As a means to relieve the power shortage in the foreseeable future, the government has accepted a proposal to link up with the grids of other GCC countries. In theory the grid linkup would provide each GCC country with additional spare capacity to handle demand during summer. However, as observers have pointed out, peak demand is the same throughout the GCC and without plans to provide greater spare capacity the scheme seems unlikely to achieve its stated objective. The GCC power grid Phase I will connect Saudi Arabia, Kuwait, Bahrain and Qatar. The grid will have a capacity of 1,200MW and Phase I was completed in July 2009. Phase two will link Oman and the UAE. In the third phase, the two systems will be linked completing the regional grid. The estimated cost for phase one is $1.2 billion, while phases two and three are estimated to cost around $300 and $137 million respectively. The development costs of the GCC grid will be shared by all the GCC states. Upon completion of the project, Kuwait and Saudi Arabia will receive 1,200 MW of power capacity each, UAE will receive 900 MW, Qatar 750 MW, Bahrain 600 MW and Oman 400 MW. The project is overseen by the board of directors of the GCC Interconnection Authority (GCCIA). KEY METHODS OF DOING BUSINESS Kuwait?s Commercial Companies Law provides for the establishment of the following types of companies and ventures. ? Limited liability company ? Shareholding company ? Partnership ? Joint venture www.uktradeinvest.gov.uk Page 6 of 9 Power ? Kuwait ? Commercial agency ? Branch All the above, with the exception of ?joint venture? possess a separate legal identity. UK companies wishing to do business in Kuwait are advised to operate through a local agent or j/v partner. This is especially required for Government contracts. A local agent or partner will be more finely attuned to the local business environment and therefore, best suited to deal with complicated issues that may arise. The agent/partner can facilitate the required registration on approved supplier lists of appropriate government entities and companies. Choosing the right agent/partner and formulating an equitable agency agreement is therefore a critical element in doing business in Kuwait. The Trade & Investment section at the British Embassy can assist in identifying an appropriate local representative. For further details on commissioning our services or obtaining further information on Kuwait?s agency law and tendering procedures, kindly contact the Embassy Or UK Trade & Investment (UKT&I) Kuwait Desk at Kingsgate House, 66-74 Victoria Road, London SW1E 6SW, tel. 0207 215 4949, Contact Mr Carl Bruce, email carl.bruce@ukti.gsi.gov.uk Other background information on doing business in Kuwait can be found on UKTI?s website. Simply go to the Kuwait country page where you will find information on: ? Economic background and geography ? Customs & regulations ? Selling & communications ? Contacts & setting up ? Visiting and social hints and tips MORE DETAILED SECTOR REPORTS When considering doing business in Kuwait, it is essential to obtain business, legal and financial/taxation advice. For further details, please contact: For more information in the power sector in Kuwait contact UKT&I International Sectors Group (ISG1) at Bay 425 Kingsgate House, 66-74 Victoria Street, London SW1E 6SW, Tel. 020 7215 4639 Email : Bob.Bish@ukti.gsi.gov.uk Contact : Mr Bob Bish The British Embassy ? Trade & Investment Section, Kuwait Tel. 00 965 2259 4367 Fax 00 965 2259 4368 Email : elvis.noronha@fco.gov.uk Contact : Mr Elvis Noronha, Trade & Investment Officer Research is critical when considering new markets. UKTI provides market research services which can help UK companies doing business overseas including: www.uktradeinvest.gov.uk Page 7 of 9 Power ? Kuwait ? Overseas Market Introduction Service (OMIS). Bespoke research into potential markets, contacts and support during your visits overseas. ? Export Marketing Research Scheme. Advice on market research and help to contact subsidised market research administered by the British Chambers of Commerce on behalf of UKTI. Contact your local International Trade Advisor if you are interested in accessing these services, or for general advice in developing your export strategy. PUBLICATIONS ? ?Middle East Economic Digest?, MEED, www.meed.com, published by MEED, 33- 39 Bowling Green Lane, London EC1R ODA United Kingdom ? ?Middle East Electricity?, MEE, www.mee.antfx.com published by Media House Azalea Drive, Swanley, Kent BR8 8HU United Kingdom EVENTS ? POWER-GEN Middle East (Manama, Bahrain) held annually in January. POWER-GEN Middle East is the region's premier power conference and exhibition. It is attended by senior personnel from government organisations, project developers, project finance companies, consultants, utility companies, independent power producers, major oil operating companies and state-owned oil companies. The event offers opportunities for international and national industry professionals to further their aims in the rapidly expanding power market. POWER-GEN Middle East presents a unique platform from which the market can develop to meet the region's power requirements, share information and conduct business in a face-to- face environment. ? Middle East Electricity & Exhibitions (Dubai, UAE) held annually in February. Middle East Electricity is the largest and most significant showcase of products and services for the energy industry in the Middle East and North Africa. The event features over 800 exhibitors from 51 countries and 18 country pavilions, including the world leaders in electricity, power generation, lighting, new and renewable energy and gas - each of which has a dedicated focus area within the exhibition. Middle East Electricity Exhibition is internationally recognised as the power behind the Middle East Energy industry, and rated by exhibitors and visitors as one of the world's top events of its kind. ? Power Generation & Water Middle East (Abu Dhabi, UAE) www.uktradeinvest.gov.uk Page 8 of 9 Power ? Kuwait Power Generation & Water Middle East provides a unique platform for regional and international organisations to showcase their products and services for the power, water and energy sector. Sizeable increases in population and commercial activities have led to significantly higher demand for power, water, gas and new & renewable forms of energy within the Abu Dhabi emirate and across the region. UK Trade & Investment?s Tradeshow Access Programme (TAP) can help eligible UK businesses take part in overseas exhibitions. Attendance at TAP events offers significant benefits: ? possibilities for business opportunities both at the show and in the future ? a chance to assess new markets and develop useful contacts ? grants are available if you meet the criteria ? UKTI staff overseas will be available to assist delegates Find out if you are eligible to apply to attend this event, and more about the support UKTI can offer, on the UKTI Market Entry web page. Details of TAP events can be found in the Events portlet on the [country] page. Other Market Visit Support may be available via your local International Trade Advisor. CONTACT LISTS Ministry of Electricity & Water P O Box 12 Safat 13001 Kuwait Tel: 00965 2537 1000 Fax: 00965 2537 1460 Web: www.moo.gov.kw Ministry of Commerce & Industry P O Box 2944 Safat 13030 Kuwait Tel: 00965 2248 0000 Fax: 00965 2246 5103 Web: www.moci.gov.kw Ministry of Public Works P O Box 8 Safat 13001 Kuwait Tel: 00965 2538 5148 Fax: 00965 2539 5532 Web: www.mpw.gov.kw Kuwait Chamber of Commerce & Industry P O Box 775 Safat 13008 Kuwait Tel: 00965 1805 580 Fax: 00965 2243 3858 Web: www.kcci.org.kw www.uktradeinvest.gov.uk Page 9 of 9 Power ? Kuwait UKTI?s International Trade Advisers can provide you with essential and impartial advice on all aspects of international trade. Every UK region also has dedicated sector specialists who can provide advice tailored to your industry. You can trace your nearest advisor by entering your postcode into the Local Office Database on the homepage of our website. For new and inexperienced exporters, our Passport to Export process will take you through the mechanics of exporting. An International Trade Adviser will provide professional advice on a range of services, including financial subsidies, export documentation, contacts in overseas markets, overseas visits, translating marketing material, e-commerce, subsidised export training and market research. www.uktradeinvest.gov.uk Page 10 of 9
Posted: 22 September 2010