psmec - private sector - s5 dr madani alaqi
DESCRIPTION
The Private Sector Middle East Conference, Riyadh, Saudi Arabia, Dec 3rd, 2013. Hosted by the Saudi Chambers of Commerce -- Session 5 - H.E. Dr. Madani Alaqi - Former State Minister - Saudi Arabian & Chairman, Shuqaiq Water and Electricity Company (SqWEC) - an ACWA Power project companyTRANSCRIPT
How it can contribute more to growth of electricity
and desalinated water sector in Saudi Arabia
(case of Shuqaiq Water and Electricity Company)
1
Public Private Partnership
A Conference on Economic Growth, Government Policies, and the Private Sector
Dec 3rd, 2013 Riyadh, Saudi Arabia
Dr. Madani Alaki
Contents
Importance of Infrastructure Investment
PPP, Benefits and Opportunities
PPP in KSA Power & Water Sectors
Shuqaiq Case Study
Conclusions / Recommendations
2
1
2
3
4
5
1.0 Importance of Infrastructure Investment
Ensures effective functioning of the economy
Determines location of the economic activity
Plays an important role in determining the kinds of activities and
sectors that can develop in the economy
Reduces the effect of distance between regions
Integrates the national market and connects it at low cost to
markets in other countries and regions
Impacts economic growth and affects income inequalities and
poverty
Source: Global Competitiveness Report 2010-2011
3
4
2.0 PPP, Benefits & Opportunities
2.0 Public Private Partnership
“while recognizing the importance of investment in infrastructure to help their economies grow, governments are increasingly turning to the private sector
as an alternative additional source of funding to meet the funding gap”
The World Bank
5
••
••
••
••
•
•
Design/Build
Operations & Maintenance
Build/Finance
Build/Finance/Maintain
Lease/Develop/Operate
Design/Build/Finance/Maintain
Design/Build/Finance/Operate
Design/Build/Finance/Operate/Maintain
Build/Own/Operate
Concession
Degree of Private Sector Involvement
De
gre
e o
f P
riva
te S
ect
or
Ris
k
Public Private Partnership (PPP) is a government service or a private
business venture which is funded and operated through a partnership of
government and one or more private sector companies.
PPP is the ideal choice because:
it address Saudi Arabia’s infrastructure needs as it reduces the capital
burden on the government and
delivers the best technical solution, on time and within budget since it
engages the private sector in a highly competitive manner
2.0 What is Public Private Partnership?
6
3.0 PPP in KSA
Power and Water Sectors
7
3.1 Power: Actual & Forecast Peak Load (GW)
Source: ECRA
8
31
38
46
52
57
62
68
75
0
10
20
30
40
50
60
70
80
2006 2008 2010 2012 2014 2016 2018 2020
3.2 Forecast Desalinated Water Demand
(million m3/Day)
5.5
7.0
9.0
11.0
0
2
4
6
8
10
12
2000 2010 2020 2030
9
3.3 Power/Water; Major Part of KSA Infrastructure Investment
60%20%
20%Transport
Utilities
SocialInfrastructure
The utilities sector
(power and water)
represent 20% of the
infrastructure projects
to be undertaken by
the Kingdom until
2020
Source: Zawya, “KSA has fat infra project pipeline of USD 209m till 2020”
10
3.4 Challenges & Opportunities
11
Challenges
High Demand Growth, fueled by population and in particular the ever growing younger populations segments.
Replacing old inefficient production capacity.
Rapid growth in Commercial & Industrial Sector
Opportunities
Developing human resources, technology, know-how through collaborative partnerships
Providing opportunities for private sector development
Developing financial and capital markets
Improving efficiency through competition and profit incentives
3.5 PPP shifts the various project risks
from the Government to the Private
Sector
12
3.6 Delivering Value Through PPP
Capital Cost
Operating Cost
Financing cost
Conventional PPP
The difference in the Unit cost ofElectricity or Water or what ever other municipal services
Total cost of providing a service$/kWh of electricity or
$/cm water
Arguably governments
can borrow at a lower
cost efficiency gains
could be phenomenal….
13
3.7 PPP Projects Completed and in Pipeline
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Sad
af IP
P
Tih
ama
ISP
P
Pe
tro
Rab
igh
IWSP
P
Shu
aib
ah IW
PP
Shu
aib
ah IW
P
Mar
afiq
Ju
bai
IWP
P
Shu
qai
q IW
PP
Rab
igh
IPP
Riy
adh
PP
11
IPP
Qu
rayy
ah IP
P
Pro
ject
val
ue
in M
illio
n U
S$
Fully operational
Under
construction
14
3.8 KSA PPP Experience; A Success Story
Over USD 20 Billion of capital has been attracted to this sector. This is the proof
of how well the procurement process, the contracts that underpin the
programme and the credit risk is viewed.
The issue of Sovereign Guarantee - Entirely to do with the
standalone credit capacity of the off taker. SEC PPAs are the only
ones with no sovereign guarantee.
Each tender bids attract a wide enough number of credible participants. Typical
range is five consortiums.
On a normalized (comparable basis) Saudi power and desal water tariffs are the
lowest in the region and each successive bid reduces cost. (a reflection of the space
in each bid for innovation, competitive capex procurement and access to deeper pool
if liquidity which in turn significantly lowers debt pricing all leading to lower tariff.
15
4.0 Shuqaiq IWPP Case Study
16
A Public Private Partnershipmodel to follow?
4.1 Shuqaiq IWPP today
Shuqaiq Water and Electricity Co. “SqWEC”(Shuqaiq IWPP): Located at a remote site,with Arabian heavy crude oil as fuel, this plantutilizes steam for power production andreverse osmosis technology for desalination.
Project Details Snapshot
17
Project Cost USD 1.8 B (SAR 6.8 B)
Power Capacity 850 MW
Water Capacity 212 000 m3/day
Contract Type 20 Yr PWPA - BOO
PCOD May 2011
4.2 Shuqaiq IWPP framework
18
PIF, SEC, ACWA Power, Mitsubishi, GIC
(Public & Private Shareholders)
Project Company WEC(Offtaker)
Banks
Power & Water Purchase Agreement
Financing Agreements
NOMAC(O&M
Contractor)
Mitsubishi Heavy Industries
(EPC Contractor)
O&M Contract
EPC Contract
Shareholder Agreements
Aramco
Fuel Supply Arrangements
SECSWCC
Water Power
19
Ahead of schedule,
Within budget,
With continued ability to deliver value,
Within set quality standards, under Independent control,
And complying to all International Environmental requirements
4.3 Shuqaiq IPP under the PP Model:
A Success Story
4.4 Private Sector Innovation - Delivering
Value in Shuqaiq Pre Bid
Introducing competitive tension by engaging the private sector, the PPP model ensures that the most optimal technical solution is selected for the project.
In the case of Shuqaiq, developer proposed different technology option that finally led to :
No steam means smaller boiler
Less fuel lead to lesser emissions and smaller treatment facilities
Lower quantity of sea water to be drawn in and process water discharged thereby protecting the shallow reef
Saving from original construction price
USD 0.45 BUSD
20
As a result, the lowest tariff was 17% lower than the second lowest tariff, implying savings to the public
sector of SAR 2.3 Billion (NPV of the difference between the lowest two tariffs)
5.0 Conclusions / Recommendations
21
• KSA power/water sector remains an attractive space for PPP development, which has so far been able to deliver its promise on efficiency, reliability and delivery at least cost.
Conclusions
• Success of Power/Water PPP Projects can be successfully replicated to other sectors of infrastructure development
• Ongoing power/water sector reforms should be accelerated to allow more transparency and space for the PPP
• Policies should be directed towards translating the fruits of PPP for further development and deepening of the financial and capital markets of KSA
Recommendations
Thank You
22