INDEPENDENT POWER PLANTS (IPP)

PROGRAM

INVESTMENT OPPORTUNITIES IN IPP PROJECTS

BY
DR AMER M. AL-SWAHA
HEAD OF IPP PROGRAM
JUNE 2007

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 CONTENTS

1. INTRODUCTION
2. HISTORICAL SUMMARY OF SEC POWER DEMAND
3. WHY IPP (INDEPENDENT POWER PLANT)?
4. INVESTMENT ENVIRONMENT
5. IPP IMPLEMENTATION
6. INITIAL PROJECTS OF THE IPP PROGRAM
7. DETAILS OF SEC IPPs
8. IPP PROGRAM SCHEDULE
9. PROJECT CONTRACTUAL RELATIONSHIPS
10. DEVELOPMENT STAGES
11. OPPORTUNITIES
12. CONCLUSION

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 INTRODUCTION

SAUDI ELECTRICITY COMPANY WAS ESTABLISHED IN 2000, BY

MERGING ALL SAUDI REGIONAL ELECTRICITY COMPANIES TOGETHER
WITH PROJECTS OF THE ELECTRICITY CORPORATION INTO A SINGLE
ENTITY
THE SAUDI GOVERNMENT OWNS 81% OF SEC SHARES
IN 2006 , SEC POWER GENERATION WAS 31 GW COMPARED TO 1.4 GW
IN 1976.
NUMBER OF PRESENT POWER PLANTS IS 70 , IN 2006
SEC HAS PURCHASED 4 GW FROM SWCC AND LARGE CUSTOMERS, IN
2006 , THIS WILL RAISE TO 21 GW DUE TO FUTURE IPP/IWPP PROJECTS
CURRENT SEC POWER TRANSMISSION INCLUDES 132/230/380 KV
VOLTAGES WITH 380 KV INTERCONNECTIONS BETWEEN CENTRAL &
EASTERN REGIONS AND FUTURE LINK TO GCC NETWORKS (UNDER
CONSTRUCTION)
ESTIMATED CAPITAL EXPENDITURE OF SEC FOR THE NEXT 10 YEARS IS
SR 190 BILLION

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HISTORICAL SUMMARY OF SEC POWER DEMAND

THE HIGH GROWTH IN POPULATION AND ELECTRICITY POWER

DEMANDS IS SHOWN BELOW FOR:

YEAR 1976
POPULATION 7.7 MILLION
POWER DEMAND 0.9 GW
YEAR 2006
POPULATION 23.7 MILLION
POWER DEMAND 29.9 GW
YEAR 2024
POPULATION 50 MILLION
POWER DEMAND 70 GW

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 WHY IPP?

MASSIVE INVESTMENTS TO MEET HIGH GROWTH RATE IN BOTH

RESIDENTIAL AND INDUSTRIAL DEMANDS
ATTRACT PRIVATE SECTOR INVESTMENTS (FOREIGN & LOCAL) IN
POWER INDUSTRY
EXPAND CITIZENS OWNERSHIP THROUGH FUTURE INITIAL PUBLIC
OFFERINGS
INCREASE SAUDI EMPLOYMENT OPPORTUNITIES
PROVIDE A FINANCIAL OPTION TO RE-DIRECT AVAILABLE SEC FUNDS
TO TRANSMISSION AND DISTRIBUTION
AVOID MISMATCH BETWEEN LONG POWER PLANTS LIFE AND SHORT
TO MEDIUM FINANCING TERMS
MATCH BETWEEN THE PAY BACK OF CAPITAL INVESTMENT AND ITS
RETURN THROUGH THE TARIFF CHARGED TO CUSTOMERS WITH THE
PRICE PAID TO INDEPENDENT POWER PRODUCERS THROUGH THE
LONG TERM POWER PURCHASE AGREEMENTS

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 INVESTMENT ENVIRONMENT

ENABLING RULES AND REGULATIONS HAVE BEEN FORMULATED TO

ENCOURAGE PRIVATE SECTOR PARTICIPATION IN POWER SECTOR
INVESTMENTS
ESTABLISHMENT OF ELECTRICITY & CO-GENERATION REGULATORY
AUTHORITY (ECRA)
THROUGH:
- COUNCIL OF MINISTERS RESOLUTION # 169
(MERGER & RESTRUCTURING)
- THE ESTABLISHMENT OF SAGIA (INVESTMENT
ENVIRONMENT)
- PRIVATIZATION STRATEGY (POLICY SETTING)
- INVESTMENT LAWS (REGULATIONS)
- ELECTRICITY LAW (ROLE OF ECRA AND MOWE AND
PROTECTION OF RETURN ON INVESTMENT IN POWER
INDUSTRY).

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 IPP IMPLEMENTATION

THERE IS TREMENDOUS OPPORTUNITY FOR PRIVATE SECTOR TO

PARTICIPATE IN IPP PROJECTS WITH A GOOD RETURN ON
INVESTMENT
SEC ASSURED PRIVATE INVESTMENT OF TOTAL COMMITMENT
SEC WILL BE THE SINGLE OFFTAKER OF POWER CAPACITY AND
OUTPUT FROM THE IPPs
SUPPLY THE PROJECTS WITH FUEL REQUIREMENTS
SEC WILL MONITOR POWER AND EFFIECIENCY OF FUEL
CONVERSION
SEC WILL BE RESPONSIBLE FOR THE BUILDING OF TRANSMISSION
LINE TO THE IPPs

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 INITIAL PROJECTS OF THE IPP PROGRAM

THREE PROJECTS WERE INITIALLY SELECTED AND THE PROGRAM

CONTEMPLATES ADDITIONAL PROJECTS
OWNERSHIP IN THE PROJECT COMPANIES:
1. SAUDI ELECTRICITY COMPANY (SEC) 10%
2. DEVELOPERS 60%
3. THIRD PARTY (IF ANY, OR ADDITIONAL
SEC OR DEVELOPERS STAKE) 30%
THE PROJECTS TO BE IMPLEMENTED ON A BUILD, OWN AND
OPERATE (BOO) BASIS
UTILIZE THE ENERGY CONVERSION AGREEMENT (ECA) MODEL TO
PROVIDE FUEL TO THE PROJECTS COMPANIES
SEC SHALL ALLOCATE THE LAND SITES FOR THESE PROJECTS
THROUGH A LAND LEASE AGREEMENT (LLA) FOR EACH OF THE
PROJECT COMPANY LIFE TIME (CONTRACTUAL PERIOD)

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 INITIAL PROJECTS OF THE IPP PROGRAM - CONTD

THE FIRST GROUP OF PROJECTS THAT WERE SELECTED ARE:

1. RABIGH (A NEW POWER PLANT AS AN EXPANSION IN RABIGH
TO THE PRESENT SEC POWER PLANT CAPACITY)
2. RIYADH PP11 (A NEW POWER PLANT SITE)
3. QURAYAH (A NEW POWER PLANT AS AN EXPANSION IN
QURAYAH TO THE PRESENT SEC POWER PLANT
CAPACITY)
WITH INVESTEMENT POTENTIAL OF ABOUT SAUDI RIYAL 21,000
MILLIONS
LOCATIONS:
1. RABIGH 140 KM NORTH OF JEDDAH CITY, WESTERN
PROVINCE, SAUDI ARABIA
2. RIYADH PP11 - RIYADH CITY, SAUDI ARABIA
3. QURAYAH EASTERN PROVINCE, SAUDI ARABIA

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 DETAILS OF SEC IPPs

1. RABIGH POWER PLANT

POWER : 1200 MW
FUEL : HFO (HEAVY FUEL OIL)
Estimated Capital Cost : SR 5,000 MILLION
RFP ISSUE : DECEMBER 2007
ICOD : APRIL 2012
(INITIAL COMMERCIAL OPERATION DATE FOR THE 1ST UNIT)
PCOD : APRIL 2013
(ENTIRE PROJECT COMMERCIAL OPERATION DATE)

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 DETAILS OF SEC IPPs

2. RIYADH POWER PLANT 11

POWER : 2000 MW
FUEL : GAS
Estimated Capital Cost : SR 8,000 MILLLION
RFP ISSUE : AUGUST 2008
ICOD : APRIL 2013
PCOD : APRIL 2014

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 DETAILS OF SEC IPPs

3. QURAYAH POWER PLANT

POWER : 2000 MW
FUEL : HAC (Heavy Arab Crude oil)
Estimated Capital Cost : SR 8,000 Million
RFP ISSUE : AUG 2009
ICOD : APRIL 2014
PCOD : APRIL 2015

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 IPP PROGRAM

IMPLEMENTATION STAGGERED OVER 2007- 2010

TO MEET SUMMER DEMAND AS FOLLOWS:

2012 600 MW
2013 1600 MW
2014 2000 MW
2015 1000 MW

TOTAL 5200 MW

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 PROJECT CONTRACTUAL RELATIONSHIPS

IPP Developers Other Investors

SEC

Shareholders Agreement Financing

Institutions
Construction
Contractor
Financing Agreement
EPC contract
Project Company Land Owner
Land Lease Agreement (or Provided by
SEC)
Operator O&M contract

Fuel Supplier

Implementation Agreement (if any) Power

Purchase Agreement
Fuel Supply Agreement
Government Off-taker

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 DEVELOPMENT STAGES

PUBLIC REQUEST FOR EOI EXPRESSION OF INTEREST FROM

DEVELOPERS THROUGH ISSUE OF EOI FORM
ISSUE RFQ REQUEST FOR QUALIFICATIONS FORMS TO
INTERESTED DEVELOPERS TO STATE THEIR SOQ-STATEMENT OF
QUALIFICATIONS FOR THOSE WHO EXPRESSED THEIR INTEREST
BY FILLING EOI FORMS
SUBMITTAL OF SOQ FROM DEVELOPERS
EVALUATION OF SOQ
ISSUE LIST OF QUALIFIED DEVELOPERS (BOTH FULL ACCEPTANCE
AND CONDITIONAL ACCEPTANCE)
ISSUE RFP REQUEST FOR PORPOSAL PACKAGE TO QUALIFIED
DEVELOPERS

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 DEVELOPMENT STAGES - CONTD

PREPARATION OF BID PROPOSALS BY DEVELOPERS

SUBMITAL OF BIDS
EVALUATION OF BIDS
SHORT LISTING OF BIDS
NEGOTIATION WITH LOWEST BID
SIGN PPA
FINANCIAL CLOSE AND PROCEED WITH PROJECT
ICOD
PCOD

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 OPPORTUNITIES

OPPORTUNITIES IN POWER GENERATION FIELD FOR:

DEVELOPERS
FINANCIAL/INVESTMENT/BANKS
CONSULTANTS
DESIGN & ENGINEERING SERVICE PROVIDERS
CONSTRUCTION, INCLUDING CIVIL WORKS, CONTRACTORS
OPERATION AND MAINTENANCE CONTRACTORS
MATERIAL & EQUIPMENT SUPPLIERS
MAN POWER
TRAINING SERVICE PROVIDERS

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 OPPORTUNITIES - CONTD

THERE IS FURTHER UNIQUE AND VERY SIGNIFICANT INCENTIVE

FOR THE DEVELOPERS IN THESE IPPs. THE DEVELOPERS ARE NOT
BOUND BY THE DETAILED TENDER SPECIFICATION OF EPC
CONTRACTS, BUT GENERAL REQUIREMENTS.
THESE IPPs HAVE PERFORMANCE BASED FUNCTIONAL
SPECIFICATION AND THE DEVELOPER IS FREE TO ADOPT
TECHNOLOGICAL INNOVATION/IMPROVEMENT (I.E. IMPROVEMENT
IN PERFORMANCE RATIO, AMALGAMATION OF DIFFERENT
TECHNOLOGIES ETC.)

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 OPPORTUNITIES - CONTD

THIS APPROACH OFFERED TO DEVELOPERS WILL YIELD

SUSBTANTIAL IMPROVEMENT IN PLANT CAPITAL COST,
PERFORMANCE AND EFFICIENCY TO YIELD VERY
COMPETITIVE PRICES.
SEC SHALL BUILD THE REQUIRED OVERHEAD
TRANSMISSION LINES (OHTL) TO INTERCONNECT IPP
PLANTS WITH THE SEC GRID.
SEC WILL BEAR ALL THE COSTS OF INTERCONNECTION
WORKS TO THE GRID.
SEC HAS ALREADY STARTED CONSTRUCTION OF
INTERCONNECTION TO THE TRANSMISSION GRID FOR
IWPP WEC PROJECTS FOR THOSE UNDER CONSTRUCTION.

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 CONCLUSION

THESE THREE IPPs WILL BRING NEW PPORTUNITIES

IN THE ELECTRIC POWER INDUSTRY IN THE
KINGDOM OF SAUDI ARABIA THAT WILL GENERATE
SUSTAINED YIELDS FOR INVESTORS AND PUBLIC.

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 CONTACT DETAILS

FOR FURTHER INFORMATION PLEASE CONTACT:

DR AMER M. AL-SWAHA
HEAD OF IPP PROGRAM
TEL: +9661 4619006
FAX: +9661 4619016
EMAIL: Swaha.am@se.com.sa or IPP@se.com.sa
WEBSITE: WWW.SE.COM.SA

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THANK YOU

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