Mena Leads the Way: Before Commiting Themselves to Large Scale Investment in IWPPs, Investors Need Assurances of Success. (Business & Finance)

Article excerpt

Largely through necessity, the Middle East has become one of the world's leading centres for the development of desalination technology. Low or non-existent rainfall coupled with rapid population growth has prompted investment in developing new methods of transforming seawater into potable water by governments, private companies and academic research departments. The result has been the construction of a string of new desalination plants across the region, from Algeria in the west to the UAE in the east.

Plants either take shape as water and power projects (WPPs), owned by state water or power companies, or increasingly as independent water and power projects (IWPPs), which are owned by private companies. The IWPPs operate in the same way as standard independent producer producers (IPPs), selling their output to a national grid for transmission and distribution. The key difference is that they must sell both power and water production, and therefore operate within two regulated markets.

The fact that IWPPs are becoming a more popular option highlights the steps towards economic liberalisation and deregulation that are gradually being taken across the Middle East. Investors must be very confident that the operational and regulatory environment will remain secure and profitable in the long run before committing themselves to the kind of infrastructural investment that only pays off over decades.

The key to the latest spate of plant construction has been a major advance in desalination technology. Fresh water has always been produced in such plants by passing sea water through a membrane but now plastic membranes have replaced the cellulose model. Allied to the improved taste of desalinated water produced by this reverse osmosis technology, the process reduces production costs and makes the production of potable water much easier.

The attractiveness of such plants has also been boosted by falls in the cost of the power produced by desalination plants. The International Desalination Association (IDA) predicts that IWPPs will be able to compete with other forms of power generation when production costs fall to $0.50 per cubic metre of water and $0.02 per kilowatt hour (kWh) of power. Only 10 years ago costs were almost double this, but the ground breaking Al Taweelah A2 plant is operating on costs only around 25% higher. On current trends it seems only a matter of time before they become internationally competitive.

The Middle East Desalination Centre (MEDC) in Muscat, Oman, is at the heart of attempts to improve production techniques yet further. The centre was set up in 1994 with the support of the US, Israeli, Omani and Japanese governments, as the result of recommendations made by the Multilateral Working Group on Water Resources--part of the Middle East peace process--and is designed to promote desalination technology for the benefit of everyone in the Middle East. The centre is currently seeking to co-ordinate global research and development in the sector.

Saudi Arabia undoubtedly leads the way in putting technology into practice with 17% of global desalinated water production capacity and a range of desalination units spread around 30 plants. The massive Al Jubail plant with generating capacity of 1500MW and 900,000 cubic metres of water a day (cm/d) is the biggest plant in the region but is set to become even larger thanks to a $2.2bn expansion contract which has been awarded to Sumitomo Corporation. Elsewhere in the region, other major projects are underway in Abu Dhabi, Qatar and elsewhere.

The success of Abu Dhabi's Al Taweelah complex appears to have prompted Kuwait to push ahead with its own plans for the construction of a 375,000 cm/d desalination plant at Sulaibiya. The tender for the 700 MW L plant in Dubai was launched at the end of 2002, while the Omani government is set to commission the $411m Barka IWPP from AES Corporation. …